Munis end May with a firmer tone

Municipals ended the month of May on a firmer note, with triple-A yields falling along with U.S. Treasuries, amid a busier new-issue slate led by New York City’s $1.4 billion of general obligation bonds, which saw yields fall in a repricing. Equities ended down.

Triple-A yields fell by two to four basis points while UST saw yields fall by six to seven.

The two-year muni-Treasury ratio Wednesday was at 70%, the three-year at 73%, the five-year at 74%, the 10-year at 73% and the 30-year at 92%, according to Refinitiv MMD’s 3 p.m. read. ICE Data Services had the two-year at 69%, the three-year at 71%, the five-year at 70%, the 10-year at 72% and the 30-year at 92% at 3 p.m.

The Investment Company Institute reported investors pulled another $671 million out of municipal bond mutual funds in the week ending May 24, after $132 million of outflows the previous week. Exchange-traded funds saw inflows of $108 million after $158 million of outflows the week prior.

Strength that began on Tuesday and continued Wednesday marked the first sessions since early May for positive performance after a hefty selloff, noted Kim Olsan, senior vice president at FHN Financial.

She noted that several local AAAs and state-level benchmark names on Tuesday began trading closer to “or even through scale — helping subsequent bidding to hold a better bias.”

But inter-month weakness has created losses ranging from less than 50 basis points (short-dated bonds) to near 1.5% (long maturities, healthcare and housing), Olsan said. 

As of the close Tuesday, the Bloomberg Municipal Index was at -1.13% with 1.39% year-to-date, while high-yield was at -1.13% month-to-date and +2.16% in 2023 and taxable munis are down 1.96% in May but +4.42% year-to-date. The Municipal Short Term index was at +0.17% and +1.11% in 2023.

She noted one nuance during the month as rates have trended higher “is a greater reception to short-dated calls with spreads holding +20 bps or wider to respective call dates.” 

“Buyers appear to be taking notice of wider compensations — with the nearing end of the tightening cycle offering some clarity on duration effects of short OAS,” Olsan said.   

The 1-5 year MMD slope “has steepened 20 basis points from a recent flat (wide?) of negative 68 basis points,” she said. 

“Premium 5s with 2024-2027 call dates carry some extension risk but a yield rally and/or potential recession in the next 12 months would bode well for those structures,” Olsan said.   

Part of this is that ongoing liquidations via the FDIC failed bank lists point to steady demand at wide ranges for seasoned low coupons, Olsan said.  

She noted a block of Aaa/AAA Anne Arundel County MD GO 3s due 2038 changed hands at 3.97% (+73/MMD) and Delaware GO 2s due 2036 traded into a 3.95% order (+96/MMD and an adjustment of 198 basis points from its April 2021 issue yield).  

“In addition to expected further FDIC lists, the beginning of the new month brings a fuller slate of issuance which includes healthcare, prepay gas bonds and utility credits,” which have pushed the forward calendar figure to over $10 billion, Olsan said. 

Bond Buyer 30-day visible supply sits at $10.68 billion while net negative supply is at $23.5 billion, per Bloomberg data.

“Discussions related to upcoming needs suggest the June reinvestment cycle will be a focus given how much absolute yields have corrected and related taxable equivalent yields have improved,” Olsan added.

In the primary market Wednesday, Jefferies priced for New York City (Aa2/AA/AA/AA+/) $1.418 billion of tax-exempt bonds with bumps of seven to 12 basis points in a repricing. The first tranche, $1.108 billion of Subseries F-1, saw 5s of 8/2025 at 3.43%, 5s of 2028 at 3.26%, 5s of 2033 at 3.16%, 5s of 2038 at 3.60% and 5s of 2039 at 3.64%, callable 8/1/2033.

The second tranche, $37.005 million of Series G, saw 5s of 8/2023 at 3.56%, 5s of 2028 at 3.26% and 5s of 2033 at 3.16%, noncall.

The third tranche, $272.845 million of Series 1, saw 5s of 8/2027 at 3.30%, 5s of 2028 at 3.26%, 5s of 2033 at 3.16% and 5s of 2036 at 3.38, callable 8/1/2033.

BofA Securities priced for the Nebraska Public Power District (A1/A+/A+/) $150.500 million of general revenue bonds, 2023 Series A, with 5s of 7/2028 at 3.12%, callable 1/1/2028.

BofA Securities priced for the Mississippi Business Finance Corp. $150.050 million of non-AMT port facility refunding revenue bonds, Series 2023, with 3.9s of 6/2043 at par.

J.P. Morgan priced for Fort Bend County, Texas, (Aa1//AA+/) $136.850 million of bonds. The first tranche, $82.960 million of unlimited tax road bonds, saw 5s of 3/2024 at 3.44%, 5s of 2028 at 3.06%, 5s of 2033 at 3.07%, 5s of 2038 at 3.49%, 5s of 2043 at 3.75%, 5s of 2046 at 3.91% and 5.25s of 2053 at 3.97%, callable 3/1/2033.

The second tranche, $33.900 million of certificates of obligation, saw 5s of 3/2024 at 3.44%, 5s of 2028 at 3.09%, 5s of 2033 at 3.07%, 5s of 2038 at 3.53% and 5s of 2043 at 3.79%, callable 3/1/2033.

