Bonds

Massive primary, constructive secondary lead yields lower

It was a good day to be an issuer in the municipal primary market. With U.S. Treasuries rallying, municipals followed with triple-A benchmark yields falling as much as five basis points out long and more than $6 billion of new issues were digested in both competitive and negotiated markets, some deals seeing large repricings to lower yields.

Triple-A benchmarks saw bumps of one to five basis points. The 10-year muni is now falling closer toward 1% and the 30-year is down near 1.5%. The 10-year UST fell five basis points to land at 1.44% and the 30-year moved to 1.822%, or six basis points lower.

Since Friday, municipal yields have fallen back to late September lows and by as much as 15 basis points and 18 basis points on the 10- and 30-year since Nov. 1.

Municipal-to-Treasury ratios were at 54% in five years, at 75% in 10-years and 84% in 30-years, according to Refinitiv MMD’s 3 p.m. read. ICE Data Services had the five-year at 53%, the 10 at 76% and the 30 at 85%.

The primary led the secondary with large, state general obligation bonds from bellwether credits pricing with relative ease, though some participants noted there were still balances on some competitive deals. California’s $1.25 billion of competitive exempt and taxables came, some through triple-A benchmark yields. The District of Columbia led the negotiated market with $660 million-plus.

California sold $410.645 million of tax-exempt various purpose general obligation refunding bonds to J.P. Morgan Securities with 5s of 10/2029 at 0.99%, 5s of 2031 at 1.09% and 5s of 2037 at 1.27%, callable Oct. 1, 2031.

The state also sold $390.185 million of tax-exempt various purpose general obligation refunding bonds to Morgan Stanley & Co. LLC. Bonds in 10/2022 with. 5% coupon yield 0.10%, 5s of 2026 at 0.57% and 5s of 2028 at 0.85%, noncall.

California sold $299.515 million of taxable various purpose general obligation bonds to Wells Fargo Investment & Corporate Banking. Bonds in 10/2027 with a 1.5% coupon yield 1.43% and 1.95s of 2031 at 1.94%, noncall.

The state also sold $150.075 million of taxable various purpose general obligation bonds to Wells with 1.25s of 10/2023 at 0.47%, 1.25s of 2026 at 1.21%, 1.95s of 2031 at 1.94%, noncall.

Wisconsin sold $219.605 million of general obligation bonds to BofA Securities. Bonds in 5/2023 with a 5% coupon yield 0.20%, 5s of 2026 at 0.54%, 5s of 2031 at 1.02%, 5s of 2036 at 1.06%, 4s of 2041 at 1.35%, and 4s of 2042 at 1.38%, callable May 1, 2029.

The South Broward Hospital District (Aa3/AA//) sold $195.89 million of taxable hospital revenue bonds to Wells Fargo. Bonds in 5/2037 with a 3% coupon yield 1.91%, 2.5s of 2041 at 2.379%, 3s of 2046 at 2.38% and 3s of 2051 at 2.43%, callable May 1, 2031.

The issuer also sold $50 million of taxables to Morgan Stanley & Co. LLC with 2.85s of 5/2052 at 2.88%, callable May 1, 2031.

Snohomish County, Washington, (Aa1/AA+//) sold $125.78 million of limited tax taxable general obligation and refunding bonds. Bonds in 12/2022 priced at 0.25% par, 1.23% par in 2026, 1.83% par in 2031, 2.35% par in 2036, 2.5% par in 2040 and 2.625% par in 2043, callable Dec. 1, 2031.

Snohomish also sold $34.32 million of limited tax general obligation and refunding bonds to HilltopSecurities. No details were available.

In the negotiated market, RBC Capital Markets priced for the District of Columbia (Aaa/AA+/AA+/) $661.275 million, consisting of $404.765 million of general obligation bonds with 4s of 4/2024 at 0.32%, 4s of 2026 at 0.59%, 5s of 2031 at 1.19%, 4s of 2036 at 1.53%, 5s of 2041 at 1.53%, 5s of 2046 at 1.88%, 5s of 2051 at 1.70%, callable Feb. 1, 2031. The second tranche, $252.39 million of general obligation refunding bonds saw 5s of 2/2023 at 0.23%, 5s of 2026 at 0.59%, 5s of 2030 at 1.12%, 4s of 2036 at 1.53% and 4s of 2037 at 1.57%, callable Feb. 1, 2031.

