Bonds

Munis slightly firmer in spots, USTs weaker

Municipals were slightly firmer in spots, while U.S. Treasuries were weaker and equities ended up.

The three-year muni-UST ratio was at 58%, the five-year at 61%, the 10-year at 66% and the 30-year at 89%, according to Refinitiv MMD’s final 3 p.m. ET read. ICE Data Services had the three at 58%, the five at 62%, the 10 at 69% and the 30 at 92% at a 4 p.m. read.

Despite a weaker Treasury market Tuesday, municipals were firm, strengthened by a “very light” new issue calendar of less than $5 billion for the second week of the year, according to a New York trader. 

“There was strong demand for the Pennsylvania Housing Finance Authority deal, which was three times oversubscribed,” he said.

Despite the municipal yield curve being rich inside of 10 years, the trader said, retail investors and separately managed accounts are supporting that slope of the curve.

Bids-wanteds have remained light over the past several trading sessions. Since 12/23, bids wanted have only surpassed $1 billion once. Bids-wanteds stood at $961 million on Monday.

Bid-wanted lists in the secondary market were light on Tuesday, he said, as investors remained focused on new issues with fresh structures.

“Retail has cash and is placing it on short bonds with less risk than long bonds,” he said.

Others said the market was manageable in the early weeks of 2023 — despite some concerns.

“There are lots of headwinds and we’re treating everything with a wary eye so far,” said Chris Brigati, managing director of municipals at Valley National Bank. 

Brigati said the supply picture is lighter than he expected, and it is impacting the market’s strength.

“It’s not like it’s a grab fest and there’s a ton of buyers, but the new-issue market is being well received and bonds are getting placed,” he explained. “Demand is robust enough to warrant the market being firm,” he added. 

Ratios have returned to richer levels, albeit not as rich as in early 2022, according to Brigati.

“We are relatively rich — but not super attractive — despite the fact that yields are more attractive than nine months ago,” he said.

Retail investors, he said, are looking at municipals for opportunities, Brigati said.

For example, he said 20-year single-A-rated paper with a 4% coupon is yielding par — and the popularity and attractiveness of that structure is creating heavy demand.

“Today those bonds are starting to dwindle as 4% in 20-years is pushing below a 4% threshold,” Brigati said.

“Despite Treasuries looking weaker today than yesterday demand was still very robust,” he said.

“The triple-A curve is flat, but Treasuries are off pretty meaningful on the day — we are cheaper in Treasuries, but munis are relatively unchanged,” he continued. “We are seeing demand robust enough — even with the slight pullback in Treasuries,” he said, adding, “there’s ample demand to search out opportunities.” 

The long end of the yield curve, meanwhile, is richer with 30-year paper yielding 90% to 92% of Treasuries, which Brigati said is “through fair value,” which on the long end is historically closer to 100%.

While there has been a “big shift” in the market, Brigati said, “If we see more attractive ratios of 100% in 30 years, munis would look very attractive,” he added. But that would take more supply.

In addition, the market would need a 30-basis-point back up in yields relative to Treasuries to look more attractive, he added, “not an easy move to make without something causing munis to look cheaper,” such as “a market scare,” a recession or market participants believing the Federal Reserve’s higher for longer vow.

In the primary market Tuesday, BofA Securities priced for the Pennsylvania Housing Finance Authority (Aa1/AA+//) $335.295 million of single-family mortgage revenue bonds. The first tranche, $300.630 million of non-AMT social bonds, Series 2023-141A saw 3.1s of 10/2028 at par, 3.7s of 4/2033 at par, 3.75s of 10/2033 at par, 4.4s of 10/2038 at par, 4.6s of 10/2043 at 4.58%, 4.6s of 10/2043 at 4.68% and 5.75s of 10/2053 at 3.69%, callable 10/1/2032.

The second tranche, $34.665 million of taxables, Series 2023-141C, saw all bonds pricing at par: 5.313s of 10/2038, 5.471s of 2043 and 5.521s of 2045, callable 10/1/2032.

Piper Sandler priced for the Tomball ISD (Aaa/AAA//) $223.980 million of unlimited tax school bonds, Series 2023, with 5s of 2/2024 at 2.50%, 5s of 2028 at 2.29%, 5s of 2033 at 2.45%, 5s of 2038 at 3.14%, 5s of 2043 at 3.42%, 5s of 2048 at 3.62% and 4.125s of 2048 at 4.06%, callable 2/15/2033.

D.A. Davidson priced for the Oklahoma County Finance Authority (/A///) $112.170 million of Choctaw-Nicoma Park Public Schools Project education facilities lease revenue bonds, with 5s of 9/2026 at 2.78%, 5s of 2034 at 3.28%, 4s of 2038 at 4.15% and 5s of 2041 at 4.00%, callable 9/1/2032.

