July 20, 2024

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Munis outperform UST volatility

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Municipal yields rose a slightly outside of 10-years after U.S. Treasuries swung back up double-digit basis points from Monday’s lows as stocks rebounded from large losses on Monday.

Municipals ignored the losses in UST as triple-A benchmark curves saw cuts of two to four basis points out longer while the short end of the curve saw strength. New issues saw bumps on bonds inside of 10-years reflecting that strength.

Municipal-to-UST ratios fell to 64% for the 10-year and the 30-year was at 70%, according to Refinitiv MMD. ICE Data Services had the 10-year muni-to-Treasury ratio at 65% and the 30-year at 70%.

The technicals are simply overpowering to allow for municipals to follow their taxable counterparts on daily these ups and downs.

The Investment Company Institute reported nearly $3 billion of inflows at $2.872 billion the week ending July 14, a high not seen since early February, and up from $2.367 billion the week prior.

Exchange-traded funds saw $562 million of inflows versus $490 million the week before. Total assets held now total $55.4 billion year-to-date.

Massive summer reinvestments are both sustaining the strength of investor demand and solidifying the technical footing of the market. With $60 billion coming due, and an average $35 billion to $40 billion of August supply, municipals continue to lag Treasuries lately, municipal sources said Wednesday.

“July and August have historically been favorable to municipal investors due to low supply and strong reinvestment needs,” Anthony Valeri, director of investment management at Zions Wealth Management in San Diego said. “Summer 2021 is no exception and, if anything, the effect is even stronger, helping to support munis.”

Others agreed, given the source and strength of recent summer inflows, with weeks of $2 billion-plus.

“With a large amount of cash on the sidelines and cheapened ratios, I would expect this week’s new issues to see solid demand,” Roberto Roffo, managing director and portfolio manager at SWBC Investment Company in San Antonio, said on Wednesday.

Meanwhile, the lag between munis and Treasuries has more to do with Treasuries than munis, Valeri of Zions noted.

“There are growth concerns due to the Delta variant [of COVID-19], but the drop in intermediate and long Treasuries has been driven by supply-demand factors of its own,” he said.

Valeri said short covering is helping to drive Treasury strength, as well as bank buying with Treasuries “a beneficiary of all the excess cash — from stimulus and the ongoing recovery — sitting on bank balance sheets due to low loan demand.”

In the primary, BofA Securities priced and repriced for the City and County of Honolulu (Aa1//AA+/) $577.69 million of general obligation bonds, $154.4 million and $33.45 million of Series A and B tax-exempts, $20 million of Series C taxables, and $36.29 million and $333.45 million of Series D and E Honolulu Rail Transit Project exempts. The short end of the scales were all bumped a basis point or two while out longer they stayed the same as a morning pricing wire.

The first two series, $154.44 million and $33.45 million, saw 5s of 2022 at 0.11%, 5s of 2026 at 0.58% (-3), 5s of 2031 at 1.06% (+3), 4s of 2036 at 1.41%, 4s of 2041 at 1.55% and 2s of 2046 at 2.22%.

The taxables, $20 million, were priced at par at 0.30% in 2022, 1.06% in 2026, 1.82% in 2031, 2.42% in 2036, 2.80% in 2041 and 2.85% in 2046.

The last two series $36.29 million and $333.45 million of Series D and E Honolulu Rail Transit Project exempts saw 4s of 2022 at 0.11%, 4s of 2026 at 0.48% (-3), 5s of 2026 at 0.45% (-3), 4s of 2031 at 1.06% (+3), 5s of 2031 at 1.04% (+3), 2s of 2036 at 1.86%, 3s of 2041 at 1.82% and 2s of 2046 at 2.22%.

BofA Securities also priced and repriced with bumps for Honolulu $147.29 million of tax-exempt forward refunding general obligation bonds with 5s of 2023 at 0.63% (-6), 5s of 2026 at 1.00% (-5) and 5s of 2029 at 1.33% (-6).

BofA Securities priced and repriced for the Los Angeles County Metropolitan Transportation Authority (Aa1/AAA//) $506.46 million of Measure R senior sales tax revenue bonds with bumps on bonds inside 10 years and cuts on 10-years and out. Bonds in 2022 with a 5% coupon yield 0.04% (-2), 5s of 2026 at 0.31% (-5), 5s of 2031 at 0.82% (+3), 4s of 2036 at 1.20% (+7) and 4s of 2039 at 1.28% (+7).

Loop Capital Markets priced and repriced for the Harris County Flood Control District, Texas, (Aaa//AAA/) $275 million of improvement refunding bonds with bumps: 5s of 2022 at 0.07% (-2), 5s of 2026 at 0.45% (-8), 5s of 2031 at 1.01% (-1), 4s of 2036 at 1.28%, 3s of 2041 at 1.67%, 4s of 2046 at 1.57% and 5s of 2046 at 1.57%, callable 10/1/2030.

