Bonds

Munis little changed, heavier new-issue calendar greets investors

Municipals were little changed — down a basis point or two — Tuesday as a heavier new-issue calendar greets investors. U.S. Treasuries and equities were mixed.

The three-year muni-UST ratio was at 57%, the five-year at 60%, the 10-year at 65% and the 30-year at 89%, according to Refinitiv MMD’s 3 p.m. ET read. ICE Data Services had the three at 56%, the five at 60%, the 10 at 66% and the 30 at 90% at 4 p.m.

Secondary trading for last week totaled about $40.4 billion with around 55% of the trades being clients buying, said Jason Wong, vice president of municipals at AmeriVet Securities.

Bids-wanteds totaled about $4.72 billion for the week, per Bloomberg, which is the first time since March 2022 bids-wanted fell below $5 billion for a week.

Munis continue “their rally as yields on 10-year notes fell by 17 basis points last week to 2.32%,” he said.

Muni yields have “fallen an average of 31 basis points across the curve in the first two weeks of the year,” Wong noted.

The muni curve steepened by six to 104 basis points since the start of the year. Munis continue to outperform versus USTs “as 10-year notes are now yielding 66.47% of Treasuries compared to the prior week when the ratios were at 70.08%,” he said.

Investors added $1.9 billion to muni funds last week, per Refinitiv Lipper, following the prior week’s outflow of $2.5 billion.

“This was the largest inflow to municipal funds in more than a year,” Wong said. “This is a positive sign for munis as we had a record of outflows totaling to $144 billion back in 2022 due to yields rising from record inflation numbers and the Fed rate hike policy.”

“The net positive flows are not surprising,” said CreditSights strategists Pat Luby and John Ceffalio.

“The amount of new money (gross sales) going into municipal bond mutual funds has been very strong,” they said. “The negative net flows have been due to the heavy pace of redemptions; partly, we believe, from investors harvesting losses.”

The outflows “weighed heavily on munis,” they said, especially on longer bonds.

“Even if mutual fund flows are just flat, a pause in redemptions should ease the negative pressure on long-duration secondary market bonds,” they said, “and could also add incremental demand in the new issue market if mutual fund PMs grow confident that the pace of redemptions has indeed paused.”

The taxable section of the muni market signals added confidence, the CreditSights strategists said. “Block-sized trading in the University of Michigan and Michigan State taxable century bonds picked up last week by enough that both bonds posted 5% total returns for the week.”

While these indicators are constructive for the market, they noted, one week does not make a trend.

“The strong demand for tax-exempts from individual investors has pushed muni yields even further away from being attractive to institutional investors subject to the 21% federal corporate income tax rate,” they said. “As a result, any volatility that reduces muni demand from individual investors is likely to be exaggerated.”

Current levels are pushing out institutional investors, who won’t “step in unless there is a significant readjustment of tax-exempt yields relative to comparably rated corporates.”

Demand for muni bonds has slowly started a comeback, with Wong saying, “this demand is a welcome sign to the tax-exempt sector as rising yields pushed investors to the sidelines.”

But with the consumer price index number coming in at 6.5% on Thursday, he said, “investors are slowly jumping back into the markets as yields are at attractive levels compared to the start of 2022.”

Wong said, “yields should continue to fall as demand for munis will outpace supply in 2023 and coupled with concerns of inflation weaning, investor positive sentiment has continued to push munis further into positive territory with munis gaining about 2.1% so far this year.”

Unfortunately, he said, this has “pushed munis to become expensive relative to Treasuries with ratios at 12-month lows.” Investors responded by moving further out on the curve.

But not all is negative, as it shows “investor concerns of a market downturn is abated,” he said.

Secondary trading
District of Columbia 5s of 2024 at 2.42%. New York City 5s of 2025 at 2.28%. California 5s of 2025 at 2.17% versus 2.24% on 1/6.

Ohio 5s of 2028 at 2.19%. NY Dorm PIT 5s of 2029 at 2.26%. Triborough and Tunnel Authority 5s of 2029 at 2.27%-2.23%.

California 5s of 2035 at 2.56%-2.48% versus 2.56% Friday. Ohio 5s of 2037 at 2.87%. Los Angeles DWP 5s of 2042 at 3.14%-3.13% versus 3.29%-3.28% Wednesday.

Northwest ISD, Texas, 5s of 2048 at 3.47%-3.46% versus 3.45%-3.46% Friday and 3.84%-3.77% on 1/4. San Jose Financing Authority 5s of 2052 at 3.42% versus 3.49% Wednesday.

AAA scales
Refinitiv MMD’s scale was unchanged. The one-year was at 2.43% and 2.27% in two years. The five-year was at 2.18%, the 10-year at 2.31% and the 30-year at 3.24% at 3 p.m.

The ICE AAA yield curve was bumped one to three basis points: at 2.40% (-3) in 2024 and 2.29% (-1) in 2025. The five-year was at 2.18% (-1), the 10-year was at 2.26% (-2) and the 30-year yield was at 3.25% (-2) at 4 p.m.

The IHS Markit municipal curve was unchanged: 2.44% in 2024 and 2.27% in 2025. The five-year was at 2.20%, the 10-year was at 2.32% and the 30-year yield was at 3.24% at a 4 p.m. read.

Bloomberg BVAL was bumped up to a basis point: 2.42% (unch) in 2024 and 2.25% (-1) in 2025. The five-year at 2.20% (unch), the 10-year at 2.30% (-1) and the 30-year at 3.26% (unch).

