Bonds

Munis steady before massive calendar; outflows cause some concern

Municipals were steady Monday ahead of one of the largest new-issue calendar so far this year while U.S. Treasuries were little changed and equities ended up.

April continues to be a “tough month” for munis as the asset class has seen month-to-date losses of 1.02%, bringing year-to-date losses to 1.40%, said Jason Wong, vice president of municipals at AmeriVet Securities.

Since the start of the month, the 10-year UST has risen around 42 basis points while the 10-year Refinitiv MMD yield has risen 23 basis points.

“With the potential of any rate cuts in 2024 dwindling … munis continue to follow suit with Treasuries,” Wong said.

Munis have remained “relatively orderly” despite UST swings, according to Birch Creek strategists in a weekly report, but a “storm of macro uncertainty, sizable upcoming new-issue calendar, historically tight valuations, and a still weak technical period has kept many participants at bay,” they said.

Indeed, ratios are still historically low. The two-year muni-to-Treasury ratio Monday was at 63%, the three-year at 62%, the five-year at 60%, the 10-year at 59% and the 30-year at 82%, according to Refinitiv Municipal Market Data’s 3 p.m. EST read. ICE Data Services had the two-year at 64%, the three-year at 63%, the five-year at 60%, the 10-year at 61% and the 30-year at 82% at 3:30 p.m.

“Yet on the other hand, the high absolute yields, positive fund flows this year, pent-up cash balances, and the upcoming strong summer technical season are the clear skies that can be seen on the horizon,” they said.

New issues “continue to have to come at big concessions” and the competitive deals are bought so that dealers “don’t end up with sizable balances sitting on their balance sheets,” Birch Creek strategists said.

The “new-issue calendar will be a “good test to see if the higher absolute yields can pull buyers off the sidelines or if underwriters need to widen spreads significantly enough to reprice the entire market to clear the deals,” according to Birch Creek strategists.

This week’s calendar surges up to $13 billion, led by nearly $3 billion of GO refunding bonds from the Los Angeles Unified School District and $2.2 billion of Brightline Florida Passenger Rail Project tax-exempt AMT revenue refunding bonds from the Florida Development Finance Corp. 

There are also two other large deals on the horizon.

The South Carolina Jobs-Economic Development Authority is set to price $1.912 billion of Novant Health Obligated Group healthcare facilities revenue bonds.

The Southern California Public Power Authority is set to price $550 million of Southern Transmission System Renewal Project revenue bonds.

Muni mutual funds saw $1.5 billion of outflows last week — the largest since December — ending an eight-week streak of inflows, according to LSEG Lipper.

The large outflows may have been a “one-off” largely due to the tax filing deadline, Birch Creek strategists noted.

“This was expected as the market has been experiencing selling pressure due to higher rates, as well as investors selling after the tax deadline in order to pay off any income taxes, and to protect returns,” Wong said.

However, Vikram Rai, head of municipal markets strategy at Wells Fargo, said it is hard to attribute all of these outflows to tax season “given that long-end funds witness strong outflows and [high-yield] funds flows were negative too.”

Historically, a 40 basis point UST sell-off within eight weeks “begets higher municipal yields, which begets negative returns, which begets fund outflows, which begets intense volatility,” he said.

Over the last six weeks, the 10-year UST has risen by 52 basis points, while the 10-year Refinitiv MMD yield has risen by 34 basis points.

“While this does not suggest that an outflow cycle is imminent, undoubtedly, it is a legitimate worry because returns will get crushed and move further into negative territory if we witness the much-dreaded outflow cycle,” Rai said.

In the primary market Monday, Siebert accelerated the pricing for the Metropolitan Water District of Southern California’s (Aa1/AAA//) $365.820 million of water revenue refunding bonds, Series 2024A, with 5s of 4/2025 at 3.23%, 5s of 2029 at 2.63%, 5s of 2034 at 2.64%, 5s of 2039 at 3.12%, 5s of 2044 at 3.59%, 5s of 2049 at 3.85% and 5s of 2054 at 3.95%, callable 4/1/2034.

AAA scales
Refinitiv MMD’s scale was unchanged: The one-year was at 3.38% and 3.15% in two years. The five-year was at 2.78%, the 10-year at 2.74% and the 30-year at 3.90% at 3 p.m.

The ICE AAA yield curve was little changed: 3.41% (+1) in 2025 and 3.20% (+1) in 2026. The five-year was at 2.80% (unch), the 10-year was at 2.78% (unch) and the 30-year was at 3.86% (unch) at 3:30 p.m.

The S&P Global Market Intelligence municipal curve was unchanged: The one-year was at 3.41% in 2025 and 3.18% in 2026. The five-year was at 2.79%, the 10-year was at 2.79% and the 30-year yield was at 3.89%, according to a 3 p.m. read.

