December 3, 2023

Municipal yields were little changed to weaker in spots Monday as large retail offerings were held for the Los Angeles Unified School District and the New York Power Authority. U.S. Treasuries made gains and equities were mixed.

The two-year muni-to-Treasury ratio Monday was at 72%, the three-year was at 73%, the five-year at 73%, the 10-year at 74% and the 30-year at 91%, according to Refinitiv Municipal Market Data’s 3 p.m., ET, read. ICE Data Services had the two-year at 73%, the three-year at 74%, the five-year at 72%, the 10-year at 73% and the 30-year at 89% at 3:30 p.m.

While muni yields were little changed Monday, the asset class extended its negative performance last week, said Birch Creek Capital strategists in a weekly report.

Refinitiv MMD’s AAA curve “outperformed throughout most tenors, however, with yields rising as much as 29bps out long, this was not met with much celebration,” they said.

Many muni participants have been “hyping up yield levels at 10-plus year highs, but with the rest of the fixed income markets also breaking through multi-decade records,” they said the asset class would need to see “a large reversal in Treasuries and more compelling after-tax advantages before clients begin sending cash back into funds.”

Last week saw a large “robust” new-issue calendar, they noted.

“A lot of [issuance] was day to day but then got moved and came to market [last week], and we saw some pretty good strength in the new-issue market,” said Jeff Timlin, managing partner at Sage Advisory. “Many deals were multiple times oversubscribed. So there was a lot of activity even though they were priced at some aggressive valuations.”

“There’s money to be put to work, and people feel comfortable deploying it,” he said.

New issues, however, “are coming at significant concessions to secondary trading levels,” Birch Creek Capital strategists said.

In the near future, they said “sentiment will surely turn and everyone will chase after the limited bonds available for sale, but we will likely need to see some significant signs that inflation is under control before fixed income bulls have their day in the sun.”

Issuance this week falls off a bit, but two large deals still held one-day retail order periods Monday.

In the primary market, Morgan Stanley held a one-day retail order for $850 million of GO sustainability decided unlimited ad valorem property tax bonds, Series QRR (2023), for the Los Angeles Unified School District (Aa3//AAA/AAA/). The first tranche, $803.030 million of tax-exempt bonds, saw 5s of 7/2024 at 3.75%, 5s of 2028 at 3.52%, 5s of 2033 at 3.69%, 5s of 2038 at 4.24%, 5s of 2043 at 4.53% and 5.25s of 2048 at 4.69%, callable 1/1/2034.

The second tranche, $46.970 million of taxables, saw 5.75s of 1/2024 price at par, noncall.

Goldman Sachs held a one-day retail order for $743.345 million of green transmission project revenue bonds, Series 2023A, for the New York Power Authority, with 5s of 11/2026 at 3.77%, 5s of 2028 at 3.76%, 5s of 2033 at 3.98%, 5s of 2038 at 4.49%,5.25s of 2043 at 4.78%, 5s of 2048 at 5.10%, 5s of 2053 at 5.15%, 5.125s of 2058 at 5.25% and 5.125s of 2063 at 5.35%, callable 11/15/2033.

Furthermore, the 30-day forward calendar is still “pretty hefty,” with several anticipated deals coming into year-end, Timlin said. Bond Buyer 30-day visible supply sits at $14.87 billion.

Some of these deals need to get done before the end of 2023, so “whether it’s this week or next week or next couple of weeks, [the primary market] looks like it’s still elevated,” he said.

Outflows continued last week — but to a lesser extent — as investors pulled $297 million from muni mutual funds, “with money coming into [exchange-traded funds] unable to offset the $543 million in mutual fund withdrawals,” Birch Creek strategists said.

Both ongoing outflows and an increase in supply this week have put minimal pressure on the market, said Dan Solender, director of tax-free fixed income at Lord Abbett.

The buy-side has been taking the steady outflows in stride, while the uptick in supply last week has been welcomed by the market and is getting successfully placed, he noted.

