Bonds

Smallest new-issue calendar of year to greet investors

Investors will be greeted Monday with the smallest new-issue calendar year-to-date ahead of the Federal Open Market Committee’s July meeting where rates are anticipated to be hiked at least three-quarters of a point.

To end the week, munis were firmer, underperforming the extended U.S. Treasuries rally where yields again fell double-digit basis points. Equities ended down.

Triple-A benchmark yields fell up to five basis points, while UST yields fell five to 12 basis points, moving ratios higher.

Muni to UST ratios were at 67% in five years, 86% in 10 years and 100% in 30 years, according to Refinitiv MMD’s 3 p.m. read. ICE Data Services had the five at 67%, the 10 at 89% and the 30 at 100% at a 3:30 p.m. read.
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The new-issue calendar is estimated at $2.477 billion with $2.032 billion of negotiated deals and $445.6 million of competitive deals. It is led by $606 million of commodity supply revenue bonds from the SouthEast Energy Authority.

Bond Buyer 30-day visible supply is at $9.31 billion while Bloomberg pegs net negative supply at $17.239 billion.

This week, muni triple-A yields barely changed until Friday and credit spreads were stable, said BofA strategists Yingchen Li and Ian Rogow.

They noted that since corporate credit moves are a leading indicator of munis, muni credit spreads may can come in some as well if the corporate credit narrowing stays and continues.

“It should be up to the economic performance, not worse than a mild recession, and overall impact on market liquidity of Fed tightening including the upcoming 75 [basis points],” they said.

Next week’s market focus will be the FOMC meeting. After extremely high inflation prints last week, a 75 basis point rate hike has largely been priced in, while the possibility of a 100 basis point hike has declined, according to Barclays PLC.

Barclays strategists Mikhail Foux, Clare Pickering and Mayur Pate said another large hike is expected in September, but much will depend on the economic data for the remainder of summer.

“There are some signs that inflation might start to abate, allowing the Fed to move slower,” they said.

“For munis, the tone has clearly improved in the past several weeks, and it helped that funds outflows have seemingly started to subside,” they said.

As of late, fund flow numbers have been smaller, with both inflows and outflows under $500 million for the past three weeks, per Refinitiv data.

“Municipal investors are selling much less, at least compared with the large daily selling prints in late April to May,” Barclays said, leading them to be more hopeful about the prospects for the municipal market in the second half of the year.

“For long-dated tax-exempts, the 10s30s is steep,” they said. It’s not as steep for triple-As, but for lower-rated securities, they think there “is much more value in the long end” and expect muni yield curves to “bull-flatten going into 2023.”

“Taxable muni spreads have started widening in the past couple of weeks, but only marginally and mostly in sympathy with corporates,” they said.

However, investment grade corporates have tightened recently, and the spread differential between taxables and corporates have started to shrink.

The backup of corporates against taxable munis, BofA strategists said, “can be considered in line with the bear market rally in equities.”

“In principle, these should be considered retracement moves,” Li and Rogow said. “If the equity market turns south again, munis should resume their outperformance against corporates as we head towards a recession.”

Barclays strategists noted double-A taxables “are at their cheapest level compared with corporates in more than a year, and single-As are also not far from the recent highs.”

Lower taxable supply compared with their initial projections should provide additional support for the market.

While they are cautious on taxable muni spreads in the second half of 2022, they “selectively see attractive opportunities in higher-rated taxables.”

Secondary trading
NYC TFA 5s of 2024 at 1.75% versus 1.78% Monday and 1.80% on 7/15. New Mexico 5s of 2025 at 1.82% versus 1.90% Thursday. NYC TFA 5s of 2026 at 1.97%-1.96%.

Triborough Bridge and Tunnel Authority 5s of 2028 at 2.18% versus 2.22% Thursday and 2.21%-2.20% Monday. Washington 5s of 2029 at 2.25%-2.24%. NYC 5s of 2030 at 2.51%.

