U.S. Treasuries sold off Friday after payrolls came in much hotter than expected, leading economists and traders to pare back rate cut expectations. The municipal market could not ignore the moves and triple-A yields rose, but outperformed taxables to a large extent, pushing ratios lower. Equities rallied on the news, pushing the Dow to close to an all-time high.
“Two weeks ago, the Fed cut rates for the first time in over four years, but today’s jobs report was crucial in helping to define the scope of this cutting cycle,” noted Lara Castleton, U.S. head of portfolio construction and strategy at Janus Henderson Investors. “This blowout jobs print will lend credence to the soft landing pundits that the reason behind the cuts was to normalize rates to an appropriate level for today’s economy.”
Castleton noted the figure “was so much stronger than anyone expected” and should reduce calls for “the more dramatic” 50 basis point cut in November.
“On the back of today’s blockbuster payrolls, and somewhat stronger ISM and PMI numbers, most investors are now in the 25bp-cut camp next month,” noted Barclays PLC in a weekly report. “After today’s data release, rates have sold off, and the yield curve has flattened, which could present challenges to tax-exempts near-term.”
Triple-A yield curves saw levels rise by five to 11 basis points, depending on the curve, while USTs saw the largest losses up front.
Muni to UST ratios adjusted downward on the day’s moves. The two-year muni-to-Treasury ratio Friday was at 58%, the three-year at 58%, the five-year at 60%, the 10-year at 64% and the 30-year at 82%, according to Refinitiv Municipal Market Data’s 3 p.m. EST read.
ICE Data Services, which saw larger cuts to its scale, had the two-year at 65%, the three-year at 64%, the five-year at 64%, the 10-year at 69% and the 30-year at 85% at 3 p.m.
Municipal investors can expect $10 billion of new issues from which to choose the first full week of October and the fourth quarter, led by a $1.5 billion taxable general obligation bond offering from New York City. Connecticut is bringing $935 million of general obligation bonds.
The largest competitive deal is from New York State with $521.75 million of general revenue refunding bonds Tuesday.
Bond Buyer 30-day visible supply sits at $17.3 billion.
“In our view, it will be quite hard for tax-exempts to deal with the heavy pipeline when the market has become richer, and rates might become volatile near-term,” said Mikhail Foux, managing director and head of municipal research and strategy at Barclays. “Investors might start taking a step back, which will cause the positive market tone to change, which makes us more cautious, looking at the heavy pipeline in the next several weeks.”
AAA scales
Refinitiv MMD’s scale was cut across the curve: The one-year was at 2.60% (+5) and 2.36% (+8) in two years. The five-year was at 2.35% (+8), the 10-year at 2.62% (+8) and the 30-year at 3.57% (+8) at 3 p.m.
The ICE AAA yield curve was cut up to 11 basis points: 2.68% (+6) in 2025 and 2.40% (+11) in 2026. The five-year was at 2.33% (+9), the 10-year was at 2.63% (+7) and the 30-year was at 3.54% (+8) at 4 p.m.
The S&P Global Market Intelligence municipal curve was cut: The one-year was at 2.63% (+7) in 2025 and 2.36% (+7) in 2026. The five-year was at 2.33% (+7), the 10-year was at 2.62% (+7) and the 30-year yield was at 3.53% (+7) at 4 p.m.
Bloomberg BVAL was cut: 2.65% (+5) in 2025 and 2.40% (+5) in 2026. The five-year at 2.3%6 (+5), the 10-year at 2.62% (+6) and the 30-year at 3.54% (+6) at 4 p.m.
Treasuries sold off.
The two-year UST was yielding 3.926% (+21), the three-year was at 3.835% (+21), the five-year at 3.811% (+18), the 10-year at 3.979% (+13), the 20-year at 4.335% (+9) and the 30-year at 4.266% (+9) just before the close.
Primary to come
New York City (Aa2/AA/AA/AA+) is set to price Wednesday $1.5 billion of taxable general obligation bonds, consisting of $820 million of taxable social bonds, terms 2049, 2054, and $680 million of taxables, serials 2026-2044. BofA Securities.
