Economic indicators did little to move fixed-income Monday as municipals were slightly firmer to start off the week, while U.S. Treasuries were a little weaker. Equities ended mixed.
Tuesday and Wednesday will bring testimony from Federal Reserve Board Chair Jerome Powell and Friday will see the release of the February employment report. The market will closely watch these.
The three-year muni-UST ratio was at 60%, the five-year at 62%, the 10-year at 65% and the 30-year at 91%, according to Refinitiv MMD’s 3 p.m. ET read. ICE Data Services had the three at 62%, the five at 62%, the 10 at 67% and the 30 at 94% at 4 p.m.
Volatility of the broad fixed-income indices continues to exceed “pre-pandemic levels, making it more expensive for dealers to hedge their inventories, adding to the incentive for them to take a lower risk profile in the market, which can reduce secondary market liquidity and boost volatility further,” said CreditSights strategists Pat Luby and Sam Berzok.
Over the next two months, they expect “the tax-exempt market will be subject to even more exaggerated weakness.”
The seasonal decline in bond redemptions “will reduce reinvestment demand from the market,” they noted.
Muni yields rose again last week, the fourth week in a row, with10-year notes up “4.4 basis-points to finish the week at 2.67%,” said Jason Wong, vice president of municipals at AmeriVet Securities.
“Munis were relatively unchanged for the majority of the week, but with the initial jobless claims lower than expected and revisions to labor costs, some are suggesting that the Fed can increase the fed funds rate by 50 basis-points with a 20% probability,” Wong said.
Munis lagged USTs last week for the first time in recent weeks as the 10-year muni-UST ratio now stands at 65% compared to 66% the prior week, per MMD.
“Ratios have seemed to have stabilized in the last couple of weeks and this past week we did see the muni curve steepen by 1.9 basis points to 73 basis points,” he said.
“Muni mutual funds lost assets for the second week in a row and muni [exchange-traded funds] lost assets for the sixth week in a row, suggesting that investor demand has slowed down,” the CreditSights strategists noted.
In addition, with only minor exception, “tax-exempt yields are still too rich to appeal to banks, insurance companies and other institutional investors subject to the 21% federal corporate income tax rate,” they said.
Trading last week totaled roughly $35.85 billion, with about 55% of trades being clients buys, Wong said. With a limited calendar last week, “clients continue to purchase bonds in the secondary market,” he added.
Last week, clients put up roughly $5.45 billion for the bid, up from $4.69 billion in the short trading week two weeks ago, per Bloomberg.
But with a large calendar this week, Wong expects the main focus to be on new issues.
This week’s $10-billion-plus “new issue volume is expected to be the heaviest in 29 weeks and 71% higher than the one-year weekly average,” the CreditSights strategists said.
Overall, March’s “new issue volume can be expected to exceed February’s,” while April should be similar to March, they said. Over the last five years March new-issue volume has averaged 9% more than February’s, they noted.
But while supply is expected to increase this month, Wong said, muni issuance is down about 26% year-over-year.
“With borrowing costs up, as well as infrastructure costs increasing, we are seeing many issuers hold off on issuing any new debt,” Wong said. And with the consumer price index “number coming out in a couple of weeks and the Fed rate decision coming later this month, we could see where investors stand on the direction of the economy,” he added.
Secondary trading
Massachusetts 5s of 2024 at 2.93%-2.92%. NYC TFA 5s of 2024 at 3.00% versus 3.03% Thursday. California 5s of 2026 at 2.85% versus 2.85% Friday.
Charleston water, South Carolina, 5s of 2028 at 2.69%. Connecticut 5s of 2029 at 2.79%. Texas Water Development Board 5s of 2030 at 2.71%-2.67%.
NYC 5s of 2036 at 3.40%. Brookhaven Urban Redevelopment Agency, Georgia, 5s of 2040 at 3.60%. Alabama 5s of 2041 at 3.58%-3.57% versus 3.58% on 2/22.
San Jose Financing Authority, California, 5s of 2052 at 3.72%-3.70%.
AAA scales
Refinitiv MMD’s scale was bumped two basis points. The one-year was at 2.98% (-2) and 2.97% (-2) in two years. The five-year was at 2.66% (-2), the 10-year at 2.61% (-2) and the 30-year at 3.58% (-2) at 3 p.m.
