After moves to higher yields, munis await a lighter calendar

Municipals ended Friday steady after a week of increased selling pressure that moved yields and ratios higher.

Triple-A benchmark yields were left unchanged across the curve. U.S. Treasuries pared back overnight trading losses to end the week better.

Barclays strategists Mikhail Foux, Clare Pickering and Mayur Patel said as Treasury yields have moved higher over the past week, tax-exempts outperformed earlier in the week, though more so in the front end and belly of the curve. However, the market dynamics changed Thursday, when the muni market “finally cracked.”

Long-dated bonds are feeling more pressure than shorter-dated securities. At close to 80% the 30-year muni-to-UST ratios are still relatively rich by historic standards, they said.

The 10-30-year slope is getting close to the steepest point since late the first quarter of 2021, with the long-dated portion of the muni investment-grade index losing about 0.3% this month.

“Until rates stabilize, investors will likely remain cautious about this part of the curve, in our view,” they said.

BofA Securities in a weekly municipal reported noted, if muni-UST ratios fail to move higher with Treasury rates, it would be the first sign the muni rates market is becoming more constructive.

“This is now the case: muni rates and credit spreads barely changed this week while muni-Treasury ratios began to decline,” they said. “Technical conditions for ratios also portend further declines ahead. Indeed, while it is understandable muni rates followed Treasuries higher since September, the ratio rise over the summer is less comprehensible.”

Municipal-to-UST ratios showed the 10-year at 75% and the 30-year at 83%, according to Refinitiv MMD. ICE Data Services had the 10-year at 74% and the 30 at 84%.

While high-grade tax-exempts are “feeling a bit heavy” in the face of higher UST rates and greater supply, taxable spreads remained in check, even tightening as higher yields made long-dated bonds more attractive to total return investors, according to Barclays.

“At the moment, there is strong and growing demand for the product from domestic and foreign investors, at the time when taxable supply is in check and the visible pipeline has not been overwhelming,” they said.

High-quality taxables are still attractive compared with corporates, especially for AAs and AAAs. “That is where we see the most value at the moment, while we also see this part of the taxable market segment as more defensive in the face of rate volatility,” they said.

“However, aside from some seasonal weakness and some uncertainties on the policy front, we still feel positive about the municipal market for the remainder of the year.”

Volume falls slightly for the week of October 25 with the total potential volume estimated at $7.408 billion, with $6.036 billion of negotiated deals and $1.372 billion in the competitive market.

The calendar is led by Dallas and Fort Worth, Texas’ $708.1 million of taxable Dallas Fort Worth International Airport joint revenue refunding bonds, another corporate CUSIP hospital deal from AdventHealth Obligated Group. Main Street Natural Gas is on the day-to-day calendar with $750 million of gas supply revenue bonds. Milwaukee County and Los Angeles lead the competitive slate.

Secondary trading
South Carolina 5s of 2022 at 0.10%. Texas 5s of 2023 at 0.32%. Seattle 5s of 2024 at 0.32%.

San Francisco City and County 5s of 2025 at 0.39%. Portland, Oregon, 5s of 2026 at 0.61%.

New York City TFA 5s of 2028 at 1.05%. Wisconsin 5s of 2028 at 1.00%.

Washington 5s of 2031 at 1.41%-1.39%. Ohio water 5s of 2035 at 1.56% versus 1.51% Thursday.

Washington 5s of 2045 at 1.88%. New York City TFA 4s of 2048 at 2.22%.

AAA scales
According to Refinitiv MMD, the entire scale was unchanged: 0.12% in 2022 and 0.21% in 2023. The yield on the 10-year at 1.24% and the yield on the 30-year at 1.73%.

The ICE municipal yield curve showed bonds steady at 0.14% in 2022 and at 0.21% in 2023. The 10-year maturity stayed at 1.20% and the 30-year yield sat at 1.75%.

The IHS Markit municipal analytics curve showed short yields steady at 0.15% in 2022 and 0.21% in 2023. The 10-year yield sat at 1.22% and the 30-year yield sat at 1.73%.

The Bloomberg BVAL curve showed short yields steady at 0.17% in 2022 and 0.19% in 2023. The 10-year yield was steady at 1.22% and the 30-year at 1.75%.

In late trading, Treasuries were better as equities were mixed near the close.

The 5-year Treasury was yielding 1.20%, 10-year Treasury was yielding 1.642% and the 30-year Treasury was yielding 2.077%. The Dow Jones Industrial Average gained 84 points, or 0.24%, the S&P fell 0.09% while the Nasdaq lost 0.83%.

Primary market
Main Street Natural Gas (Aa2//AA-/) is on the day-to-day calendar with $750 million of gas supply revenue bonds, Series 2021A, serials 2023-2031, term 2052. RBC Capital Markets.

Dallas and Fort Worth, Texas, (A1//A+/AA/) is set to price Tuesday $708.1 million of Dallas Fort Worth International Airport joint revenue refunding bonds, taxable Series 2021C, serials 2022-2036, term 2046. Barclays Capital.

Dallas and Fort Worth, Texas, (A1//A+/AA) is also set to price Thursday $300.6 million of Dallas Fort Worth International Airport joint revenue refunding bonds, Series 2021B (non-amt), serials 2022-2030 and 2043-2045. RBC Capital Markets.

California Community Choice Financing Authority (A2///) is set to price $556.03 million of clean energy project revenue bonds, Series 2021A (green bonds — climate bond certified). Goldman Sachs & Co.

