Taxable calendar rises to 1/3 of market
9 min readMunicipal bonds were little changed Monday, ignoring volatility in the stock market and a softer U.S. Treasury market.
Triple-A municipal benchmark yields were steady to a touch firmer as the market awaits a sizable calendar led by a large taxable Alabama general obligation deal and a diverse set of credits from airports to charter schools to utilities.
Even as taxables and refundings took a back seat to new-money tax-exempts throughout August and September, their presence is growing on the forward calendar as issuers who may have been waiting for Washington to once again allow advanced refundings saw that possibility fade quickly.
Taxables make up 30% of the calendar this week and more deals are being added daily. As many strategists have said, placing taxable issuance should be no problem with the broader investor base from foreign and corporate investors; however, investors seeking tax-exempts will be left wanting.
The combination of more taxables and fewer tax-exempts could help keep levels steady again even as redemptions are fewer than in the summer months.
Ratios are now sitting at higher levels with the 10-year inching closer to 80%. The 10-year municipal-to-UST ratio is at 77% and the 30-year at 82%, according to Refinitiv MMD. ICE Data Services had the 10-year at 76% and the 30 at 82%.
Buy-side take
As the fourth quarter officially began Friday, demand remains heavy, and many on the buy-side are awaiting upcoming investment opportunities as issuance grows.
“Given a back-up in rates, there is still ample cash awaiting investment guidance and retail investors are still seeking value opportunities, but apprehension remains,” said Jeff Lipton, head of municipal credit and market strategy and municipal capital markets at Oppenheimer & Co.
The evidence of strong demand, he said, is being seen mostly in the primary market, where investors will see about $9-plus billion this week.
“New-issue deal placement has seen some noted improvement last week as compared to the prior week, with deals being bid with more spread and more competitive deals are showing zero syndicate balances,” Lipton said.
“Primary issuance will continue to be absorbed through the balance of the year as technicals hold in, yet certain issuers will remain fixated on health policy directives and political uncertainty which may impact marketing decisions,” he added.
“Its been a long time since portfolio managers heard from underwriters that they are having issues getting deals done,” according to John Mousseau, chief executive officer and director of fixed income at Cumberland Advisors, noting that could forecast some potential weakness going forward.
“I think anything that smells like bargain yields compared to a few months ago” will be in high demand, Mousseau said.
His colleague, Shaun Burgess, portfolio manager and analyst at Cumberland, agreed there is a more constructive tone on the municipal side than on their taxable counterparts.
“We remain cautious in the face of [recent volatility] as well as increasing supply as we head into the fall,” Burgess said.
“We are keeping a careful eye on fund flows and demand as we head into another robust calendar to help derive some sense of directionality in the municipal space,” he said.
Secondary trading
California 5s of 2023 traded at 0.20% versus 0.23% Friday. New York UDC 5s of 2023 at 0.20%-0.19%. Hennepin County, Minnesota, 5s of 2024 at 0.34%-0.32% versus 0.38%-0.36% Wednesday.
Maryland DOT 5s of 2024 at 0.30% versus 0.33%-0.31% Friday and 0.30% original. Maryland DOT 5s of 2027 at 0.76% versus 0.77% Thursday.
Connecticut 5s of 2030 at 1.17%. Washington 5s of 2031 at 1.24%. Minnesota 5s of 2031 at 1.21%.
Cypress-Fairbanks ISD 5s of 2032 at 1.30%. Maryland 5s of 2034 at 1.34%-1.33% versus 1.32% Friday and 1.34%-1.33% Wednesday. New York City TFA 4s of 2037 at 1.89%-1.88%. Washington 5s of 2038 at 1.54%. Fairfax County water 4s of 2039 at 1.56%-1.50%.
California 5s of 2041 at 1.62%. NYC water 5s of 2044 at 1.91%-1.93% versus 1.90% Thursday. Texas water 4s of 2045 at 2.15%-2.14% versus 2.14%-2.10% Wednesday. New York City 5s of 2047 at 2.03%-2.11% versus 2.09% Thursday. Massachusetts 5s of 2051 at 1.87%.
AAA scales
According to Refinitiv MMD, short yields were steady at 0.13% and at 0.20% in 2022 and 2023. The yield on the 10-year sat at 1.14% while the yield on the 30-year stayed at 1.67%.
The ICE municipal yield curve showed bonds steady in 2022 at 0.15% and at 0.19% in 2023. The 10-year maturity sat at 1.11% and the 30-year yield fell one to 1.67%.
The IHS Markit municipal analytics curve showed short yields steady at 0.13% and 0.18% in 2022 and 2023, respectively. The 10-year yield sat at 1.11% and the 30-year yield was steady at 1.66%.