The ICE AAA yield curve was bumped one to three basis points: 2.95% (-2) in 2024 and 2.94% (-2) in 2025. The five-year was at 2.67% (-3), the 10-year was at 2.65% (-1) and the 30-year yield was at 3.64% (-1) at 4 p.m.
The IHS Markit municipal curve was bumped two basis points: 2.99% (-2) in 2024 and 2.97% (-2) in 2025. The five-year was at 2.64% (-2), the 10-year was at 2.60% (-2) and the 30-year yield was at 3.60% (-2) at a 4 p.m. read.
Bloomberg BVAL was up to two basis points: 3.04% (-1) in 2024 and 2.94% (-1) in 2025. The five-year at 2.65% (-1), the 10-year at 2.65% (-1) and the 30-year at 3.62% (-2).
Treasuries were weaker.
The two-year UST was yielding 4.887% (+3), the three-year was at 4.617% (+2), the five-year at 4.261% (+1), the seven-year at 4.157% (+2), the 10-year at 3.977% (+2), the 20-year at 4.141% (+1) and the 30-year Treasury was yielding 3.917% (+4) at 4 p.m.
Primary to come:
The week will kick off with a $3.5 billion sale of Series 2023 taxable customer rate relief bonds from the Texas National Gas Securitization Finance Corp. The sale, planned for Thursday by Jefferies LLC, will consist of $1.76 billion of Series A1 term bonds in 2035 and $1.76 billion of Series A2 term bonds in 2041.
That deal will be followed in size by a $1.8 billion sale of taxable various purpose general obligation bonds from California. The Wednesday sale will be senior-managed by Wells Fargo Bank Municipal Finance Group and is rated Aa2 by Moody’s Investors Service, AA-minus by S&P Global Ratings, and AA by Fitch Ratings.
The New York City Municipal Water Finance Authority, meanwhile, is slated to sell $1.24 billion of water and sewer system second general resolution revenue bonds on Wednesday. The Fiscal 2023 Series DD bonds are rated Aa1 by Moody’s and AA-plus by S&P and Fitch and are underwritten by book-runner Goldman, Sachs & Co.
The District of Columbia is planning a $826.3 million sale of GO refunding bonds on Thursday. The sale consists of $587 million in Series 1 and $239 million of Series 2 and will be senior managed by Morgan Stanley & Co. The bonds are rated Aaa by Moody’s and AA-plus by S&P and Fitch.
A $375 million sale of permanent university funds bonds is on tap from the University of Texas Board of Regents on Tuesday. The Series 2023A refunding bonds are triple-A-rated by all three major rating agencies and will be senior-managed by book-runner RBC Capital Markets.
Louisiana will bring to market $200 million of revenue refunding bonds from the Parish of St. John the Baptist on Thursday in a remarketing led by PNC Capital Markets LLC. The deal, which is rated Baa3 by Moody’s and BBB-minus by S&P and Fitch, is a remarketing of Series 2017 on behalf of the Marathon Oil Corp. project. The financing consists of sub-series 2017 A non-AMT paper which contains a term bond in 2037.
Connecticut Housing Finance Authority will market $168 million of mortgage finance program bonds in a Wednesday sale by BofA Securities. The deal — which is rated triple-A by both Moody’s and S&P — consists of Series A social bonds maturing serially from 2023 to 2035 and term bonds in 2038, 2043, 2048, and 2053.
A $153.7 million sale of auxiliary facilities system refunding revenue bonds will come to market from the Board of Trustees of the University of Illinois on Thursday. The Series 2023 bonds, which are rated Aa3 by Moody’s and AA-minus by S&P, are being senior-managed by JPMorgan Securities.
The Metropolitan Atlanta Rapid Transit Authority is scheduled to bring $150 million of sales tax revenue refunding bonds to market on Wednesday. The Series 2023 green bonds are being senior managed by Goldman, Sachs and are rated Aa2 by Moody’s and AA-plus by Standard & Poor’s and Fitch.
Competitive:
Baltimore County, Maryland, will sell $225 million triple-A-rated GO bonds Wednesday, Nebo, S.D., Local Building Authority will sell $100 million lease revenue bonds.
The Baltimore deal matures serially from 2024 to 2053, while the South Dakota deal matures serially 2024 to 2038 and is rated Aa3 by Moody’s and AA-plus by Fitch.