AdventHealth Obligated Group (Aa2/AA/AA//) is set to price Wednesday $400 million of corporate CUSIP taxable hospital revenue bonds, Series 2021E. J.P. Morgan Securities.

Westchester County Local Development Corp. (non-rated) is set to price $392.245 million of revenue bonds (Purchase Senior Learning Community Inc. Project), Series 2021, consisting of $213.805 million of Series Ser A, $23.52 million of Series Ser B, $58.73 million of Series Ser C, $89.525 million of Series Ser D and $6.665 million of Series Ser E. HJ Sims & Co.

Ohio (Aa1/AA+/AA+//) is set to price Wednesday $326.055 million of general obligation bonds consisting of: $137.495 million of infrastructure improvement general obligation bonds, Series 2021A-II, serials 2022-2041; $40.355 million of conservation projects general obligation bonds, Series 2021A-CP, serials 2022-2034; $48.325 million of infrastructure improvement general obligation refunding bonds, Series 2021B, serials 2025-2032 and $99.88 million of common schools general obligation refunding bonds, Series 2021C, serials 2026-2032. Citigroup Global Markets.

Lancaster County Hospital Authority (A2/A+///) is set to price Wednesday $296.475 million of revenue bonds (Penn State Health), Series 2021. J.P. Morgan Securities.

The Health and Educational Facilities Board of the Metropolitan Government of Nashville and Davidson County, Tennessee, (A3/A///) is set to price Thursday $293.205 million of taxable revenue bonds (Vanderbilt University Medical Center), Series 2021A and 2021B. J.P. Morgan Securities.

The Industrial Development Authority of Phoenix, Arizona, (non-rated) is set to price Thursday $232.815 million of hotel revenue bonds (Provident Group — Falcon Properties LLC, Project), consisting of $143.585 million, Series A-1, terms 2041, 2051 and 2057; $7.785 million, Series A-2, term 2032 and $81.445 million, Series B, serial 2057. RBC Capital Markets.

Austin, Texas, (//AA-//) is set to price Wednesday $218.08 million of water and wastewater system revenue refunding bonds, Series 2021. Morgan Stanley & Co.

The Indiana Finance Authority (Aaa/AAA/AAA//) is set to price $215.03 million of state revolving fund program bonds, Series 2021B (green bonds). Citigroup Global Markets.

Wisconsin Health and Educational Facilities Authority (A1/AA-//) is set to price Tuesday $209.44 million of revenue bonds, Series 2021 (Aspirus, Inc. Obligated Group), serials 2034-2041, term 2051. Barclays Capital.

Private Colleges & University Authority (A2//AA-/) is set to price Wednesday $161.88 million of revenue bonds (The Savannah College of Art & Design Projects), Series 2021. Goldman Sachs & Co.

Miami-Dade County Health Facilities Authority (/A/A+//) is set to price Tuesday $157.38 million of hospital revenue and revenue refunding bonds (Nicklaus Children’s Hospital Project), Series 2021A, serials 2022-2042, terms 2046 and 2051. J.P. Morgan Securities.

Manor Independent School District is set to price Thursday $156.515 million of unlimited tax refunding bonds, taxable Series 2021B, serials 2022-2044. Jefferies LLC.

Bethel School District No. 403 (Pierce County, Washington) (Aaa///) is set to price Tuesday $146.81 million of unlimited tax general obligation improvement and refunding bonds, 2021, insured by Washington State School District Credit Enhancement Program. Piper Sandler & Co.

California Statewide Communities Development Authority (/AA-/AA/) is set to price Wednesday $135.13 million of health facility revenue bonds (Montage Health), Series 2021A. Piper Sandler & Co.

Lamar Consolidated Independent School District (Fort Bend County, Texas) (Aaa/AAA//) is set to price Tuesday $134.57 million of unlimited tax refunding bonds, Series 2021A, serials 2023-2045, insured by the Permanent School Fund guarantee program. Wells Fargo Corporate & Investment Banking.

Successor Agency to the Redevelopment Agency of the City and County of San Francisco (/A//) is set to price $107.34 million of taxable third lien tax allocation bonds, 2021 Series A (affordable housing projects) (social bonds), serials 2023-2031. Citigroup Global Markets.

Clovis Unified School District (/AA-//) is set to price Thursday $100.815 million of federally taxable 2021 certificates of participation, serials 2022-2036, terms 2041, 2046 and 2051. Stifel, Nicolaus & Company.

Competitive:
Milwaukee County (//AA/) is set to sell $95.82 million of taxable general obligation pension promissory notes, Series 2021A,
$10.53 million of general obligation transit promissory notes, Series 2021C; and $4.18 million of general obligation promissory notes, Series 2021B at 11:15 a.m. eastern Tuesday.

Los Angeles (//AA/) is set to sell $211.94 million of general obligation bonds, Series 2021-A (taxable) (social bonds) at noon Wednesday and $65.63 million of general obligation refunding bonds, Series 2021-B at 12:30 p.m. eastern Wednesday.

Montgomery County, Maryland, (/AA+//) is set to sell $57.465 million of taxable limited obligation certificates (Facility and Residential Development Projects) Series 2021A Taxable at 10:30 a.m. eastern, and $41.81 million of taxable limited obligation refunding certificates (Facility and Residential Development Projects) Series 2021B at 10:45 a.m. eastern Thursday.