The third tranche, $19.990 million of tax anticipation notes, saw 5s of 3/2024 at 3.44%, noncall.

In the competitive market, Elk Grove USD, California, (Aa2///) sold $132.400 million of GOs, to Morgan Stanley, with 5s of 8/2024 at 3.10%, 6s of 2028 at 2.65%, 4s of 2033 at 2.70%, 4s of 2038 at 3.60%, 4s of 2043 at par and 4s of 2045 at 4.07%, callable 8/1/2030.

Secondary trading
Maryland 5s of 2024 at 3.21%-3.06% versus 3.28% Thursday and 3.31% original on 5/24. Georgia 5s of 2024 at 3.24%. Minnesota 5s of 2025 at 3.09%.

DC 5s of 2028 at 2.81%. California 5s of 2028 at 2.71%. New Mexico 5s of 2029 at 2.80%-2.86%.

Triborough Bridge and Tunnel Authority 5s of 2032 at 2.67% versus 2.71%-2.69% on 5/24. DASNY 5s of 2033 at 2.62% versus 2.75%-2.76% Thursday and 2.63% original on 5/19. LA DWP 5s of 2034 at 2.66% versus 2.70% Tuesday and 2.84% original on 5/24.

LA DWP 5s of 2049 at 3.74% versus 3.79%-3.75% Tuesday and 3.94%-3.89% original on 5/24. Illinois Finance Authority 5s of 2051 at 4.35%-4.33% versus 4.44% on 5/22 and 4.16% on 5/16. King County, Washington, 5s of 2053 at 3.75%.

AAA scales
Refinitiv MMD’s scale was bumped four basis points: The one-year was at 3.24% (-4) and 3.08% (-4) in two years. The five-year was at 2.76% (-4), the 10-year at 2.65% (-4) and the 30-year at 3.55% (-4) at 3 p.m.

The ICE AAA yield curve was bumped two to four basis points: 3.24% (-2) in 2024 and 3.08% (-2) in 2025. The five-year was at 2.72% (-4), the 10-year was at 2.66% (-3) and the 30-year was at 3.59% (-4) at 4 p.m.

The IHS Markit municipal curve was bumped four basis points: 3.23% (-4) in 2024 and 3.08% (-4) in 2025. The five-year was at 2.76% (-4), the 10-year was at 2.64% (-4) and the 30-year yield was at 3.55% (-4), according to a 4 p.m. read.

Bloomberg BVAL was bumped three to four basis points: 3.11% (-4) in 2024 and 3.01% (-3) in 2025. The five-year at 2.69% (-3), the 10-year at 2.61% (-3) and the 30-year at 3.59% (-4) at 4 p.m.

Treasuries were firmer.

The two-year UST was yielding 4.377% (-7), the three-year was at 4.028% (-7), the five-year at 3.728% (-7), the 10-year at 3.623% (-6), the 20-year at 4.000% (-6) and the 30-year Treasury was yielding 3.838% (-6) at 4 p.m.

Primary to come
Sutter Health (A1/A+/A+/) is set to price $750 million of taxable corporate CUSIP bonds Thursday. Serials 2033, 2053. Citigroup Global Markets Inc.

Riverside County, California, is set to price Thursday $360 million of tax and revenue anticipation notes. J.P. Morgan Securities LLC.

Connecticut (Aa3/AA-/AA-/AA+) is set to price $360 million of general obligation bonds Thursday. Morgan Stanley & Co. LLC.

Connecticut is also set to price $350 million of taxable GOs Thursday. Morgan Stanley & Co. LLC.

The Massachusetts Educational Financing Authority (/AA//) is set to price $352.7 million of taxable education loan revenue bonds Thursday. Serials, 2028-2033, term 2044. RBC Capital Markets.
The Irvine Facilities Financing Authority (/AA+//) is set to price $325.51 million of Gateway Preserve Land Acquisition Project lease revenue bonds Thursday. Serials, 2027-2038, terms, 2043, 2048, 2053. Stifel, Nicolaus & Company, Inc.

The Maryland Stadium Authority (/AA/AA/) is set to price Thursday $233.98 million of football stadium issue revenue bonds, serials, 2025-2037. Raymond James & Associates, Inc.

The Iowa Finance Authority (Aaa//AAA/) is set to price Thursday $186.215 million of state revolving fund revenue green bonds, serials 2025-2043, terms 2048, 2053. RBC Capital Markets.

The Utah Board of Higher Education (Aa1/AA+//) is set to price Thursday $163.195 million of University of Utah general revenue bonds, serials 2026-2053. Wells Fargo Bank, N.A. Municipal Finance Group.
The Indiana Finance Authority (/BBB-//) is set to price Thursday $140.155 million of taxable CHF-Tippecanoe, LLC student housing project revenue bonds. RBC Capital Markets.

The South Carolina State Housing Finance and Development Authority (Aaa///) is set to price $106.19 million of mortgage revenue bonds, serials 2025-2035, terms, 2038, 2043, 2048, 2053, 2054. Citigroup Global Markets Inc.
Clark County, Nevada, is set to sell $100 million of sales and excise tax revenue streets and highways bonds at 11:30 a.m. eastern Thursday.

Ventura County, California, is set to sell $90 million of taxable tax and revenue anticipation notes at 11:45 a.m. eastern Thursday.

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