Jefferies priced and repriced for Dallas Area Rapid Transit (Aa2/AA+//AAA) $451.255 million of senior lien sales tax revenue improvement and refunding bonds. Bonds in 12/2040 with a 3% coupon yields 1.96% (-4), 3s of 2041 at 1.99%, 3s of 2047 at 2.20% (-2), 5s of 2047 at 1.72% (-7) and 4s of 2051 at 1.93% (-7), callable Dec. 1, 2030.

Citigroup Global Markets priced for the California Housing Finance Agency (/BBB///) $349.265 million of municipal certificates, Series 2021-3 Class X (social certificates), with certificates maturing in 8/2036 to yield 0.764% par. Citi also priced $349.265 million Series 2021-3 Class A (social certificates), to mature in 8/2036 with a 3.25% coupon to yield 2.436%, noncall.

Citigroup Global Markets priced for Massachusetts (Aa1/AA/AA+//) $302.51 million of general obligation refunding bonds with 5s of 11/2022 at 0.15%, 5s of 2023 at 0.28%, 5s of 2024 at 0.39% and 5s of 2025 at 0.52%, noncall.

RBC Capital Markets priced for the Pennsylvania Turnpike Commission (A1//A+/AA-) $275 million of turnpike revenue bonds with five to 15 basis point bumps from the initial pricing wire. Bonds in 12/2022 with a 4% coupon yield 0.17% (-5), 5s of 2026 at 0.75% (-7), 5s of 2031 at 1.32% (-11), 5s of 2037 at 1.59% (-5), 5s of 2041 at 1.73% (-5), 5s of 2046 at 1.84% (-10), 3s of 2051 at 2.43% (-5) and 4s of 2051 at 2.03% (-15), callable Dec. 1, 2031.

BofA Securities priced for the New York Mortgage Agency (Aa1///) $248.045 million of homeowner mortgage revenue social bonds. The first tranche, $199.285 million, saw 1s of 4/2027 at par and 5s of 10/2027 at 1%, 1.95% par in 4/2031 and 2% par in 10/2031, 2.2% par in 10/2036, 2.45% par in 10/2041, 2.7% par in 10/2047, and 3.25s of 10/2051 at 1.49% (PAC bonds), callable Oct. 1, 2030.

The second, $23.76 million subject to the AMT, saw bonds priced at par: 0.25% in 4/2022, 0.35% in 10/2022, 1.2% in 4/2026, 1.3% in 10/2026 and 1.375% in 4/2027, noncall. The last, $25 million of taxables, priced at par: 0.47% in 4/2022, 0.52% in 10/2022, 1.47% in 4/2026, 1.57% in 10/2026, 2.26% in 4/2031, 2.31% in 10/2031, 2.66% in 10/2036, 2.83% in 10/2041, 2.93% in 4/2046 and 2.98% in 4/2051, callable Oct. 1, 2030.

Goldman Sachs & Co. priced for New York State Environmental Facilities Corp. (Aaa/AAA/AAA//) $144.94 million of state revolving funds revenue green bonds. Bonds in 2/2022 with a 5% coupon yields 0.12%, 5s of 8/2022 at 0.14%, 5s of 2/2026 at 0.61%, 5s of 8/2026 at 0.66%, 5s of 2/2031 at 1.22%, 5s of 8/2031 at 1.23%, 4s of 8/2036 at 1.54%, 4s of 8/2041 at 1.71%, 4s of 8/2041 at 1.86% and 4s of 8/2051 at 1.91%, callable Feb. 15, 2032.

PNC Capital Markets priced for Charlotte, North Carolina, (Aaa/AAA/AAA/) $133.555 million of general obligation refunding bonds, with 3s of 6/2022 at 0.15%, 5s of 2026 at 0.60%, 5s of 2031 at 1.09%, 2s of 2036 at 1.85% and 2s of 2041 at 2.05%, callable June 1, 2031.