Treasuries were mixed.

The two-year UST was yielding 4.203% (-3), the three-year was at 3.873% (-3), the five-year at 3.620% (+1), the seven-year at 3.592% (+3), the 10-year at 3.550% (+5), the 20-year at 3.822% (+4) and the 30-year Treasury was yielding 3.663% (+5) at 4 p.m.

Primary to come:
The Sales Tax Securitization Corporation, Illinois, is set to price $735.967 million of sales tax securitization bonds, consisting of $98.240 million of social bonds, Series A, serials 2026-2034 and 2041-2044 (/AA-/AA/AAA/); $131.995 million of second lien refunding bonds, Series A1, serials 2024, 2033-2034 and 2037 (/AA-/AA-/AA+/); $60.363 million of taxable social bonds, Series B, serials 2026-2034 and 2039-2041 (/AA-/AA/AAA/); $370.320 million of taxable refunding second lien bonds, Series B1, serials 2025-2033 (/AA-/AA-/AA+/); and $75 million of refunding bonds, Series C, serials 2031-2039 (/AA-/AA/AAA/). UBS Financial Services.

The Tennessee Energy Acquisition Corp. (A2///) is set to price $700 million of gas project revenue refunding bonds, consisting of Series 2023A-1 tax-exempts and Series 2023A-2 taxables. Goldman Sachs.

Miami-Dade County, Florida (A3//A/) is set to price Wednesday $542.505 million of seaport revenue refunding bonds, consisting of $529.565 million of AMT bonds, Series 2022A, serials 2025-2042, terms 2047 and 2052, and $12.940 million of non-AMT bonds, Series 2022B, serial 2037. Raymond James & Associates.

The Dallas Independent School District, Texas, (Aaa/AAA/AAA/) is set to price Thursday $542.5 million of PSF-insured unlimited tax school building and refunding bonds, Series 2023. Morgan Stanley.

The Austin Independent School District, Texas, (Aaa///AAA) is set to price Wednesday $539.215 million of non-PSF unlimited tax insured school building bonds, Series 2023, serials 2024-2043, term 2048. Jefferies.

The Connecticut Health and Educational Facilities Authority (Aaa/AAA//) is set to price Thursday $510.110 million of revenue bonds Yale University Issue, consisting of $250 million of Series 2014A and $260.110 million of Series 2017C-2. J.P. Morgan Securities.

Jobsohio Beverage System (Aa3/AA+//) is set to price Wednesday $352.525 million of taxable statewide senior lien liquor profits revenue bonds, Series 2023A, term 2033. Citigroup Global Markets

The Orange County Health Facilities Authority, Florida, A2/A+//) is set to price Wednesday $300 million of Orlando Health Obligated Group hospital revenue bonds, Series 2023A. Morgan Stanley.

The Louisiana Public Facilities Authority (A1/A+//) is set to price Wednesday $175.910 million of Tulane University of Louisiana Project revenue and refunding bonds, Series 2023A. Goldman Sachs.

The Lafayette Parish School System, Louisiana, (/AA+//) is set to price Wednesday $164.870 million of sales tax revenue bonds, Series 2023, serials 2026-2053. Raymond James & Associates.

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

The Hazelwood School District, Missouri, (/AA//) is set to price Wednesday $127.665 of Build America Mutual-insured general obligation refunding bonds, consisting of $114.380 million of Series 2023A, serials 2025, 2027 and 2032-2042, and $13.285 million of Series 2023B, serials, 2024-2027 and 2034. Stifel, Nicolaus & Co.

The Wyoming Community Development Authority (Aa1/AA+//) is set to price Wednesday $118.180 million of non-AMT housing revenue bonds, 2023 Series 1, serials 2023-2035, terms 2038, 2043, 2047 and 2053. RBC Capital Markets

Kansas City, Missouri, (Aa2/AA//) is set to price Thursday $103.795 million of sanitary sewer system improvement revenue bonds, Series 2023A. Morgan Stanley.

The Georgia Housing and Finance Authority (/AAA//) is set to price Thursday $100 million of non-AMT single-family mortgage bonds, 2023 Series A, serials 2023-2034, terms 2038, 2043, 2048 and 2053. Citigroup Global Markets Inc., New York

Competitive:
The California Infrastructure and Economic Development Bank (Aaa/AAA/AAA) is set to sell $530.910 million green Clean Water and Drinking Water state Revolving Fund revenue at 11:30 a.m. eastern Wednesday.

Washington (Aaa/AA+/AA+) is set to sell 234.970 million of various purpose GOs, Series 2023B — Bid Group 2, at 10:45 a.m. Wednesday.

The state is also set to sell $224.855 million of various purpose GOs, Series 2023B — Bid Group 3, at 11:15 a.m. Wednesday.

Additionally, the state is set to sell $172.110 million of various purpose GOs, Series 2023B — Bid Group 1, at 10:15 a.m. Wednesday.

The Virginia College Building Authority (Aa1/AA+/AA+/) is set to sell Public Higher Education Financing Program educational facilities revenue bonds, Series 2023A, at 10:30 a.m. Wednesday.

Fairfax County, Virginia, (Aaa/AAA/AAA) is set to sell $335.155 million of public improvement bonds, Series 2023A, at 10:30 a.m. eastern Thursday.

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