September closes in the black; primary in focus as Q4 begins

Bonds

Municipals saw some weakness up front while U.S. Treasuries saw losses across the curve after Federal Reserve Chairman Jerome Powell signaled the Fed’s rate-cutting schedule was not yet certain as the U.S. economy remains strong. Equities closed in the black.

USTs saw the largest losses on the short-end, with yields rising up to 7 basis points on the one- and two-year note, which pushed one-year municipal yields higher as well.

The two-year muni-to-Treasury ratio Monday was at 63%, the three-year at 64%, the five-year at 65%, the 10-year at 69% and the 30-year at 85%, according to Refinitiv Municipal Market Data’s 3 p.m. EST read. ICE Data Services had the two-year at 65%, the three-year at 65%, the five-year at 66%, the 10-year at 70% and the 30-year at 85% at 4 p.m.

Municipals outperformed USTs as investors await another robust new-issue calendar. The secondary muni market has been less of the focus, with lower bids wanted averages over the month as more investors focus on the large number of credits pricing in the primary.

“September’s daily bid list average is $907 million as compared to $1.09 billion in the prior eight months (Bloomberg figures),” noted Kim Olsan, senior fixed-income portfolio manager at NewSquare Capital. 

Olsan looked at selling pressure from March and May, which was elevated at that time when $67 billion was returned to investors in principal repayments but total new-issue supply was $130 billion. That pressure forced the 10-year AAA Bloomberg BVAL yield from below 2.50% to above 3.00%, she said.

The summer reinvestment period between June and August brought reinvestments totaling $126 billion “but supply was more aligned at $138 billion.”

“Yields trended lower from the start of June into August as bid list volume declined — the 10-year AAA BVAL traded from 3.08% to 2.42%,” Olsan said.

“The final month of Q3 has been a tale of higher excess demand away from what implied reinvestments/supply would have indicated, bringing with it lower selling volumes,” Olsan said. ”Reduced secondary selling — along with broader support for fixed income allocations — has allowed benchmark muni yields to remain steady and well bid.”

Olsan noted the 10-year AAA BVAL range is a “narrow 7 basis points this month with the yield set to close the month through the year’s average of 2.64%.” The 10-year BVAL sits at 2.61% Monday at the close.

In October alone, offsetting reinvestment demand from principal repayments of calls and maturities is projected to be $26 billion. 

“Any supply/demand dislocation would likely be absorbed by dealers and/or crossover buyers due mainly to relative values remaining favorable,” Olsan said. “The latest Federal Reserve data regarding dealer inventories did indicate municipal inventories declined $2 billion in the latest week, indicating attrition occurred at the same time supply remain elevated.”

Bond Buyer 30-day visible supply sits at $15.62 billion, which Olsan noted was a figure that held to an average of $16.5 billion throughout September, 45% above the first eight months of the year.

“As September draws to a close, some dynamics may prevail in October but others could undergo a shift,” she said. ”One aspect that will continue is the level of supply coming to market.” 

September marks the ninth straight month of issuance gains year-over-year and the sixth consecutive monthly figure above $40 billion “as issuers benefit from favorable financing rates and investors remain committed at current levels,” Olsan noted.

September’s muni performance was in the black across the credit spectrum. The Bloomberg Municipal Index is returning 0.93% in September and 2.24% year-to-date while taxable municipals returned 1.65% in September and 5.53% in 2024 thus far.

“The start to October brings a diverse set of issues with three larger single-A rated credits,” Olsan said, noting the year-to-date return for single-A rated paper is 2.95%, or 71 basis points above a broad market index.

While high-yield has slightly underperformed investment grades in September (+0.85%), the outperformance in 2024 is large, with the High-Yield Index returning 7.42% year to date.

Daniel Close, Nuveen’s head of municipals, noted high-yield municipal bond inflows remained strong at $349 million last week, for $12.5 billion year-to-date.

“However, increasing investment-grade muni flows could put downward pressure on ratios,” he said. “This trend may allow duration to contribute to high-yield muni total return, along with yield, spread duration and credit selection.”

AAA scales
Refinitiv MMD’s scale saw a five-basis point cut on the one-year, but was left unchanged elsewhere: The one-year was at 2.55% (+5) and 2.30% (unch) in two years. The five-year was at 2.31% (unch), the 10-year at 2.63% (unch) and the 30-year at 3.52% (unch) at 3 p.m.

The ICE AAA yield curve was weaker on the short end: 2.56% (+2) in 2025 and 2.31% (unch) in 2026. The five-year was at 2.31% (unch), the 10-year was at 2.60% (unch) and the 30-year was at 3.49% (unch) at 4 p.m.

The S&P Global Market Intelligence municipal curve was little changed: The one-year was at 2.55% (+3) in 2025 and 2.32% (unch) in 2026. The five-year was at 2.32% (unch), the 10-year was at 2.61% (unch) and the 30-year yield was at 3.50% (unch) at 4 p.m.

Bloomberg BVAL was little changed: 2.49% (unch) in 2025 and 2.37% (unch) in 2026. The five-year at 2.35% (unch), the 10-year at 2.61% (unch) and the 30-year at 3.49% (unch) at 4 p.m. 

Treasuries saw losses.

The two-year UST was yielding 3.637% (+7), the three-year was at 3.546% (+7), the five-year at 3.558% (+6), the 10-year at 3.787% (+4), the 20-year at 4.181% (+4) and the 30-year at 4.126% (+3) at the close.