In the competitive, Wisconsin (Aa1/AA+//AAA/) sold $199.165 million of GOs to Morgan Stanley, with 5s of 5/2033 at 2.37%, 5s of 2038 at 3.01% and 4s of 2043 at 3.78%, callable 5/1/2032.

The Santa Clara Valley Water District, California, (Aa1//AA+/) sold $68.005 million of water system refunding revenue bonds, Series 2023B (Bid Group B), to Citigroup Global Markets, with 4.2s of 6/2024 at par, 4.25s of 2028 at par, 4.67s of 2033 at par, 5.02s of 2038 at par, 5.05s of 2042 at 5.10% and 5s of 2052 at 5.15%, callable 6/1/2032.

The district also sold $25.145 million of Water Utility System Improvement Projects revenue certificates of participation, Series 2023D-1 (Bid Group B), to Citigroup Global Markets, with 4.25s of 12/2024 at par, callable 11/1/2024.

The district sold $25.145 million of Water Utility System Improvement Projects revenue certificates of participation, Series 2023D-2 (Bid Group B), to Citigroup Global Markets, with 4.25s of 6/2026 at par, callable 5/1/2026, as well.

Secondary trading
New York City 5s of 2024 at 2.47% versus 2.72% on 1/3 and 2.79% on 12/29/22. Washington 5s of 2025 at 2.35%. California 5s of 2025 at 2.27%-2.24%.

Wisconsin 5s of 2028 at 2.29%. University of California 5s of 2031 at 2.39% versus 2.53% Thursday and 2.66% on 1/3. Mecklenburg County, North Carolina, 5s of 2033 at 2.42% versus 2.66% on 12/27/22.

Los Angeles DWP 5s of 2042 at 3.31% versus 3.41%-3.36% Monday and 3.55% Thursday. District of Columbia 5s of 2042 at 3.34% versus 3.35% Monday. NYC TFA 5s of 2043 at 3.65% versus 3.90%-3.89% Thursday.

Massachusetts 5s of 2049 at 3.60% versus 3.80% on 1/4. NY State Environmental Facilities Corp. 3.85s of 2051 at 3.70%-3.52% versus 3.94%-3.86% Friday and 3.85% on 1/4. Virginia 5s of 2052 at 3.50%-3.47% versus 3.55%-3.57% on 1/4.

AAA scales
Refinitiv MMD’s scale was bumped up to two basis points: the one-year at 2.52% (unch) and 2.34% (-2) in two years. The five-year was at 2.29% (-2), the 10-year at 2.41% (-2) and the 30-year at 3.35% (unch).

The ICE AAA yield curve was bumped up to two basis points: at 2.47% (-1) in 2024 and 2.36% (-1) in 2025. The five-year was at 2.30% (-2), the 10-year was at 2.42% (-2) and the 30-year yield was at 3.37% (flat) at 4 p.m.

The IHS Markit municipal curve was bumped up to two basis points: 2.51% (-2) in 2024 and 2.34% (-2) in 2025. The five-year was at 2.32% (-2), the 10-year was at 2.43% (-2) and the 30-year yield was at 3.36% (unch) at a 4 p.m. read.

Bloomberg BVAL was bumped up to two basis points: 2.51% (unch) in 2024 and 2.35% (-1) in 2025. The five-year at 2.31% (-1), the 10-year at 2.42% (-1) and the 30-year at 3.36% (unch).

Treasuries were weaker.

The two-year UST was yielding 4.245% (+4), the three-year was at 3.975% (+3), the five-year at 3.719% (+6), the seven-year at 3.669% (+7), the 10-year at 3.612% (+9), the 20-year at 3.909% (+9) and the 30-year Treasury was yielding 3.745% (+9) at 4 p.m.

Primary to come:
The Municipal Electric Authority of Georgia (A3/A/BBB+/) set to price Wednesday $184.890 million of Plant Vogtle Units 3&4 Project J bonds, Series 2023A. Goldman Sachs & Co.

The New Jersey Economic Development Authority (Baa1/BBB+//) is set to price Wednesday $160 million of taxable Offshore Wind Port Project state lease revenue bonds, 2023 Series A, serials 2024-2033. Loop Capital Markets.

The Municipal Electric Authority of Georgia (A3/A/BBB+/) is also set to price Wednesday $128.495 million of New York Plant Vogtle Units 3&4 Project M bonds, Series 2023A. Goldman Sachs & Co.

The authority (Baa2/BBB+/BBB+/) is set to price Wednesday $127.600 million of Plant Vogtle Units 3&4 Project P bonds, consisting of $67.065 million of taxables, Series 2023A, and $60.535 million of exempts, Series 2023B. Goldman Sachs & Co.

Competitive:
Colorado is set to sell $425 million education loan program tax and revenue anticipation notes, Series 2022B, at 11 a.m. Wednesday.

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