The Bloomberg BVAL curve showed short yields at 0.15% and 0.16% in 2022 and 2023. The 10-year yield was steady at 1.12% and the 30-year yield sat at 1.67%.
In late trading, Treasuries were flat as equities were off on the day.
The 10-year Treasury was yielding 1.485% and the 30-year Treasury was yielding 2.051%. The Dow Jones Industrial Average lost 330 points, or 0.96%, the S&P fell 1.43% while the Nasdaq was down 2.36%.
Will holiday sales be robust?
Supply shortages and higher prices have impacted consumer spending recently, but analysts are now looking to the holiday spending season to see whether shoppers will fuel an economic bounce.
Consumer spending is a large part of gross domestic product and the holiday season is one key contributor.
As the number of vaccinated individuals increases and economies continue to open, “expect shortages and inflation to stay longer,” said Sit Investment Associates senior portfolio manager Bryce Doty. “While supplies of goods and services will increase, it will still be no match for increasing demand so we believe shortages are yet to peak. We expect a lot of bare shelves at retailers come Christmas.”
But despite the supply and labor shortages, Wells Fargo Securities senior economist Tim Quinlan, Economist Shannon Seery and Economic Analyst Sara Cotsakis, believe “holiday sales are on track for a record increase in 2021.”
And while the Delta variant and fading consumer confidence could tamp spending, they said, “even if consumers go into hiding, holiday sales are already on track to beat last year’s record performance, at least in terms of the year-over-year percent change.”
Sales could be 10% to 13% higher than last year, they said, with the “key theme for holiday sales in 2021 is to be early. That is as true for shoppers and retailers as it is for producers and shippers, where Santa’s helpers all over the world have been pulling out all the stops to restock depleted inventories despite ongoing supply chain constraints and COVID flare-ups that have kept workers out of factories at times.”
Stimulus checks issued earlier this year, they said, led to a shopping spree, but retailers will need to see that momentum continue as many consumers wait to shop.
On the negative side, they said, rising inflation, and gas prices, may leave consumers short on funds for holiday spending. Also, supply chain issues could mean those who wait may not have much to choose from. Also, they said, “the inflation backdrop and supply shortages mean you can forget about discounting this holiday season.”
Finally, seasonal labor will be in short supply, Quinlan, Seery and Cotsakis said.
Morgan Stanley sees more spending, even after adjusting for inflation, and warns consumers to be ahead of the rush. “Our retail analysts are constructive on consumer spending, and major retailers are expecting a strong holiday shopping season but have warned of limited inventories, longer shipping times, labor shortages, and fewer discounts.”
Because incomes have risen and savings increased since the pandemic began, they said, “spending can overcome price increases.”
In general, Morgan Stanley sees bottlenecks starting “to ease, though inventory-to-sales ratios remain far below normal. Falling I/S ratios will keep upward pressure on goods prices, but also increase downside risks to inflation should normalization snap back faster.”
In data released Monday, factory orders grew 1.2% in August following an upwardly revised 0.7% gain in July, first reported as a 0.4% increase.
Economists polled by IFR Markets expected a 1.0% rise.
Primary market to come
The Alabama Federal Aid Highway Finance Authority (Aa2/AAA//) is set to price on Wednesday $1.49 billion of taxable special obligation revenue bonds, Series 2021B. BofA Securities.
The San Diego Unified School District is set to price on Wednesday $575 million, consisting of: $17.885 million, Series N-1 (Aa2///), $207.115 million, Series N-2 (Aa2//AAA/AAA), $18.54 million, Series E-1 (Aa2///) and $331.46 million, Series E-2 (Aa2//AAA/AAA). J.P. Morgan Securities LLC.
The San Diego Unified School District (Aa2//AAA/AAA/) is also set to price Wednesday $431.18 million of 2021 taxable general obligation refunding green bonds (dedicated unlimited ad valorem property tax bonds) (Election of 2012, Series ZR-1), serials 2022 and 2024-2036, term 2042. Citigroup Global Markets.
The Riverside County Transportation Commission, California, is set to price Tuesday $490.845 million of toll revenue senior lien refunding bonds (RCTC 91 Express Lanes), Series B-1 and Series C, consisting of $408.315 million, Series 21B-1 (/A/BBB+/) and $82.53 million, Series 2021C (/A-/BBB/). BofA Securities.
The Omaha Public Power District, Nebraska, (Aa2///) is set to price Wednesday $428.94 million of electric system revenue bonds, 2021 Series A and 2021 Series B, consisting of $373.12 million, Series 2021A and $55.82 million, Series 2021B. BofA Securities.
The Tri-County Metropolitan Transportation District of Oregon (Aaa/AAA//AAA/) is set to price Tuesday $396.7 million of taxable senior lien payroll tax revenue refunding sustainability bonds, Series 2021B and exempt senior lien payroll tax revenue sustainability bonds, Series 2021A. J.P. Morgan Securities.