Secondary trading
New York UDC 5s of 2022 at 0.11%-0.09%. New York City TFA 5s of 2022 at 0.10%. North Carolina 5s of 2022 at 0.11%. Texas 5s of 2022 at 0.15%-0.14%.

New York Dorm PIT 5s of 2025 at 0.42%. Tennessee 5s of 2026 at 0.56%.

Delaware 5s of 2028 at 0.81%. Ohio 5s of 2030 at 1.10%-1.09%. Wisconsin green 5s of 2030 at 1.03%.

Washington Suburban Sanitation 5s of 2032 at 1.09% versus 1.21% Wednesday and 1.27%. original.

Arlington County, Virginia, 5s of 2034 at 1.19%-1.18% versus 1.24% Friday. Washington 5s of 2034 at 1.24%-1.22%. Austin, Texas, water 5s of 2034 at 1.28% versus 1.33% Friday.

Texas water 4s of 2037 at 1.49%-1.48% versus 1.63%-1.62% Thursday. Georgia 4s of 2038 at 1.36%-1.33%.

Los Angeles DWP 5s of 2040 at 1.39% versus 1.44%-1.41% Monday and 1.53% original. California 5s of 2041 at 1.41% versus 1.54% Thursday. LA DWP 5s of 2041 at 1.42% versus 1.58% original.

New York City water 5s of 2048 at 1.76% versus 1.77% Monday and 1.81% Friday. Dallas 3s of 2050 at 2.08%.

Los Angeles DWP 5s of 2051 at 1.56%-1.55% versus 1.68%-1.62% Monday and 1.75% original.

AAA scales
According to Refinitiv MMD, yields fell one basis point on the short end, to 0.14% in 2022 and 0.23% in 2023. The 10-year fell five to 1.08% and the yield on the 30-year fell five to 1.53%.

The ICE municipal yield curve showed bonds fall two to 0.14% in 2022 and 0.22% in 2023. The 10-year maturity fell three to 1.07% and the 30-year yield fell four to 1.56%.

The IHS Markit municipal analytics curve showed short yields flat at 0.14% in 2022 and at 0.21% in 2023. The 10-year yield fell five to 1.06% and the 30-year yield fell five to 1.54%.

The Bloomberg BVAL curve showed short yields fall one to 0.15% in 2022 and steady at 0.20% in 2023. The 10-year yield fell four to 1.08% and the 30-year yield fell five basis points to 1.54%.

Treasuries made gains while equities ended with losses. The five-year UST was yielding 1.076%, the 10-year at yielding 1.44%, the 20-year at 1.857% and the 30-year Treasury was yielding 1.822% at the close. The Dow Jones Industrial Average lost 112 points or 0.31%, the S&P was down 0.35% while the Nasdaq lost 0.60%.

Inflation continues
Inflation continues at a high level, but analysts say that won’t translate into liftoff next summer.

“We don’t see the Fed lifting rates until December 2022, and Chair [Jerome] Powell’s comments about inflation at last week’s press conference only increased our confidence in that view,” said BCA Research analysts.

While inflation has become more of a concern to the Fed as it continues well above the panel’s 2% target, the causes of inflation and the likelihood that it will diminish after supply chain concerns ease outweigh how long it remains high.

They interpret Powell’s press conference remarks as saying, “it would be a mistake for the Fed to tighten policy to bring down inflation only to find out that the economy’s natural supply side response was about to do so anyways. The Fed would have dragged down aggregate demand for no reason.”

The Fed will not raise rates until it considers the labor market at maximum employment, they said, or “an uncomfortable increase in long-dated inflation expectations.”

The unemployment rate, currently at 4.6%, would have to fall to 3.8% for the Fed to consider it maximum employment, BCA says, which is unlike to occur in time for a rate hike next summer.

As for inflation expectations, they track the 5-year/5-year forward TIPS breakeven inflation rate, which would have to exceed 2.5% for “a significant period,” which they don’t expect, in order for the Fed to assess inflation expectations were soaring.

“The rate has stayed well contained throughout the past few months even as inflation skyrocketed,” they said. “It would be strange for it to suddenly spike after inflation has already peaked.”