“Overall credit quality remains strong and yields are now at levels that haven’t been seen in a while, so there is likely to be strong demand when yields stabilize,” Solender said.

Absolute rates still look “quite attractive,” with certain highs not being seen since 2006 and 2007, according to Timlin.

These rates become even more attractive on a tax-adjusted basis, he said.

However, spreads “have adjusted as much as people would have anticipated with the supply coming to market and with the amount of [bid wanteds] that have come out,” he said.

Bids wanteds remain elevated with clients putting up $8.9 billion for the week, with a high of $2.3 billion Thursday.

There has also been a little bit of softening in the credit markets, such as single-A and triple-B credits, Timlin said, but it’s “very modest.”

“People are still comfortable with those particular credits and getting compensated at slightly richer levels,” he said.

Overall, Timlin said technicals “should be biased towards a weaker tone going into the end of the year, but we’ve seen such resilience here.”

Secondary trading
NYC 5s of 2024 at 3.99%. Tennessee 5s of 2024 at 3.80% versus 3.80% Friday. NYC TFA 5s of 2025 at 3.84% versus 3.76% Thursday and 3.77% Wednesday.

Maryland 5s of 2027 at 3.61%. Baltimore County, Maryland, 5s of 2028 at 3.54% versus 3.56% Friday. NYC TFA 5s of 2029 at 3.77% versus 3.77% Friday.

Triborough Bridge and Tunnel Authority 5s of 2032 at 3.83%. Delaware 5s of 2033 at 3.58% versus 3.58% Friday. NYC 5s of 2035 at 4.14%.

Oregon 5s of 2048 at 4.77%-4.76%.NYC TFA 4s of 2051 at 5.10%-5.11% versus 5.00% on 10/6.

AAA scales
Refinitiv MMD’s scale was little changed: The one-year was at 3.78% (unch) and 3.67% (unch) in two years. The five-year was at 3.51% (+2), the 10-year at 3.59% (unch) and the 30-year at 4.53% (unch) at 3 p.m.

The ICE AAA yield curve was cut a basis point: 3.74% (+1) in 2024 and 3.72% (+1) in 2025. The five-year was at 3.53% (+1), the 10-year was at 3.58% (+1) and the 30-year was at 4.56% (+1) at 3:30 p.m.

The S&P Global Market Intelligence municipal curve was little changed: The one-year was at 3.81% (unch) in 2024 and 3.71% (unch) in 2025. The five-year was at 3.56% (+2), the 10-year was at 3.60% (unch) and the 30-year yield was at 4.54% (unch), according to a 3 p.m. read.

Bloomberg BVAL was little changed: 3.81% (unch) in 2024 and 3.75% (unch) in 2025. The five-year at 3.53% (+1), the 10-year at 3.62% (unch) and the 30-year at 4.57% (unch) at 3:30 p.m.

Treasuries were better across the curve.

The two-year UST was yielding 5.076% (-1), the three-year was at 4.888% (-4), the five-year at 4.810% (-5), the 10-year at 4.853% (-6), the 20-year at 5.207% (-8) and the 30-year Treasury was yielding 5.006% (-8) at 3:30 p.m.

Primary to come
The New York Transportation Development Corp. (Baa3/BB+//) is set to price Wednesday $881.225 million of special facilities revenue bonds, Series 2023, for Delta Air Line’s LaGuardia Airport Terminals C&D Redevelopment Project, terms 2035, 2040. Citigroup Global Markets.

Chicago is set to price Tuesday $519.750 million of senior lien airport revenue and revenue refunding bonds on behalf of the Chicago Midway Airport, consisting of $219.425 million of AMT bonds, Series 2023A, and $300.325 million of non-AMT bonds, Series 2023B. Jefferies.

The Pennsylvania Housing Finance Agency (Aa1/AA+//) is set to price Tuesday $408.315 million of single-family mortgage revenue bonds, consisting of $388.080 million of non-AMT social bonds, Series 2023-143A, serials 2034-2035, terms 2038, 2043, 2048, 2051 and 2053; and $20.235 million of taxables, Series 2023-143B, terms 2038 and 2043. Wells Fargo Bank.