The Metropolitan Government of Nashville and Davidson County, Tennessee, (Aa2/AA//) is set to price Tuesday $352.94 million of water and sewer revenue green bonds, Series 2021A, serials 2022-2041, terms 2046 and 2051. UBS Financial Services Inc.
The Metropolitan Government of Nashville and Davidson County (Aa2/AA///) is also set to price Tuesday $240.635 million of federally water and sewer revenue refunding green bonds, Series 2021B, serials 2022-2038, term 2043. UBS Financial Services.
The Central Texas Regional Mobility Authority (A3/A-//) is set to price Thursday $342.555 million of taxable senior lien revenue refunding bonds, Series 2021E, serials 2022-2036, terms 2041 and 2045. Jefferies LLC.
The Central Texas Regional Mobility Authority (A3/A-///) is also set to price Thursday $311.83 million of senior lien revenue refunding bonds, Series 2021D, serials 2022-2041, terms 2044 and 2046. Jefferies LLC.
The School District of Philadelphia (A2//A+/) is set to price Wednesday $312.94 million of general obligation green bonds, Series A of 2021 and Series B of 2021, consisting of $263.58 million of Series A, insured by Pennsylvania State Aid Intercept Program, serials 2022-2041, term 2046 and $49.36 million of Series B, serials 2022-2031. Siebert Williams Shank & Co.
The State Public Works Board of the state of California (Aa3/A+/AA-/) is set to price Wednesday $294.67 million of forward delivery lease revenue refunding bonds, 2022 Series C, serials 2023-2037. Barclays Capital Inc.
The Lower Colorado River Authority (/A/AA-/) is set to price Tuesday $246.825 million of refunding revenue bonds, Series 2022, serials 2023-2041. Barclays Capital.
Montgomery County, Ohio, (A1//AA-/) is set to price Wednesday $237.225 million of hospital facilities revenue bonds, Series 2021 (Dayton Children’s Hospital), serials 2025-2041, terms 2046 and 2051. RBC Capital Markets.
The Equitable School Revolving Fund is set to price Wednesday $234.58 million of national charter school revolving loan fund revenue bonds, consisting of $134.265 million of Series AZ (/A//), serials 2022-2041, terms 2046 and 2051; $25 million of Series SUB (non-rated), terms 2031 and 2051; $31.555 million of Series CA (/A//), serials 2022-2041, terms 2046, 2051 and 2055; $18.345 million, Series MA (/A//), serial 2041, terms 2046 and 2051; and $25.415 million of Series NY (/A//), serial 2041, terms 2046 and 2051. RBC Capital Markets.
Lee County, Florida, (A2//A/A+/) is set to price Thursday $207.515 million of airport revenue bonds, Series 2021B (AMT). BofA Securities.
Fairview Health Services (A3/A///) is set to price Wednesday $200 million of taxable bonds, Series 2021, serials 2031 and 2051. Citigroup Global Markets.
Indiana University Foundation (non-rated) is set to price Wednesday $150 million of taxable bonds, Series 2021. Wells Fargo Corporate & Investment Banking.
Riverside County Transportation Commission (/A/BBB+//) is set to price Tuesday $146.87 million of taxable toll revenue senior lien refunding bonds, 2021 Series A (RCTC 91 Express Lanes). BofA Securities.
The Chicago Park District (/AA-/AA-/AA/) is set to price Tuesday $143.57 million, consisting of: $49.495 million, Series B, serials 2042-2044; $29.92 million, Series C, serials 2030-2036; $21.5 million, Series D, serials 2023-2026 and 2028-2036; $33.535 million, Series E, serials 2023-2039 and $9.12 million, Series F, serials 2023-2024. Cabrera Capital Markets.
The California Infrastructure and Economic Development Bank (A3/A-//) is set to price Tuesday $139.355 million of sustainability revenue bonds (California Science Center Phase III Project), consisting of $41.455 million Series 1 and $97.9 million of Series 2. Morgan Stanley & Co.
The Bethlehem Area School District Authority, Pennsylvania, (A1///) is set to price Thursday $101.505 million of school revenue bonds (Bethlehem Area School District Project), Series 2021, SOFR index rate mode, consisting of $30.41 million, Series A, $40.795 million, Series B and $30.33 million, Series C. RBC Capital Markets.
Competitive:
Rhode Island (Aa2/AA/AA/) is set to sell $90.5 million of general obligation bonds consolidated capital development loan of 2021, Series E at 10:15 a.m. eastern Wednesday.
Rhode Island (Aa2/AA/AA) is set to sell $44.5 million of taxable general obligation bonds consolidated capital development loan of 2021, Series F at 10:45 a.m. Wednesday.