Joe Kalish, chief global macro strategist at Ned Davis Research, agreed. “Market-based inflation measures appear to have peaked, at least in the short-term,” he said, although “survey-based measures haven’t yet confirmed” this.

On Tuesday, the producer price index for October showed prices up 0.6% and 0.4% excluding food and energy, near projections. Year-over-year PPI remained a record 8.6% higher and the core was up 6.8%, both unchanged from September.

“Producers are likely to pass along some of the prices increases to consumers to protect profit margins, thereby keeping near-term consumer inflation high,” said Scott Anderson, chief economist at Bank of the West.

Goods prices, especially for energy, rose more than services prices.

“Bond yields are rallying sharply today, as if to say, ‘those numbers could have been even worse’ — especially when categories which feature the known-knowns such as energy cost uplift, shipping backlogs, and semiconductor shortages are excluded,” said Jake Remley, senior portfolio manager at Income Research + Management. “The TIPS market has historically demonstrated the ability to see through the inflation noise and break evens are mostly unchanged today.”

The consumer price index, to be released Wednesday, “will be far more consequential on that front,” he said.

In a report, Berenberg Capital Markets said, “If supply disruptions and bottlenecks linger well into 2022, as the Fed now anticipates, and if aggregate demand in the economy continues to grow at a solid pace, as we forecast, then price increases are likely to remain broad based” and upward inflationary pressures would persist.

“Inflation risks are skewed to the upside,” Berenberg said.

Separately, small business optimism declined for the second month in a row, dropping to 98.2 in October from 99.1 a month earlier.

“Small business owners are attempting to take advantage of current economic growth but remain pessimistic about business conditions in the near future,” said National Federation of Independent Business Chief Economist Bill Dunkelberg. “One of the biggest problems for small businesses is the lack of workers for unfilled positions and inventory shortages, which will continue to be a problem during the holiday season.”

Primary market to come
Main Street Natural Gas (Aa2//AA-/) remains on the day-to-day calendar with $750 million of gas supply revenue bonds, Series 2021A, serials 2023-2031, term 2052. RBC Capital Markets.

California Community Choice Financing Authority (A2///) is set to price $556.03 million of clean energy project revenue bonds, Series 2021A (green bonds — climate bond certified). Goldman Sachs & Co.

American Municipal Power (A1/A//) is set to price Tuesday $258.245 million of AMP Fremont Energy Center Project revenue bonds, refunding series 2021A, serials 2023-2038. Citigroup Global Markets.

Arizona Industrial Development Authority is set to price $177.97 million of revenue bonds (NewLife Forest Restoration Project), consisting of $110.045 million of senior federally taxable series 2021A (sustainability-linked bonds), term 2041 and $67.925 million of subordinate federally taxable series 2021B (sustainability-linked bonds), term 2046. Goldman Sachs & Co.

Oklahoma Capitol Improvement Authority (/AA-/AA-//) is set to price Wednesday $161.64 million of taxable Oklahoma State Regents for Higher Education Endowed Chairs Program Funding bonds (subject to annual appropriation). J.P. Morgan Securities.

The University Of North Carolina at Charlotte (Aa3/A+//) is set to price Wednesday $141.695 million of taxable general revenue refunding bonds, Series 2021B. Wells Fargo Corporate & Investment Banking.

California Municipal Finance Authority Special Finance Agency is set to price Wednesday $121.23 million of essential housing revenue bonds, consisting of $81 million of Series 2021A-1 senior bonds and $40.23 million of Series 2021A-2 junior bonds (Latitude33). J.P. Morgan Securities.

Successor Agency to the Redevelopment Agency of the City and County of San Francisco (/AA///) is set to price $107.34 million of taxable third-lien tax allocation social bonds, 2021 Series A (affordable housing projects), serials 2023-2031, insured by Assured Guaranty Municipal Corp. Citigroup Global Markets.

San Antonio, Texas, (Aa2/A+/AA-/) is set to price $102 million of electric and gas systems, variable rate junior lien revenue refunding bonds, Series 2015B. Piper Sandler & Co.

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