July 24, 2024

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Multi-billion-dollar new-issue day offers distraction

7 min read
Multi-billion-dollar new-issue day offers distraction

Municipals were little changed Tuesday amid a multi-billion-dollar large new-issue day with various credit offerings, while U.S. Treasuries improved slightly and equities ended up.

Triple-A curves were a touch firmer in spots as secondary trading took a backseat to the larger primary activity with Connecticut general obligation bonds, CommonSpirit healthcare and several competitive issues led by Rhode Island GOs.

Muni-UST ratios saw the three-year on Tuesday at 67%, the five-year was at 71%, the 10-year at 78% and the 30-year at 93%, according to Refinitiv MMD’s 3 p.m. read. ICE Data Services had the three at 67%, the five at 70%, the 10 at 80% and the 30 at 92% at a 4 p.m. read.

“Despite historically unfavorable seasonals in October, dipping ratios may well be a trend in the near term as tax-exempt accounts worry about waiting too long to realize [year-to-date] paper losses,” said Matt Fabian, a partner at Municipal Market Analytics.

The UST curve remains inverted, with “the 2s/30s term spread going as deep as negative 55bps last week,” he said. Tax-exempts, he noted, “cannot or will not follow this trend, effectively freezing both long and short fixed tax-exempt rates until USTs stabilize.”

Despite heavy mutual fund redemptions, he said there remains a near-term supply issue.

“A smaller primary calendar has muted price discovery and volatility and made the tax-exempt market appear more stable than it reasonably is,” he said.

Fund flows have logged two consecutive weeks of over $5 billion in outflows, raising the estimated year-to-date total to $106.1 billion, per the Investment Company Institute. Investors, he said, “may be expecting that internal sector tensions (sellers vs allocators/reinvestors) are roughly balanced.”

Supporting this is exchange-traded fund inflows have rebounded since the week ending Oct. 4, per ICI, “suggesting tax swappers, reinvestors and/or rate speculators with time to kill” before Dec. 31, he said.

“This is not unreasonable; accounts have access to product at historically attractive levels: available high grade 5s at or behind par, a supply of performance-geared 4s, and [separately managed account] managers perhaps becoming tired of fretting over near-term paper losses,” Fabian said.

“Whether or not these are opportunities or ‘opportunities’ will be answered with time, but the longer the time frame (and the gamer the client), the more likely is the former vs the latter,” he added.

Muni performance this year has very little to do with municipals, said Vikram Rai, head of Citi’s Municipal Strategy group. It has more to do with macroeconomic factors.

Thursday’s consumer price index print showed inflation continues to be at elevated levels. Additionally, the market now expects the Federal Open Market Committee to implement a 75-basis-point rate hike at its November meeting, and it will be more difficult for the Fed to slow the pace at rates hikes to 50 basis points in December and 25 basis points in February 2023, Rai said.

Volatility also continues worldwide.

“We are genuinely worried about the global central bank’s ability to calm markets, while simultaneously tightening financial conditions to slow the economy and temper inflation,” he said.

“I expect a continuation of the much-dreaded volatility that has become symptomatic of the market environment this year,” Rai said. “As of now, we don’t see a catalyst that could be bullish or stabilizing for rates especially given that Fed officials are very explicit that this is going to be a painful tightening cycle.”

He is also worriedthe rate environment and valuations are not attractive enough to offer decent entry points.

“I see very limited room for a sharp reversal in performance unless we see a sharp reversal in fund flows, which would need a sharp rally, which is unlikely,” he said.

In the primary market Tuesday, J.P. Morgan Securities priced for CommonSpirit Health (Baa1/A-/A-/) $807.356 million of taxable bonds with all bonds priced at par: 6.073s of 11/2027 and 6.461s of 2052, make whole call.

J.P. Morgan Securities priced for the Colorado Health Facilities Authority (Baa1/A-/A-/) $496.585 million of CommonSpirit Health revenue bonds, with 5s of 11/2023 at 3.57%, 5s of 2027 at 3.88%, 5s of 2032 at 4.36%, 5.25s of 2037 at 4.80%, 5s of 2042 at 5.06%, 5.5s of 2047 at 5.16% and 5.25s of 2052 at 5.28%, callable 11/1/2032.