Bloomberg BVAL was unchanged: 3.41% in 2025 and 3.19% in 2026. The five-year at 2.72%, the 10-year at 2.72% and the 30-year at 3.91% at 3:30 p.m.

Treasuries were firmer across the curve.

The two-year UST was yielding 4.970% (-1), the three-year was at 4.803% (-1), the five-year at 4.657% (-1), the 10-year at 4.616% (-1), the 20-year at 4.847% (flat) and the 30-year at 4.719% (flat) at 3:45 p.m.

Negotiated calendar:
The Los Angeles Unified School District is set to price Wednesday $2.978 billion of GO refunding bonds, Series A. BofA Securities.

The Florida Development Finance Corp. is set to price $2.2 billion of Brightline Florida Passenger Rail Project tax-exempt AMT revenue refunding bonds for Brightline Trains Florida /BBB-/BBB-/BBB). Morgan Stanley.

Houston (Aa2//AA/) is set to price Tuesday $841.125 million of combined utility system first lien revenue refunding bonds, serials 2024-20244, terms 2049, 2054. Jefferies.

Energy Northwest (Aa1/AA-/AA/) is set to price Tuesday $835.740 million of electric revenue bonds, consisting of $514.440 million of Columbia Generating Station refunding bonds, Series 2024-A; $54.840 million of Project 3 refunding bonds, Series 2024A; $189.940 million of Project 1 refunding bonds, Series 2024B; $9.595 million of Columbia Generating Station bonds, Series 2024B; and $66.925 million of Project 3 refunding bonds, Series 2024-B.

Oregon (Aa1/AA+/AA+/) is set to price Wednesday $566.845 million of GOs, consisting of $299.870 million of Series BC and $266.975 million of Series AD. Morgan Stanley.

The New Jersey Health Care Facilities Financing Authority is set to price Wednesday $370.32 million of RWJ Barnabas Health Obligated Group revenue and refunding bonds (A1/AA-//). Jefferies.

Travis County, Texas, (Aa3/AAA//) is set to price Tuesday $266.28 million of permanent improvement limited tax ($176.405 million series 1, serials 2025-2044), unlimited tax road bonds ($43.795 million of series 2, serials 2025-2044) and limited tax certificates of obligation ($46.08 million series 3, serials 2025-2044). Ramirez & Co.

The Tarrant County Cultural Education Facilities Finance Corp. (A1//A+/) is set to price $210.695 million of Christus Health revenue bonds, Series 2024A. RBC Capital Markets.

The Community Development Administration (Aa1//AA+/) is set to price Tuesday $210 million of Maryland Department of Housing and Community Development taxable social residential revenue bonds, serials 2025-2034, terms, 2039, 2044, 2049, 2054, 2054. BofA Securities.

The New Jersey Housing and Mortgage Finance Agency (Aa2/AA//) is set to price Tuesday $205.5 million of single-family housing revenue non-AMT social bonds, Series K. Jefferies.

Valparaiso, Indiana, is set to price Thursday $173.565 million of non-rated Pratt Paper, LLC Project exempt facilities refunding revenue bonds, serials 2034, 2044, 2054. BofA Securities.

The Nebraska Investment Finance Authority (/AAA//) is set to price Tuesday $154.145 million of tax-exempt single-family housing non-AMT social bonds and taxable bonds, consisting of $115 million of exempts and $39.145 million of taxables. J.P. Morgan.

The Frisco Independent School District, Texas, (Aaa/AAA//) is set to price Wednesday $148.32 million of PSF-insured unlimited tax school building and refunding bonds. Piper Sandler & Co.

The Maine Municipal Bond Bank (Aa2/AA+//) is set to price Wednesday $135.31 million of series A bonds, serials, 2025-2044, terms, 2049, 2054. BofA Securities.

The Bethel School District No. 403, Washington, (Aaa///) is set to price Tuesday $131.92 million of unlimited tax general obligation bonds, insured by WA State SD Credit enhancement program. Piper Sandler & Co.

The Massachusetts Housing Finance Agency (Aa1/AA+//) is set to price Wednesday $124.27 million of single-family housing AMT, non-AMT and taxable social revenue bonds. Raymond James.

The Bell County Water Control and Improvement District No. 1, Texas, (/AA//) is set to price Tuesday $111.37 million of water system revenue bonds, insured by Build America Mutual, serials 2025-2049. Raymond James.

The Okaloosa Gas District, Florida, (Aa3///) is set to price Thursday $107.585 million of taxable and tax-exempt gas system revenue bonds. BofA Securities.

Competitive:
The Florida Department of Transportation (Aa2/AA/AA/) is set to sell $153.495 million of turnpike revenue refunding bonds, Series 2024A, at 10 a.m. Tuesday.

Greenville, Texas, (/A//) is set to sell $104.12 million of waterworks and sewer system new lien revenue bonds at 11 a.m. eastern Tuesday. 

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