Morgan Stanley & Co. LLC priced and repriced for the Chabot-Las Positas Community College District, California, $200 million of tax-exempt election of 2016 general obligation bonds with 5s of 2022 at 0.05%, 4s of 2026 at 0.31% (-5), 3s of 2031 at 1.05% (-2) , 3s of 2036 at 1.54% (-3) and 2s of 2041 at 2.07%, callable 8/1/2029.

The $130 million taxables were priced at par at 0.15% in 10/1/2021.

Morgan Stanley also priced $272.335 million of taxables for the issuer with bonds priced at par at 0.206% in 2022, 1.08% in 2026, 1.89% in 2031 and 1.99% in 2032.

Raymond James & Associates, Inc. priced and repriced for the Austin Independent School District, Texas, (Aaa///) (Permanent School Fund Guarantee) $278 million of unlimited tax school building and refunding bonds with bumps on the short end: 5s of 2022 at 0.06% (-2), 5s of 2026 at 0.45% (-4), 5s of 2031 at 0.97% (-1), 4s of 2036 at 1.25%, 4s of 2041 at 1.40%, 3s of 2041 at 1.60% and 2s of 2041 at 2.05%.

Secondary trading and scales
Trading was choppy. North Carolina 5s of 2022 at 0.07%. New Mexico 5s of 2022 at 0.05%.

Frederick County, Maryland, 5s of 2025 at 0.22%-0.21%. Leesburg, Virginia, 5s of 2025 at 0.22%. New York City water 5s of 2026 at 0.32%-0.31%, the same as Tuesday.

Portland, Oregon, 5s of 2027 at 0.50%. Henrico County, Virginia, 5s of 2029 at 0.73%. Wake County, North Carolina, 5s of 2030 at 0.79%.

Arlington County, Virginia, 5s of 2032 at 0.93%. New York Dorm PIT 5s of 2034 at 1.20%-1.18%. University of North Carolina-Chapel Hill 5s of 2035 at 0.97%. Fairfax County, Virginia, water 4s of 2038 at 1.18%.

West Virginia 5s of 2041 at 1.36% versus 1.35% Monday. New York City TFA 4s of 2045 at 1.63% versus 1.62%-1.59% Monday. Georgia road and tolls 3s of 2049 at 1.83%.

Los Angeles Department of Water and Power 5s of 2051 at 1.35%. Triborough Bridge and Tunnel 5s of 2051 at 1.53%-1.47% versus 1.47% Monday.

According to Refinitiv MMD, yields were bumped in 2025-2027 by two basis points while out longer cuts of two to four were seen. Bonds were steady at 0.06% in 2022 and 0.10% in 2023. The yield on the 10-year was at 0.83% (+2) while the yield on the 30-year was at 1.36% (+4).

The ICE municipal yield curve showed yields steady at 0.06% in 2022 and down one to 0.09% in 2023. The 10-year maturity at 0.84% and the 30-year yield rose two to 1.35%.

The IHS Markit municipal analytics curve was steady at 0.07% and 0.10% in 2022 and 2023, with the 10-year rising two to 0.83%, and the 30-year yield at 1.35% (+3).

Bloomberg BVAL also saw levels steady at 0.07% in 2022 and 0.09% in 2023 while the 10-year rose two to 0.83% and the 30-year was up three to 1.35%.

Treasuries rose and equities regained most of Monday’s losses. The 10-year Treasury was yielding 1.289% and the 30-year Treasury was yielding 1.938% near the close. The Dow Jones Industrial Average gained 277.9 points or 0.81%, the S&P 500 rose 0.77% while the Nasdaq gained 0.77%.

N.C. bond sale sees lowest TIC 
The state of North Carolina received a true interest cost of 0.7% on Tuesday’s competitive sale of $132.025 million of limited obligation refunding bonds (Aa1/AA+/AA+/NR).

The TIC represented a net present value savings of $23.6 million and was the lowest interest rate ever obtained by the state for a LOB offering, State Treasurer Dale Folwell said Wednesday. The bonds are scheduled to close on Aug. 5.

“Getting the lowest possible rate is so important because it makes money available for public education, public safety, public roads and the other core functions of government,” Folwell said.

Because LOBs are appropriation bonds, rating agencies consider them to have slightly more risk and are given lower ratings than the state’s general obligation bonds, which are rated triple-A by Moody’s, S&P and Fitch.

Informa: Money market muni funds fall $459M
Tax-exempt municipal money market fund assets fell by $459.4 million, lowering their total to $92.9 billion for the week ending July 20, according to the Money Fund Report, a publication of Informa Financial Intelligence.

The average seven-day simple yield for the 157 tax-free and municipal money-market funds remained at 0.01% from the previous week.

Taxable money-fund assets declined by $47.44 billion in the week ended July 20, bringing total net assets to $4.306 trillion. The average, seven-day simple yield for the 763 taxable reporting funds remained at 0.01% from the prior week.

Chip Barnett contributed to this report.