Siebert Williams Shank priced for Connecticut (/AA-//AA+) $1.143 billion of general obligation transportation infrastructure bonds in two tranches. The first, $830 million, saw 5s of 7/2023 at 2.95%, 5s of 2027 at 3.19%, 5s of 2032 at 3.48%, 5s of 2037 at 3.89%, 5.25s of 2042 at 4.09%, 5.25s of 2043 at 4.13% and 5s of 2043 at 4.20%, callable in 11/1/2033.

The second, $313.49 million, saw 5s of 1/2024 at 3.08%, 5s of 7/2024 at 3.08%, 5s of 7/2027 at 3.19%, 5s of 7/2032 at 3.48% and 5s of 7/2033 at 3.56%, noncall.

Morgan Stanley & Co. LLC priced for retail investors $1.104 billion of general obligation bonds for the Commonwealth of Massachusetts (Aa1/AA/AA+/) in two tranches, with the first, $1 billion, seeing 5s of 10/2032 at 3.38%, 5s of 2037 at 3.75%, 5s of 2042 at 3.99% 5s of 2047 4.16% and 5s of 2052 at 4.195, callable in 10/1/2032. The second tranche, $104 million, saw 5s of 10/2029 at 3.19%, 5s of 2031 at 3.31%, noncall.

Citigroup Global Markets priced for the Southeastern Pennsylvania Transportation Authority (Aa3//AA/AA/) $510.655 million of Asset Improvement Program revenue bonds, with 5s of 6/2024 at 3.00%, 5s of 2027 at 3.11%, 5s of 2032 at 3.42%, 5s of 2037 at 3.89%, 5.25s of 2042 at 4.10% 5.25s of 2047 at 4.31% and 5.25s of 2052 at 4.39%, callable 6/1/2032.

Piper Sandler & Co. priced for the Liberty Hill Independent School District, Texas, (Aaa///) $194.455 million of unlimited tax school building and refunding bonds, with 5s of 2/2023 at 2.93%, 5s of 2027 at 3.11%, 5s of 2032 at 3.32%, 4s of 2037 at 4.10%, 5s of 2042 at 4.01%, 4.375s of 2047 at 4.44% and 5.s of 2052 at 4.24%, callable 2/1/2032.

In the competitive market, Rhode Island (Aa2/AA/AA/) sold $162.450 million of general obligation bonds consolidated capital development loan of 2022. to Citigroup Global Markets, with 5s of 8/2023 at 2.93%, 5s of 2027 at 3.04%, 5s of 2032 at 3.28%, 5s of 2037 at 3.59% and 4.125s of 2042 at 4.35%, callable 8/1/2032.

St. Johns County, Florida, (Aa2/AAA//) sold $122.065 million of water and sewer revenue bonds, to Morgan Stanley, with 5s of 6/2024 at 2.96%, 5s of 2027 at 3.03%, 5s of 2032 at 3.28%, 5s of 2037 at 3.65%, 5s of 2042 at 4.06%,5s of 2047 at 4.25% and 5s of 2052 at 4.31%, callable 12/1/2032.

The Virginia Public School Authority (Aa1/AA+/AA+/) sold $103.660 million of 1997 Resolution school financing bonds to Barclays Capital, with 5s of 6/2023 at 2.92%, 5s of 2027 at 3.04%, 5s of 2032 at 3.27%, 5s of 2037 at 3.57%, 5s of 2042 at 3.91%, 5s of 2047 at 4.09% and 5s of 2052 at 4.17%, callable 8/1/2032.

Secondary trading
Houston ISD 5s of 2024 at 2.99%-2.97%. North Carolina 5s of 2024 at 2.93%-2.90%.

Texas waters 5s of 2025 at 3.03%-3.00%. Anne Arundel County, Maryland, 5s of 2026 at 3.00%.

King County, Washington, 5s of 2033 at 3.34%-3.30%. San Antonio, Texas, 5s of 2038 at 3.82%-3.77%.

