Steadier tone ahead of uptick in supply
6 min readMunicipals were little changed Tuesday as U.S. Treasuries sold off on the long end and equities rallied.
Triple-A benchmarks have remained steady over the past several trading sessions following the massive volatility at the start of last week. The majority of the losses happened last Monday and Tuesday traders and investors were trying to get ahead of the Fed’s announcement of their rate hike, noted Jason Wong, vice president of municipals at AmeriVet Securities.
Selling pressure via bids wanteds was heavy all last week and issuers pulled deals amid the market turmoil.
Municipal bond mutual fund outflows hit the third highest on record, per Refinitiv Lipper data, with the two preceding higher figures during the height of the COVID-led chaos in 2020.
The volatility resulted in munis having one of the worst weeks since April 2020. The selloff “wiped out virtually all of the gains we had made back in May and early June and pushed yields towards an eight-year high,” Wong noted.
The Muni Index saw losses of -2.05% last week, its worst weekly performance since the week ended April 3, 2020, when losses totaled negative 2.49%, said CreditSights strategists Pat Luby, John Ceffalio and Sam Berzok said in a report. Year-to-date losses are at 10.06%, taxable munis have lost 15.42%, high-yield munis are off by 13.26%, and the Impact index at negative 13.11%, per Bloomberg data.
Wong noted bids wanteds continue to be at elevated levels as “mutual funds are fearing the pressure to sell securities as redemptions continue to hit the markets.” Bids wanted totaled $8.76 billion last week after spiking to $2.12 billion on Monday and $2.02 billion on Thursday, per Bloomberg data.
The uptick in institutional bid wanted volume has caused prices to be pressured, CreditSights strategists said.
Despite the market weakness, they said, “muni customer ‘buy’ trades have continued to exceed ‘sell’ trades, although the pace has slowed.” The five-day average as of Friday, June 10 was $2.3 billion, dropping to $1 billion as of last Friday, they said.
Inflation fears have stressed fixed-income markets in general, with the 10-year Treasury yield eclipsing 3.32% midweek, the previous high set in 2011.
“Municipal bond yields followed suit, but we think muni yields represent fair value right now,” according to Nuveen.
Muni-UST ratios on Tuesday were at 70% in five years, 88% in 10 years and 100% in 30, according to Refinitiv MMD’s 3 p.m. read. ICE Data Services had the five at 71%, the 10 at 87% and the 30 at 99% at a 3:30 p.m. read.
“We expect this ratio to continue, as both markets should remain range bound for the foreseeable future,” Nuveen said.
Spread changes for the muni credit indices were mixed, CreditSights strategists said, with the double- and single-A indices tighter as the triple-B and high-yield indices both widened.
“Due to the pressure on the secondary market for the continuing outflows from municipal bond mutual funds,” they believe that lower-quality spreads, like triple-B and high-yield, “are at greater risk of spread widening.
While the new-issue calendar has some large deals, including $1.6 billion of tax and revenue anticipation notes from Los Angeles, California, and $1.2 billion of GOs from gilt-edged Georgia, they said it’s still on the lighter side.
“We are continuing to see many issuers hold off on their bond sales as the muni markets have been getting battered as the Fed continues to try combat high inflation,” Wong said.
The lighter calendar, though, “may help ease the imbalance between demand and supply,” according to CreditSights strategists.
“The underperformance of munis should attract incremental demand from banks and insurance companies, which are typically fond of high-quality deals such as are scheduled for this week,” they said.
Secondary trading
Washington 5s of 2023 at 1.78%-1.77%. Prince George’s County, Maryland, 5s of 2023 at 1.76%-1.75%. North Carolina 5s of 2023 at 1.72%. Howard County, Maryland, 5s of 2024 at 2.00%.
Texas 5s of 2026 at 2.40% Utah 5s of 2028 at 2.56%-2.54% versus 2.97% Thursday. California 5s of 2030 at 2.99%-2.98%.
Maryland 5s of 2030 at 2.84%-2.83% versus 2.87% Thursday and 2.37% original. Maryland 5s of 2031 at 2.92% versus 2.43% original. Maryland 5s of 2034 at 3.14% versus 3.11% Friday and 2.68% original. Maryland 5s of 2035 at 3.18% versus 3.15% Friday and 2.74% original.
Loudoun County, Virginia, 4s of 2036 at 3.52%-3.47%, the same as Friday. Massachusetts Bay Transportation Authority 5s of 2036 at 3.28%. LA DWP 5s of 2037 at 3.42%. Washington 5s of 2045 at 3.92%-3.88%.
AAA scales
Refinitiv MMD’s scale was unchanged at the 3 p.m. read: the one-year at 1.72% and 2.06% in two years. The five-year at 2.36%, the 10-year at 2.91% and the 30-year at 3.38%.
The ICE municipal yield curve was mixed: 1.76% (unch) in 2023 and 2.05% (-2) in 2024. The five-year at 2.40% (unch), the 10-year was at 2.85% (+1) and the 30-year yield was at 3.37% (+2) at a 3:30 p.m. read.
