November 26, 2022

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Early June positive performance in line with recent years

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Munis were quiet Monday along with U.S. Treasuries as participants await the larger new-issue week that begins pricing Tuesday led by competitive deals from gilt-edged Georgia and the state of Wisconsin.

Flat with little activity is how municipals started the week as ratios continued to be close to or at historic levels due to the strong year-to-date demand, according to Roberto Roffo, managing director and portfolio manager at SWBC Investment Company.

Triple-A benchmarks were steady to firmer in spots while ratios hovered around recent percentages. The 10-year closed at 61% and at 66% in 30-years, according to Refinitiv MMD. ICE Data Services saw ratios on the 10-year at 61% and the 30-year at 67%.

Seasonality that has a high amount of scheduled calls and maturities attached to it is prompting more issuance, analysts said.

“Modest gains made in the first week of June are following that trend — since 2016 (and including 2020), when the AAA 10-year benchmark has rallied in late May and into the middle of June but has given back partial gains into July in some years,” said Kim Olsan, senior vice president at FHN Financial.

Three trends to consider, according to Olsan: Since the end of May, a drop in bids wanteds has moved the daily figure to $563 million against the 2021 median value of $597 million.

In response to reduced secondary selling, the 10- and 20-year AAA spots have improved by 3-5 basis points, and from April’s close, yields past 15 years are better by about 10 basis points on strong demand.

And fund flows are the third component impacting yield performance, she said.

The 4-week moving average for ICI flows is $1.2 billion; coming off last August’s yield lows, the weekly figure is running at $1.8 billion.

“When combined with new-issue distribution and secondary bid list totals, healthy flows are needed to sustain current yields,” she said.

Due to the amount of cash on the sidelines Roffo expects this week’s tax-exempt supply to have no problem finding a home.

“Investor cash flowing into the municipal market due to the talk of tax hikes and the perceived safety of municipal bonds will continue to maintain ratios at current levels,” Roffo said. “It will also continue to compress spreads as investors reach for yield.”

Nuveen said in a Monday report the firm believes demand for fixed income in general and municipals in particular will remain high over the summer. Nuveen also noted the $180 billion June through August coupon and principal reinvestment money that will be available. It is projected that $30 billion of investor demand will enter the system through mutual funds, Nuveen noted.

As for all investments, Nuveen favors “a risk-on stance, focused on credits with durable free cash flow and solid balance sheets across a wide range of sectors. Mid-quality rating segments appear particularly attractive. Essential service municipal credits also look compelling.”

Secondary trading and scales
Light trading pointed to steady to somewhat firmer yields. Mecklenberg County, North Carolina 5s of 2022 traded at 0.07%. New York City TFA 5s of 2023 at 0.13% versus 0.16% Friday. Virginia College Building Authority 5s of 2023 at 0.11%.

Dallas ISD 5s of 2025 traded at 0.35%-0.32%. California 5s of 2025 at 0.36%-0.35%.

NYC GOs 5s of 2029 traded at 0.97%. TFAs, 5s of 2032, traded at 1.22%-1.19% versus 1.22% Friday. NYC GOs 5s of 2033 at 1.25% versus 1.28%-1.26% Thursday. NYC 5s of 2036 at 1.35%.

Washington 5s of 2037 at 1.34%. Northside Texas ISD 3s of 2038 at 1.44% versus 1.45%-1.43% Friday. Energy Northwest 5s of 2040 traded at 1.36%-1.35% versus 1.40% Thursday.

High-grade municipals were steady, according to final readings on Refinitiv MMD’s AAA. Short yields in 2021 and 2022 were unchanged at 0.07% and 0.10%, respectively. The yield on the 10-year sat at 0.96% while the yield on the 30-year was also unchanged at 1.48%

The ICE AAA municipal yield curve showed short maturities steady in 2021 and 2022 at 0.06% and 0.11%. The 10-year maturity dipped one basis point to 0.96% and the 30-year yield sat at 1.51%.

The IHS Markit municipal analytics AAA curve showed short yields at 0.07% and 0.10% in 2021 and 2022, respectively, with the 10-year at 0.95% and the 30-year yield at 1.51%.

The BVAL AAA curve showed the yield on the 2021 maturity at 0.07% and the 2022 maturity at 0.09% while the 10-year fell one basis point to 0.92% and the 30-year steady at 1.50%

In late trading, the 10-year Treasury was yielding 1.57% and the 30-year Treasury was yielding 2.25% while equities were mixed with the Dow falling 138 points, the S&P 500 losing 0.14% and the Nasdaq gaining 0.37%.

Monday’s economic indicators
Consumer credit rose 5.3% in April, a third straight monthly gain of over 5%.

The Federal Reserve said seasonally adjusted credit increased 5.3% in April after rising by 5.3% in March and 5.2% in February. Revolving credit fell 2.4% in April after rising 1.7% in March while nonrevolving credit rise 7.6% after rising 6.4% in March.

The Conference Board reported its employment trends index rose to 107.35 in May from 104.31 in April. The index is up 39.4% from May 2020.

“In the past three months, the employment trends index grew much faster than any other three-month period in the history of the index prior to the pandemic. This marked acceleration suggests historically strong job growth in the coming months,” said Gad Levanon, head of the board’s Labor Markets Institute.

Primary market to come
Topping the list of new deals is Kaiser Permanente’s Series 2021 (NR/AA-/AA-/NR) taxable and taxable green bonds.