Maryland 5s of 2033 at 2.53% versus 2.60% Tuesday and 2.63% Monday. Maryland 5s of 2035 at 2.65% versus 2.75%-2.74% Thursday and 2.73%-2.72% Tuesday. NYC TFA 5s of 2035 at 3.15% versus 3.15% Wednesday.

District of Columbia 5s of 2039 at 3.00% versus 3.20% on 7/13. Washington 5s of 2039 at 3.12%-3.11% versus 3.14% Thursday and 3.10% Tuesday. South Carolina 5s of 2041 at 2.95%-2.94%.

Washington 5s of 2046 at 3.40% versus 3.43% Thursday and 3.26% on 7/15.

AAA scales
Refinitiv MMD’s scale was bumped up to five basis points at the 3 p.m. read: the one-year at 1.40% (unch) and 1.70% (unch) in two years. The five-year at 1.94% (-4), the 10-year at 2.39% (-5) and the 30-year at 2.99% (-4).

The ICE municipal yield curve was bumped up to five basis points: 1.42% (-2) in 2023 and 1.71% (-3) in 2024. The five-year at 1.95% (-3), the 10-year was at 2.43% (-4) and the 30-year yield was at 3.00% (-5) near the close.

The IHS Markit municipal curve was bumped up to five basis points: 1.40% (unch) in 2023 and 1.72% (unch) in 2024. The five-year was at 1.94% (-4), the 10-year was at 2.39% (-5) and the 30-year yield was at 2.99% (-4) at a 4 p.m. read.

Bloomberg BVAL was bumped one to four basis points: 1.42% (-1) in 2023 and 1.69% (-2) in 2024. The five-year at 1.98% (-2), the 10-year at 2.44% (-4) and the 30-year at 2.98% (-3) at 3:30 p.m.

Treasuries rallied.

The two-year UST was yielding 2.987% (-10), the three-year was at 2.938% (-12), the five-year at 2.866% (-11), the seven-year 2.853% (-12), the 10-year yielding 2.773% (-11), the 20-year at 3.239% (-6) and the 30-year Treasury was yielding 2.994% (-5) just before the close.

Primary to come:
The Southeast Energy Authority, Georgia, (A1///) is set to price next week $606.015 million of Project No. 3 commodity supply revenue bonds, Series 2022A-1 and Series 2022A-2, consisting of $34.650 million of Series 1, $471.365 million of Series 2 and $100 million of Series 3. Morgan Stanley & Co.

The Belton Independent School District, Texas, (/AAA//) is set to price Thursday $168.750 million of unlimited tax school building bonds, Series 2022, serials 2023-2052. BOK Financial Securities.

The Michigan Finance Authority is set to price Tuesday $149.490 million of state aid revenue notes, Series 2022A, consisting of $83.355 million of Series A1 and $66.135 million of Series A2. J.P. Morgan Securities.

The Unified School District No. 489, Kansas, (/A+//) is set to price Thursday $143.500 million of general obligation refunding and improvement bonds, Series 2022-B. Piper Sandler & Co.

Pinal County, Arizona, (/AA/AA/) is set to price Thursday $115.560 million of taxable green pledged revenue obligations, Taxable Series 2022. Stifel, Nicolaus & Co.

The California Community College Financing Authority is set to price next week $107.575 million of Napa Valley College Project student housing revenue bonds, consisting of $93.905 million of senior bonds, Series A, terms 2032 and 2060, and $13.670 million of subordinate bonds, Series C term 2060. Citigroup Global Markets. 

Competitive:
Essex County, New Jersey, (Aaa//AA+/) is set to sell $57.696 million of general obligation bonds, Series 2022, consisting of $44.160 million of general improvement bonds, Series 2022A, $10 million of county coll bonds, Series 2022B, $1.768 million of Series 2022C bonds and $1.768 of Series 2022D bonds, at 11 a.m. eastern Tuesday.

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