Washington 5s of 2043 at 3.98% versus 4.04% Friday. New York City TFA 5s of 2051 at 4.45%. San Antonio, Texas, ISD 5s of 2052 at 4.13% versus 4.06%-4.04% Friday.

AAA scales
Refinitiv MMD’s scale was bumped two basis points at one- and two-years: the one-year at 2.89% (-2) and 2.93% (-2) in two years. The five-year at 2.98% (unch), the 10-year at 3.13% (unch) and the 30-year at 3.74% (unch).

The ICE AAA yield curve was little changed: 2.94% (-1) in 2023 and 2.98% (unch) in 2024. The five-year at 3.01% (unch), the 10-year was at 3.21% (unch) and the 30-year yield was at 3.76% (unch) at a 4 p.m. read.

The IHS Markit municipal curve was firmer on the short end: 2.89% (-2) in 2023 and 2.93% (unch) in 2024. The five-year was at 2.99% (-1), the 10-year was at 3.13% (unch) and the 30-year yield was at 3.73% (unch) at a 4 p.m. read.

Bloomberg BVAL was bumped up to two basis points: 2.95% (-2) in 2023 and 2.97% (-2) in 2024. The five-year at 3.02% (-1), the 10-year at 3.14% (-1) and the 30-year at 3.78% (-1) at 4 p.m.

Treasuries were slightly better.

The two-year UST was yielding 4.430% (-2), the three-year was at 4.429% (-1), the five-year at 4.215% (-1), the seven-year 4.121% (flat), the 10-year yielding 4.001% (-1), the 20-year at 4.281% (-2) and the 30-year Treasury was yielding 4.022% (flat) at the close.

Primary to come:
Massachusetts is set to price Wednesday $1.105 billion of general obligation bonds consolidated loan of 2022, Series C, and general obligation refunding bonds, Series A, consisting of $1 billion of Series 1 and $104.770 million of Series 2. Morgan Stanley & Co.

Hawaii (Aa2/AA+//) is set to price Wednesday $800 million of taxable general obligation bonds, Series GK. Morgan Stanley & Co.

The New Jersey Economic Development Authority (A3/BBB+/A-/) is set to price Wednesday $583.245 million of Portal North Bridge Project NJ Transit transportation project bonds, Series A, serials 2023-2042, terms 2047 and 2052. Barclays Capital.

Wisconsin (Aa1/AA+//AAA/) is set to price Wednesday $249.240 million of general obligation refunding bonds, Series 4. Jefferies.

The Ohio Housing Finance Agency (Aaa///) is set to price Thursday $149.995 million of non-AMT social Mortgage-Backed Securities Program residential mortgage revenue bonds, Series C, serials 2024-2034, terms 2037, 2042, 2047, 2053 and 2054. Citigroup Global Markets.

The Rhode Island Housing And Mortgage Finance Corporation (Aa1/AA+//) is set to price Thursday $128.460 million of homeownership opportunity bonds, consisting of $113.460 million of non-AMT social bonds, Series 78-A and $15 million of taxable bonds, Series 78-T. J.P. Morgan Securities.

New Orleans (A2/A+/A/) is set to price Wednesday $122.695 million of general obligation refunding bonds. J.P. Morgan Securities LLC, New York

The Connecticut Housing Finance Authority (Aaa/AAA//) is set to price Wednesday $118.135 million of social Housing Mortgage Finance Program bonds, Series E, Subseries E-1, serials 2023-2034, terms 2037, 2042, 2045 and 2052. Citigroup Global Markets.

The Municipality of Anchorage, Alaska, (/AA//) is set to price Thursday $100.775 million of solid waste services revenue refunding bonds, Series A. J.P. Morgan Securities.

The Miracosta Community College District, California, (Aaa/AAA//) is set to price Wednesday $100 million of Election of 2016 general obligation bonds, Series C. Piper Sandler & Co.

The Mountain View Whisman School District, California, (Aaa/AAA//) is set to price next week Election of 2020 general obligation bonds, Series B. RBC Capital Markets.