Munis settle on steady, ignoring other markets

Municipal bonds were steady for the eighth straight session Friday as U.S. Treasuries were slightly better and stocks rose after Consumer Price Index data came as expected, though the highest since 1982.

“U.S. stocks rallied after the latest inflation report did not come in as hot as many were expecting. Wall Street did not see inflation with a 7-handle and that allowed risky assets to rise, while the dollar turned negative as traders anticipate the Fed won’t be forced to deliver a rate hike well before summer,” said Edward Moya, senior market analyst at OANDA.

November’s headline month-over-month CPI reading increased 0.8% was higher than the 0.7% estimate but lower than the prior month’s reading of 0.9%.

“We will likely decelerate as we get into spring but not enough to stop the Federal Reserve from hiking rates,” said Diane Swonk, chief economist at Grant Thornton.

Triple-A yield curves were little changed on the day while U.S. Treasuries were slightly stronger. Ratios held steady with the five-year muni-to-UST ratio at 48% in five years, 69% in 10 and 79% in 30, according to Refinitiv MMD’s 3 p.m. read. ICE Data Services had the five at 47%, the 10 at 72% and the 30 at 80%.

Upcoming supply is estimated at $8.495 billion, down from total sales of $14.658 billion this week.

There are $8.127 billion of negotiated deals on tap and a mere $367.4 million of competitive loans slated, none over $100 million. Thirty-day visible supply totals $9.9 billion and net negative supply is at $8.4 billion. Issuers front-loaded deals in the beginning of the month and issuance is looking to taper off.

The largest issuance slated for the week is an $800 million general obligation offering from Connecticut, $300 million of which are social bonds.

Investors will see two more large New York issuers — the New York Liberty Development Corporation with $672.48 million of World Trade Center bonds and the Port Authority of New York and New Jersey with a $420 million deal.

A large, taxable pension obligation bond deal comes from Quincy, Massachusetts, and a $500 million Brightline passenger train project deal from Florida will provide diversity of credits.

The influx of new issues has largely kept municipals decoupled from UST. BofA strategists predict the 10/30 Treasury curve will be flattening in 2022.

That flattening, they said, is consistent with their view that muni triple-A flattening in 2022 will be large and relentless, and the 10/30 triple-A slope should fall to 65 basis points in 2022.

“The recent long bond rally in Treasuries is a welcome surprise, especially given the high inflation in the general economy,” Yingchen Li and Ian Rogow wrote in a report. “The 30-year Treasury yield broke the July-November multi-month range on the down side last week, and flattened the 10/30 Treasury curve to 30 basis points briefly.”

“Clearly, high inflation is the factor that may make it hard for some investors to reconcile our expected triple-A rates move,” they said. “For that matter, long-term Treasury rates levels are equally hard to reconcile.

Current economic realities and monetary policy are a one-of-a-kind combination that provides significant support for a wide range of financial assets, they said. Since mid-2019, the rapid and substantial monetary base expansion has provided an ostensibly plentiful supply of money in the financial market, but only a small portion of that has entered GDP-generating economic activities. The collapsing velocity of money, which shows no indications of reversing for the time being, demonstrates this.

They added the Fed posture should lead 10/30 AAA slope to a new all-time low in 2022, as much of the 10/30 Treasury flattening this time is driven by the expectation the Fed will hike next year.

“Perhaps the lens to view our expectations through is negative real rates that have been frequent since late 2011 and became the norm after mid-2019. So, it is only how negative real rates can go,” they said.

Secondary trading
New York City 5s of 2022 at 0.24%. New York EFC 5s of 2024 at 0.37%-0.35%. Georgia 5s of 2025 at 0.38%. New York City TFA 5s of 2025 at 0.57%.

Washington Suburban Sanitation District 5s of 2027 at 0.69%. Florida PECO 5s of 2029 at 0.92% versus 0.94% Thursday. Massachusetts 5s of 2031 at 1.07%. New York City TFA 5s of 2032 at 1.24%.

Connecticut 5s of 2034 1.31%-1.30%. Triborough Bridge and Tunnel 5s of 2037 at 1.26%. Harris County, Texas 4s of 2047 at 1.69%, the same as Thursday.

AAA scales
Refinitiv MMD’s scale was unchanged: the one-year at 0.15% and 0.25% in 2023. The 10-year sat at 1.03% and at 1.48% in 30.

The ICE municipal yield curve showed yields steady at 0.17% in 2022 and to 0.29% in 2023. The 10-year maturity was steady at 1.05% and the 30-year yield was also steady at 1.50%.

The IHS Markit municipal analytics curve was steady: 0.18% in 2022 and at 0.25% in 2023. The 10-year was at 1.02% and the 30-year at 1.49% as of a 4 p.m. read.