The IHS Markit municipal curve was unchanged: 1.75% in 2023 and 2.09% in 2024. The five-year at 2.36%, the 10-year was at 2.92% and the 30-year yield was at 3.38% at 3 p.m.
Bloomberg BVAL was little changed: 1.75% (unch) in 2023 and 2.03% (unch) in 2024. The five-year at 2.37% (unch), the 10-year at 2.89% (unch) and the 30-year at 3.37% (+1) at a 3:30 p.m. read.
Treasuries were weaker.
The two-year UST was yielding 3.202% (+2), the three-year was at 3.359% (+1), the five-year at 3.383% (+4), the seven-year 3.398% (+7), the 10-year yielding 3.31% (+8), the 20-year at 3.635% (+9) and the 30-year Treasury was yielding 3.385% (+11) at 3:35 p.m.
Primary to come:
Los Angeles, California, is set to price Thursday $1.572 billion of 2022 tax and revenue anticipation notes, serial 2023. Citigroup Global Markets.
The Los Angeles Department of Water and Power (Aa2//AA-/AA) is set to price Wednesday $390.085 million of power system revenue bonds, 2022 Series C, serials 2024-2035 and 2038-2043, terms 2047 and 2052. RBC Capital Markets.
The National Finance Authority, New Hampshire, (/BBB///) is set to price Wednesday $313.122 million of social municipal certificates, Series 2022-1 Class A and Class X, serial 2036 and Series 20221 Class X, serial 2036. Citigroup Global Markets Inc.
The Fred Hutchinson Cancer Center, Washington, (A2//A+/) is set to price Thursday $300 million of taxable corporate CUSIPs, Series 2022, term 2052. Barclays Capital.
The Commonwealth Transportation Fund, Massachusetts, (Aa1/AA+//AAA/) is set to price Wednesday $300 million of Rail Enhancement Program revenue bonds, consisting of $200 million of sustainability bonds, 2022 Series A, term 2050 and $100 million of bonds, 2022 Series B, term 2052. Wells Fargo Bank.
The Metropolitan Water District of Southern California (Aa1/AAA//) is set to price Wednesday $273.730 million of water revenue refunding bonds, 2022 Series A. Morgan Stanley & Co.
The Palm Beach County Health Facilities Authority, Florida, (/BBB-/BBB/) is set to price Thursday $164.745 million of Juniper Medical Center Project hospital revenue bonds, Series 2022, consisting of $140.235 million, Series A, serials 2028-2042, terms 2047 and 2052 and $24.510 million, Series B, serials 2028-2043. RBC Capital Markets.
Gallatin County, Montana, is set to price Thursday $160 million of taxable sustainability Bridger Aerospace Group Project industrial development revenue and revenue refunding, Series 2022. D.A. Davidson & Co.
Midland, Texas, (Aa1//AAA/) is set to price Wednesday $159.815 million of taxable general obligation refunding bonds, Series 2022A, serials 2022 and 2030-2050. Raymond James & Associates.
Charleston, South Carolina, (Aaa/AAA//) is set to price Wednesday $143.145 million of waterworks and sewer system capital improvement revenue bonds, Series 2022, serials 2026-2042, terms 2047 and 2052. Wells Fargo Bank.
Wisconsin (Aa1/AA+//AAA) is set to price Wednesday $134.370 million of SIMFA Index Rate general obligation floating rate notes of 2022, Series A. Goldman Sachs & Co.
Broward County, Florida, (A1///) is set to price Thursday $127.610 million of AMT port facilities revenue bonds, Series 2022, serials 2024-2052. RBC Capital Markets.
The Rockwall Independent School District, Texas, is set to price Thursday $114.615 million of unlimited tax school building bonds, Series 2022A. Piper Sandler & Co.
Competitive:
Georgia (Aaa/AAA/AAA/) is set to sell $186.565 million of taxable general obligation bonds, Series 2022B, at 12 p.m. eastern Wednesday.
Georgia (Aaa/AAA/AAA/) is set to sell $221.930 million of tax-exempt general obligation refunding bonds, Series 2022C, Bidding Group 4, at 11:30 a.m. Wednesday.
Georgia (Aaa/AAA/AAA/) is set to sell $243.355 million of tax-exempt general obligation bonds, Series 2022A, Bidding Group 1, at 10 a.m. Wednesday.
Georgia (Aaa/AAA/AAA/) is set to sell $250.860 million of tax-exempt general obligation bonds, Series 2022A, Bidding Group 2, at 10:30 a.m. Wednesday.
Georgia (Aaa/AAA/AAA/) is set to sell $260.515 million of tax-exempt general obligation refunding bonds, Series 2022C, Bidding Group 3, at 11 a.m. Wednesday.
New Mexico (Aa2/AA-/) is set to sell $256.290 million of severance tax bonds, Series 2022A, at 9:45 a.m. Wednesday.
Nassau County, New York, (A1/AA-/A/) is set to sell $245.180 million of general obligations general improvement bonds, 2022 Series A, at 10 a.m. eastern Thursday.