The Phoenix Civic Improvement Corp. (Aa2/AAA//) is set to price Tuesday $396.960 million of junior lien wastewater system revenue bonds, Series 2023, serials 2028-2047. Jefferies.

Freddie Mac (/AA+//) is set to price Wednesday $364.010 million of sustainability structured pass-through certificates, consisting of $182.005 million of Series ML-18, Class A, serial 2037; and $182.005 million of Series ML-18, Class X, serial 2037. Citigroup Global Markets.

The Fishers Town Hall Building Corp. (/AA//) is set to price Tuesday $170 million of lease rental revenue bonds, consisting of $160 million of tax-exempts, Series 2023A, serials 2026-2031, terms 2032-2043, 2048, 2053, 2058 and 2063; and $10 million of taxables, Series 2023B, serial 2026, terms 2027-2034. Raymond James & Associates.

Rhode Island (Aa2/AA/AA/) is set to price Tuesday $146.705 million of GO consolidated capital development loan of 2023 bonds, consisting of $122.405 million of tax-exempts, Series A, serials 2029-2043, and $24.300 million of taxables, Series B, serials 2024-2028. BofA Securities.

Cape Coral, Florida (/AA//), is set to price this week $138.085 of BAM-insured North 1 West Area utility improvement assessment refunding. Morgan Stanley.

The New York City Housing Development Corp. (Aa2/AA+//) is set to price Tuesday $125 million of taxable sustainable development index floating rate multi-family housing revenue bonds, 2023 Series C, term 2063. Loop Capital Markets.

The Virginia Small Business Financing Authority (Aaa///) is set to price Wednesday $125 million of Pure Salmon Virginia Project environmental facilities revenue bonds, Series 2022, serial 2052. Wells Fargo Bank.

The Illinois Finance Authority is set to price Thursday $100 million of LRS Holdings Project solid waste disposal revenue bonds, consisting of $30 million of green bonds, Series 2023A, and $70 million of bonds, Series 2023B. J.P. Morgan.

Fayetteville, North Carolina (Aa2/AA/AA/), is set to sell $171.105 million of Public Works Commission revenue bonds, Series 2023, at 11 a.m. eastern Tuesday.

The Pinellas County School District, Florida, is set to sell $100 million of tax anticipation notes, at 11 a.m. Tuesday.

The California Public Works Board is set to sell $299.820 million of lease revenue bonds, 2023 Series D, at 11:30 a.m. Wednesday and $55.275 million of lease revenue bonds, 2023 Series E, at 11 a.m. Wednesday.

Minnesota (/AA+//) is set to sell $449.935 million of certificates of participation, Series 2023, at 11:15 a.m. Wednesday and $26.030 million of taxable State General Fund appropriation bonds, Series 2023A, at 11:30 a.m. Wednesday, and

Nevada (Aa1/AAA/AA+/) is set to sell $433.725 million of GO capital improvement bonds, Series 2023A, at 10:45 a.m. Wednesday; $29.415 million GO open space, parks and natural resources bonds, Series 2023C, at 11:30 a.m. Wednesday; $13.865 million of GO natural resources and open space bonds, Series 2023B, at 11:30 a.m. Wednesday; and $5.895 million of GO Safe Drinking Water Revolving Fund matching bonds, Series 2023D, at 10:45 a.m. Wednesday.

The Virginia Public School Authority (Aaa/AAA/AAA/) is set to price $134.600 million of special obligation school financing bonds, Series 2023, at 10:30 a.m. Thursday.

The Albermarle County Economic Development Authority (Aa1/AA+/AA+/) is set to sell $109.650 million of public facilities revenue bonds, Series 2023A, at 11 a.m. Thursday, and $59.195 million of taxable public facilities revenue notes, Series 2023B, at 10:15 a.m.

Christine Albano contributed to this story.