The Bloomberg BVAL curve was steady at 0.17% in 2022 and 0.23% in 2023. The 10-year yield sat at 1.05% and the 30-year yield steady at 1.49%.

Treasuries were slightly stronger and equities ended in the black.

The five-year UST was yielding 1.252%, the 10-year at yielding 1.485%, the 20-year at 1.918% and the 30-year Treasury was yielding 1.889% at the close. The Dow Jones Industrial Average gained 216 points, or 0.60%, the S&P was up 0.95% while the Nasdaq gained 0.73% at the close.

Primary to come
Connecticut (Aa3/A+/AA-/AA) is set to price Tuesday $800 million of general obligation bonds, consisting of $500 million of general obligation bonds, Series 2022A, serials 2023-2035 and $300 million of social general obligation bonds, Series 2022B, serials 2035-2042. Barclays Capital.

The New York Liberty Development Corporation (Aa3/A+/A+/) is set to price Tuesday $672.48 million of liberty revenue refunding bonds, 1WTC-2021, serials 2040-2044. Siebert Williams Shank & Co.

The Florida Development Finance Corporation is (Aaa///) is set to price Tuesday $500 million of revenue bonds (Brightline Florida Passenger Rail Expansion Project), Series 2021A. Morgan Stanley & Co.

Broward County, Florida, (Aa3///) is set to price Tuesday $489.82 million of tourist development tax revenue bonds, Series 2021 (Convention Center Expansion Project). Morgan Stanley & Co.

Quincy, Massachusetts, (/AA//) is set to price $475 million of taxable general obligation pension bonds, serials 2022-2039. Ramirez & Co.

The Port Authority of New York and New Jersey (Aa3/A+/A+/) is set to price Wednesday $420 million of taxable consolidated bonds. Ramirez & Co.

The California Statewide Communities Development Authority Community Improvement Authority is set to price Wednesday $375.56 million of essential housing revenue bonds, consisting of $111.75 million of Series A-1, serial 2048; $136.305 million of Series A-2A, serial 2058; $50.13 million of Series A-2B, serial 2058 and $77.375 million of Series 2021B, serial 2058. Citigroup Global Markets.

The California Statewide Communities Development Authority Community Improvement Authority is set to price Wednesday $196.495 million of social essential housing revenue bonds (Escondido Portfolio), consisting of $60 million of Series A-1, $97.245 million of Series A-2 and $39.25 million of Series B. Goldman Sachs & Co.

Bexar County, Texas is set to price Wednesday $328.905 million of unlimited tax taxable refunding bonds, consisting of $7.975 million, Series S21A; $33.62 million, Series S21B and $287.31 million, Series S21C. HilltopSecurities.

The Aurora Highlands Community Authority Board in Aurora, Colorado is set to price Wednesday $309.8 million of special tax revenue refunding and improvement bonds, Series 2021A. D.A. Davidson & Co.

Atlanta, Georgia (Aa1//AA+/) is set to price Tuesday $193.485 million, consisting of $3.265 million of various purpose general obligation bonds, Series 2021B, serials 2022-2031 and $190.22 million of taxable general obligation refunding bonds, Series 2021C, serials 2022-2034. Siebert Williams Shank & Co.

The California Municipal Finance Authority Special Finance Agency XII is set to price Tuesday $178.035 million of essential housing revenue bonds, Series 2022A (Allure Apartments), consisting of $109.65 million of senior bonds, Series 2022A-1, term 2056 and $68.385 million of junior bonds, Series 2022A-2, term 2047. Jefferies.

Tunica County, Mississippi, is set to price Tuesday $155.685 million of urban renewal revenue bonds (Southern Celebration Boulevard Project), consisting of $148.8 million of Series A and $6.885 million of Series B. Ziegler.

Utah Inland Port Authority Crossroads Public Infrastructure District is set to price Tuesday $150 million of tax differential revenue bonds, Series 2021. Piper Sandler & Co.

Colorado Health Facilities Authority is set to price next week $138.995 of revenue bonds (Aberdeen Ridge), Series 2021, consisting of $88.245 million of Series A, $12 million of Series B-1, $16 million of Series B-2, $20.5 million of Series B-3 and $2.25 million of Series C. Ziegler.

Wisconsin Health and Educational Facilities Authority is set to price Wednesday $116.25 million of revenue bonds, Series 2021 (Oakwood Lutheran Senior Ministries). Ziegler.

The Arizona Industrial Development Authority is on the day-to-day calendar with $177.97 million (NewLife Forest Restoration Project), consisting of $110.045 million of senior federally taxable sustainability-linked revenue bonds, Series 2021A, term 2041 and $67.925 million of subordinate federally taxable sustainability-linked revenue bonds, Series 2021B, term 2046. Goldman Sachs & Co.