The deal is set to be priced by Goldman Sachs and its size is dependent upon market conditions.

Sources told The Bond Buyer that if the taxable market is favorable then up to $2.65 billion will be sold as corporate CUSIP bonds with 20- and 30-year bullet maturities. If the underwriter decides the issuer could get a better deal in the tax-exempt market, Goldman will reduce the taxable amount by a like amount to price up to $700 million of Series 2022A&B tax-exempt fixed-rate put bonds, with maturities from five- to 10-years with a final 2042 due date, for the California Statewide Communities Development Authority with Kaiser Foundations Hospital as the obligor.

In the competitive arena, Georgia (Aaa/AAA/AAA/NR) is selling $1.1 billion of tax-exempt and taxable general obligation bonds on Tuesday to provide funding for state capital projects.

The state will offer $412.47 million of Series 2021A Bidding Group 1 tax-exempt GOs at 10:15 a.m., $366.47 million of Series 2021A Bidding Group 2 tax-exempts at 10:45 a.m., $174.57 million of Series 2021B Bidding Group 1 taxable GOs at 11:15 a.m. and $153.53 million of Bidding Group 2 taxables at 11:45 a.m.

Also in the competitive market on Tuesday, Wisconsin (Aa1//AA+) will sell $227.3 million of general obligation bonds at 10:30 a.m.

In the short-term sector, Los Angeles County is coming to market with a $1 billion note deal. UBS Financial Services is set to price the Series 2021-2022 tax and revenue anticipation notes on Thursday.

Massachusetts (Aa1/AA+//AAA) is set to price $720 million of transportation fund revenue rail enhancement bonds. The first series, $168 million of sustainability bonds, are serials 2050-2051. The second, $232 million, are serials 2023-2046. The third, $320 million, are refunding serials 2022, 2029-2030, 2033-2043. BofA Securities is head underwriter.

The Indiana Finance Authority is set to price on Wednesday $623.7 million of first and second lien wastewater refunding revenue bonds, $443.6 million first lien (Aa3/AA//) and $180.1 million (A1/AA-//). BofA Securities is lead underwriter.

The Department of Water and Power of the City of Los Angeles (Aa2//AA-/AA) is set to price $439.4 million of power system revenue refunding bonds on Thursday. Serials 2022, 2026-2037, 2039-2041; terms 2046, 2051. RBC Capital Markets will run the books.

The West Virginia Parkways Authority (/AA-/AA-/) is set to price on Wednesday $333.6 million of senior lien turnpike toll revenue bonds, serials 2022-2051. Wells Fargo Securities is head underwriter.

Houston, Texas, (A1///AA-) is set to price $293.1 million of AMT subordinate lien revenue refunding bonds on Tuesday. Goldman Sachs is lead underwriter.

The Maryland Economic Development Corp. (////) is set to price $263.7 million of taxable SSA Baltimore Project federal lease revenue bonds, term 2034. Oppenheimer & Co. will run the books.

The Cass County Joint Water Resource District, North Dakota, (Aa3///) is set to price on Wednesday $180 million refunding bonds. Colliers Securities is head underwriter.

The Wayne County Airport Authority, Michigan, (A1//A/AA-) is set to price on Wednesday $163.1 million of Detroit Metropolitan Wayne County Airport revenue bonds consisting of $131.2 million of Series 2021A (non-AMT) serials 2023-2041, term 2046, and $31.9 million Series 2021B (AMT), serials 2023-2041, term 2046. Siebert Williams Shank & Co. is lead underwriter.

The New Memphis Arena Public Building Authority of Memphis and Shelby County, Tennessee, (Aa2/AA//) is set to price on Thursday $161.1 million of local government public improvement capital appreciation bonds and convertible capital appreciation social bonds. BofA Securities is head underwriter.

The University of North Carolina Chapel Hill (Aaa/AAA/AAA/) is set to price on Tuesday $150.9 million of general revenue refunding bonds. BofA Securities will run the books. The University of North Carolina Chapel Hill (Aaa/AAA/AAA/) is also set to price on Tuesday $140.9 million of tax-exempt and taxable general revenue refunding bonds. BofA Securities will run the books.

The San Mateo County Joint Powers Financing Authority, California, (Aa1/AA+//) is set to price on Thursday $144.45 million of Cordilleras Mental Health Center Replacement Project lease revenue bonds, serials 2027-2055. Citigroup Global Markets is head underwriter.

The Anaheim Public Financing Authority, California (A2/AA//AA+) is set to price on Thursday $140.5 million of taxable working capital financing lease revenue bonds, insured by Assured Guaranty Municipal Corp. Goldman Sachs is head underwriter.

Clark County, Nevada, (A1//A+/A+) is set to price on Tuesday $138.3 million of airport system junior subordinate lien revenue notes (AMT), serials 2022-2027. Citigroup Global Markets is bookrunner.

The Illinois Housing Development Authority (Aaa///) is set to price $125 million of social revenue refunding bonds. Jefferies is lead underwriter.

The Greater Texas Cultural Education Facilities Finance Corp. (Aa3//AA-) is set to price on Wednesday $101.2 million of Epicenter Multipurpose Facilities Project taxable lease revenue bonds. Piper Sandler is head underwriter.

The Mission Economic Corp. in Texas is set to price $100 million of senior lien revenue bonds (Panda High Plains Hemp Gin LLC project) on Tuesday, serials 2024-2041. Citigroup Global Markets will run the books.

Christine Albano and Chip Barnett contributed to this report.