Primary to come:
The Dormitory Authority of the State of New York (A3/A-/A-/) is set to price Wednesday $1.027 billion of Northwell Health Obligated Group revenue bonds, consisting of $664.135 million of Series 2024A refunding bonds and $362.87 million of Series 2025A forward delivery bonds. Morgan Stanley & Co. LLC.

The California Community Choice Financing Authority (A2///) is set to price $995 million of clean energy project revenue bonds Series 2024C. Goldman Sachs & Co. LLC.

The Commonwealth of Kentucky State Property and Buildings Commission (Aa3//AA-/) is set to price Wednesday $600 million of Project No. 131 revenue bonds, serials 2025-2044. BofA Securities.

Massachusetts (Aa1/AAA//AAA) is set to price Wednesday $490.7 million of transportation revenue bonds, consisting of $150 million of revenue bonds, Series 2024A, serials 2044, 2047-2053, $125 million of Series 2024B revenue bonds, term 2054, and $215.7 million of revenue refunding bonds, serials 2025-2037, term 2044. BofA Securities.

The Ohio Water Development Authority (Aaa/AAA//) is set to price Tuesday $400 million of water pollution control loan fund green revenue bonds. RBC Capital Markets.

The Trustees of Columbia University (Aaa/AAA//) is set to price Wednesday $350 million of taxable corporate CUSIP bonds. Goldman Sachs & Co. LLC.

The Michigan State Housing Development Authority (Aa2/AA+//) is set to price Wednesday $300.2 million of single-family non-AMT mortgage social revenue bonds, serials 2025-2036, terms 2039, 2044, 2049, 2055, 2055. RBC Capital Markets.

The Michigan State Housing Development Authority (Aa2/AA+//) is also set to price Wednesday $144.705 million of taxable single-family mortgage revenue social bonds, serials 2025-2034, terms 2039, 2044, 2049, 2055. RBC Capital Markets.

San Antonio, Texas, (Aa1/AA+/AA/) is set to price Thursday $268.59 million of water system junior lien revenue bonds, Series 2024B. J.P. Morgan Securities LLC.

Colorado (Aa2/AA-//) is set to price Tuesday $262.335 million of Higher Education Health Sciences Facilities certificates of participation, serials 2027-2044, terms 2049, 2054. BofA Securities.

The Pennsylvania Turnpike Commission (A2/A+/A/A+) is set to price Tuesday $236.985 million of turnpike subordinate revenue refunding bonds, serials 2025-2044. Wells Fargo Bank, N.A. Municipal Finance Group.

Tampa, Florida, (Aaa/AAA/AAA/) is set to price Tuesday $233.35 million of water and wastewater system revenue bonds, serials 2025-2044, terms 2049, 2054. BofA Securities.

The Timpanogos Special Service District, Utah, (/AA/AA+/) is set to price $218.1 million of sewer revenue and refunding bonds, serials 2025-2044, terms 2049, 2054. BofA Securities.

The Florida Development Finance Corp. (B3/B//) is set to price Thursday $210 million of GFL Solid Waste Southeast LLC Project solid waste disposal revenue bonds, serials 2054. BofA Securities.

The New York City Transitional Finance Authority (Aa1/AAA/AAA/) is set to price $200 million of future tax-secured tax-exempt subordinate adjustable-rate bonds, Fiscal 2025 Subseries C-3. Morgan Stanley & Co. LLC.

The National Finance Authority (/A//) is set to price Wednesday $179.065 million of affordable housing social certificates, Series 2024-1 Class A. Wells Fargo Bank, N.A. Municipal Finance Group.

The IPS Multi-School Building Corp., Indianapolis, Indiana, (Aa2/AA+//) is set to price Wednesday $167.76 million of ad valorem property tax first mortgage refunding and improvement social bonds, serials 2025-2044, term 2046, Indiana State Aid Intercept Program. Stifel, Nicolaus & Company, Inc.

The Northeast Ohio Regional Sewer District (Aa1/AA+//) is set to price Wednesday $163.105 million of wastewater improvement refunding revenue bonds, Series 2024, serials 2025-2044, term 2046. Jefferies LLC.

The Dormitory Authority of the State of New York is set to price Wednesday $150 million of Columbia University revenue bonds, Series 2024A. BofA Securities.

Santa Clara, California, (/AA-/AA-/) is set to price Wednesday $113.56 million of Silicon Valley Power electric revenue bonds.  J.P. Morgan Securities LLC.

Competitive:
The New York Metropolitan Transportation Authority is set to sell $472.19 million of dedicated tax fund green Climate Bond Certified bonds at 10:45 a.m. eastern Tuesday. 

The New York Metropolitan Transportation Authority is also set to sell $399.74 million of dedicated tax fund refunding green Climate Bond Certified bonds at 11:15 a.m. eastern Tuesday. 

California is set to sell $150 million of veterans general obligation bonds at 11:30 a.m. eastern Tuesday. 

Minneapolis, Minnesota, is set to sell $123.59 million of general obligation bonds at 11 a.m. eastern Tuesday. 

The Virginia Transportation Board is set to sell $121 million of federal transportation grant anticipation revenue notes at 10:30 a.m. eastern Tuesday. 

Alexandria, Virginia, is set to sell $114.92 million of general obligation capital improvement bonds at 10:30 a.m. eastern Thursday.

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