Munis rally in constructive trading day

Municipal yields fell Tuesday by as much as 10 basis points out long while U.S. Treasuries were little changed and equities rallied.

Triple-A yields fell four to 10 basis points across the curve amid robust secondary trading with high-grade names showing clear moves to lower yields. New York City priced $1.35 billion of exempt and taxable general obligation bonds to strong demand and were bumped in a final pricing.

Municipal to UST ratios were little changed. The three-year on Tuesday was at 74%, the five-year was at 78%, the 10-year at 88% and the 30-year at 101%, according to Refinitiv MMD’s 3 p.m. read. ICE Data Services had the three at 73%, the five at 77%, the 10 at 89% and the 30 at 101% at a 4 p.m. read.

In the primary Tuesday, Citigroup Global Markets priced for New York City (Aa2/AA/AA-/AA+/) $950 million of tax-exempt general obligation bonds. Bonds in 10/2023 with a 5% coupon yield 3.12%, 5s of 2027 at 3.30%, 5s of 2032 at 3.63%, 5s of 2037 at 4.13%, 5s of 2042 at 4.35%, 5.25s of 2042 at 4.30%, 5.25s of 2047 at 4.39%, callable 10/1/2032.

Citigroup Global Markets also priced $400 million of taxable general obligation social bonds: Bond priced at par: 5.263% in 10/2052.

This week, “municipal new supply remains disappointing, which may for once represent a constructive factor as it aids any unplaced balances from last week’s very heavy selling volume to find more permanent homes.”

Nuveen strategists Anders S. Persson and John V. Miller said the tax-exempt municipal bond curve remains very flat.

“Orderly market flow continues, as new-issue supply remains muted along with strong institutional demand,” they said.

Individual investors, they noted, “are buying bonds at 4% tax-exempt yield, a level that hasn’t been seen in years.”

They expect volatility to continue for munis until the Federal Reserve finishes rising rates in the first quarter of 2023.

Vikram Rai, head of Citi’s Municipal Strategy group, said his $495 billion projection for new-issue supply for the year was too high. He noted he has “given up” on the $105 billion estimate for taxables but believed the $395 billion for tax-exempts to stay strong. However, he’s now losing hope on that.

There are 13 weeks remaining in the year, including four holiday-shortened weeks and two weeks of Federal Open Market Committee meetings.

“Issuers are unlikely to work these weeks, so that tells us we are running out of time before year-end,” he said.

Moreover, most new-money issuers are somewhat rate insensitive.

“And even if the market are somewhat volatile they’ll come and issue because they have to,” he said. “But the market volatility has been so intense, that even the most rate insensitive issuers want to avoid the current market volatility.”

Matt Fabian, a partner at Municipal Market Analytics, said that new-issue supply in 2022 appears “to be on track to break” $400 billion, with $318 billion having already been issued during the first three quarters of the year.

He said the third quarter ended with $100 billion in total sales, “including a still healthy production of $89 billion in tax-exempt bonds.” Taxable issuance, meanwhile, had its worst quarter since 2019.

He “continues to expect that our market has already seen peak taxable issuance and that, going forward, annual supply will not come close to what was a peak of $147 billion in 2020.”

For 2023, a repeat of this year’s $400 billion to $425 billion seems like a safe bet, assuming there is $325 billion to $350 billion in tax-exempts and the remainder in taxable.

Secondary trading
Prince George’s County, Maryland 5s of 2023 at 2.97%-2.95% versus 3.11%-3.07% Thursday. Wake County, North Carolina 5s of 2023 at 2.98%. Boston 5s of 2024 at 3.01%.

Denver City and County 5s of 2025 at 3.01% versus 3.10% Monday. Maryland 5s of 2027 at 3.07%. Montgomery County, Maryland 5s of 2028 at 3.16%-3.15%. Maryland 5s of 2028 at 3.17%-3.15%.

New York City TFA 5s of 2031 at 3.55%-3.50%. New Mexico 5s of 2032 at 3.28%-3.24% versus 3.35% Monday and 3.50% original.

California 5s of 2035 at 3.65%-3.56% versus 3.74% Monday.

Washington 5s of 2045 at 4.06% versus 4.14%-4.12% Monday. DC 5s of 2047 at 4.05%-4.03%. NY UDC 5s of 2047 at 4.42% versus 4.54%-4.51% Monday and 4.62% original. Texas waters 5s of 2057 at 4.56%-4.55% versus 4.59%-4.57% Monday and 4.85% original.

AAA scales
Refinitiv MMD’s scale was four to 10 basis points: the one-year at 2.99% (-4) and 3.06% (-3, no Oct. roll) in two years. The five-year at 3.09% (-3, no Oct. roll), the 10-year at 3.24% (-6, no Oct. roll) and the 30-year at 3.84% (-6).

The ICE AAA yield curve was bumped seven to 10 basis points: 2.98% (-7) in 2023 and 3.02% (-7) in 2024. The five-year at 3.05% (-7), the 10-year was at 3.23% (-9) and the 30-year yield was at 3.75% (-10) at a 4 p.m. read.

The IHS Markit municipal curve was bumped four to 10 basis points: 2.99% (-4) in 2023 and 3.01% (-6) in 2024. The five-year was at 3.06% (-7), the 10-year was at 3.16% (-10) and the 30-year yield was at 3.75% (-10) at a 4 p.m. read.

Bloomberg BVAL was bumped four to eight basis points: 2.95% (-4) in 2023 and 2.97% (-4) in 2024. The five-year at 3.02% (-4), the 10-year at 3.13% (-7) and the 30-year at 3.77% (-8) at 4 p.m.

Treasuries were little changed.

The two-year UST was yielding 4.107% (-1), the three-year was at 4.107% (-1), the five-year at 3.856% (-2), the seven-year 3.756% (-1), the 10-year yielding 3.638% (flat), the 20-year at 3.981 (+2) and the 30-year Treasury was yielding 3.704% (+2) at the close.

Primary to come:
Austin, Texas, (Aa2/AA/AA-/) is set to price Thursday $299.500 million of water and wastewater system revenue refunding bonds, Series 2022. Jefferies.

The city also is set to price $200.010 million of forward-delivery water and wastewater system revenue refunding bonds, Series 2023. Jefferies.

California (Aa2/AA+/AA/) is set to price Wednesday $166.935 million of non-AMT veterans general obligation bonds, Series CU, serials 2023-2034, terms 2037, 2042, 2046 and 2052. Wells Fargo Bank.

Competitive:
The Bridge City Independent School District, Texas, is set to sell $72.400 million of unlimited tax Permanent School Fund Guarantee Program school building bonds, Series 2022, at 12 p.m. eastern Wednesday.