Connecticut (Aa3/AA-/AA-/AA+) is set to price Wednesday $935 million of general obligation bonds, consisting of $560 million of Series F, serials 2025-2038, $240 million of Series G social GOs, serials 2039-2044, and $135 million of Series H, refunding GOs, serials 2025-2034. Siebert Williams Shank & Co.
The Philadelphia Authority for Industrial Development (Aa2/AA//) is set to price Tuesday $550 million of Children’s Hospital of Philadelphia Project hospital revenue bonds. J.P. Morgan Securities LLC.
The Maryland Stadium Authority (Aa2/AA//) is set to price Tuesday $413.41 million of Build to Learn revenue bonds, serials 2026-2044, terms 2049, 2054. BofA Securities.
The New York State Housing Finance Agency (Aa1///) is set to price Wednesday $259.99 million of state personal income tax sustainability revenue bonds. Jefferies LLC.
The Cabarrus County Development Corp. (Aa1/AA+/AA+/AA+), North Carolina, is set to price Thursday $238.305 million of limited obligation refunding bonds, serials 2025-2044. BofA Securities.
The Georgia Housing and Finance Authority (/AAA//) is set to price Tuesday $203.6 million of single-family mortgage non-AMT revenue bonds. Morgan Stanley & Co. LLC.
The East Baton Rouge Parish Capital Improvement District (Aa2/AA+//) is set to price Tuesday $199.44 million of MOVEBR sales tax revenue bonds, serials 2025-2048. Stifel, Nicolaus & Company, Inc.
The School District of Pasco County, Florida, (Aa3//AA/) is set to price Tuesday $197.195 million of sales tax revenue bonds, serials 2025-2039. BofA Securities, New York
The Aldine Independent School District, Texas, (Aaa/AAA//) is set to price $183.74 million of unlimited tax school building and refunding bonds, PSF guarantee. Cabrera Capital Markets, LLC.
The Ohio Higher Educational Facility Commission is set to price $180.935 million of Xavier University 2024 Project higher educational facility revenue refunding bonds, serials 2025-2042, terms 2049, 2054. RBC Capital Markets.
The Colorado Housing and Finance Authority (Aaa/AAA//) is set to price $163 million of taxable single-family mortgage bonds, serials 2026-2034, terms 2036, 2039, 2044, 2050. RBC Capital Markets.
The Hampton Roads Transportation Accountability Commission (Aa1/AA//) is set to price Tuesday $152.73 million of Hampton Roads Transportation Fund senior lien revenue bonds, serials 2030-2044, terms 2049, 2054, 2059, 2064. BofA Securities.
Orlando, Florida, (/AAA/AAA/) is set to price Wednesday $149.27 million of water reclamation system revenue and refunding revenue bonds. BofA Securities.
The Mississippi Home Corp. (Aaa///) is set to price Tuesday $125.815 million of single-family mortgage revenue bonds, consisting of $96.835 million of non-AMT, serials 2029-2036, terms 2039, 2044, 2049, 2054, and $28.98 million of taxables, serials 2025-2029, term 2054. Wells Fargo Bank, N.A. Municipal Finance Group.
The Arizona Board of Regents (Aa3/A+//) is set to price Wednesday $115.2 million of University of Arizona SPEED revenue refunding bonds, insured by BAM. Morgan Stanley & Co. LLC.
The California Municipal Finance Authority is set to price Tuesday $112.135 million of PRS California Obligated Group Projects revenue and refunding bonds. Ziegler, Chicago
The Metropolitan Knoxville Airport Authority (A3/A//) is set to price $111.015 million of airport revenue bonds, non-AMT and taxables. BofA Securities.
Washington State University (Aa3/A+//) is set to price Tuesday $105.975 million of general revenue refunding delayed delivery bonds, serials 2027-2040. Barclays Capital Inc.
Competitive:
New York State (Aa3/A+//) is set to sell $521.75 million of general revenue refunding bonds at 11:15 a.m. eastern Tuesday.
Clark County School District, Nevada, (A1/AA-//) is set to sell $400 million of limited tax general obligation bonds at 11:30 a.m. eastern Thursday.
Washoe County, Nevada, (Aa3/AA//) is set to sell $110.515 million of general obligation bonds at 10:45 a.m. Tuesday.