July 24, 2024

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Munis see losses but outperform UST selloff

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Munis see losses but outperform UST selloff

Munis were weaker Wednesday but they outperformed a U.S. Treasury selloff that pushed the 10- and 30-year to yields not seen in more than a decade. Equities ended in the red.

Triple-A muni yields rose two to five basis points, depending on the scale, while USTs rose nine to 12 basis points, pushing the yields to multiyear highs.

Muni-UST ratios saw the three-year at 66%, the five-year was at 69%, the 10-year at 77% and the 30-year at 92%, according to Refinitiv MMD’s 3 p.m. read. ICE Data Services had the three at 68%, the five at 71%, the 10 at 81% and the 30 at 94% at a 4 p.m. read.

Munis are slowly divorcing Treasuries, said Cooper Howard, fixed income strategist focused on munis at Charles Schwab.

“Muni yields have always been strongly influenced by Treasury yields yet the relationship has weakened recently,” he said.

Before the pandemic, correlation between changes in 10-year muni and UST yields was “above 0.5 but has dropped to below 0.3 since COVID,” he said.

More recently, Howard noted “changes in Treasury yields aren’t having the same influence on muni yields.”

Over the past week through Wednesday, UST yields are higher by anywhere from 21 to 26 basis points depending on the maturity, while the largest move for munis is seven basis points, according to Refinitiv MMD.

“As supply continues to remain below trend and fund flows stay negative, the trend of Treasury yields having less influence on muni yields should continue,” he said.

Outflows continued as investors pulled $4.532 billion from mutual funds in the week ending Oct. 12 after $5.172 billion of outflows the previous week, according to the Investment Company Institute.

ETFs saw inflows of $2.271 billion after $1.949 billion of inflows the week prior, per ICI data.

Sandeep Rao, a quantitative analyst and researcher at Leverage Shares, expects outflows to continue.

“The classical market theory is essentially failed. Rather than take more and more mark-to-market losses, they’re essentially liquidating to cash,” he said.

Investors, he said, are showing an interest in commodities and alternatives, like cryptocurrency and non-fungible tokens.

“Treasuries and munis are a different beast altogether because governments depend on them to make money,” he said.

In the primary market Wednesday, Barclays Capital priced for the New Jersey Economic Development Authority (A3/BBB+/A-/) $581.320 million of Portal North Bridge Project NJ Transit transportation project bonds, Series A, with 5s of 11/2023 at 3.28%, 5s of 2027 at 3.62%, 5s of 2032 at 4.01%, 5s of 2037 at 4.56%, 5.25s of 2042 at 4.86%, 5.25s of 2047 at 5.00% and 5s of 2052 at 5.14%, callable 11/1/2032.

Coming off the day-to-day calendar, Goldman Sachs & Co. priced for the Black Belt Energy Gas District, Alabama, (A2///) $382.795 million of gas project revenue bonds, 2022 Series F, with 5s of 12/2023 at 4.50%, 5.25s of 2027 at 5.05% and 5.25s of 2028 at 5.15%, make whole call.

Issuance ticks up slightly
Rao said expects most issuers to be more cautious about pricing bonds in the current market, but supply is growing with more larger issuers scheduling deals to close out the month. Bond Buyer 30-day visible supply sits at $13 billion.

California and the New York City Transitional Finance Authority have announced new-issues in the coming week.

The New York City Transitional Finance Authority said it will price about $1.37 billion of future tax secured subordinate bonds next week, with $1.02 billion of tax-exempt bonds and $350 million of taxables.

Wells Fargo Securities is scheduled to price the tax-exempts Oct. 26 after a one-day retail order period. BofA Securities, Citigroup, J.P. Morgan, Jefferies, Loop Capital Markets, Ramirez & Co., RBC Capital Markets and Siebert Williams Shank will serve as co-senior managers.

Also on Oct. 26, TFA intends to competitively sell $350 million of taxables.

Proceeds from the sale will be used to fund capital projects and convert certain floating-rate debt to fixed-rate debt.

California is set to sell $1.2 billion of various purpose general obligation refunding bonds in three deals on Oct. 26 in the competitive market.

Secondary trading
Washington 5s of 2023 at 2.99%-2.98%. Maryland 5s of 2023 at 2.90%-2.87% versus 2.97%-2.90% Thursday. California 5s of 2024 at 2.94%.

North Carolina 5s of 2027 at 3.10%. NY Dorm PIT 5s of 2028 at 3.21% versus 3.25% Tuesday and 3.32%-3.34% on 10/6. DC 5s of 2028 at 3.07% versus 3.07% Friday. Georgia 5s of 2029 at 3.05%-3.04% versus 3.03% Monday and 3.02% Thursday.

Argyle ISD, Texas, 5s of 2034 at 3.60%-3.59%. Harris County, Texas, 5s of 2035 at 3.66%-3.65%.

Washington 5s of 2047 at 4.11% versus 4.06% Tuesday and 4.12% Friday. NYC TFA 5s of 2051 at 4.53%-4.52% versus 4.45% Tuesday.

AAA scales
Refinitiv MMD’s scale was cut three to five basis points: the one-year at 2.94% (+5) and 2.98% (+5) in two years. The five-year at 3.01% (+3), the 10-year at 3.16% (+3) and the 30-year at 3.79% (+5).

The ICE AAA yield curve was cut two to five basis points: 2.96% (+2) in 2023 and 3.00% (+2) in 2024. The five-year at 3.03% (+2), the 10-year was at 3.23% (+2) and the 30-year yield was at 3.82% (+5) at a 4 p.m. read.

The IHS Markit municipal curve was cut three to five basis points: 2.92% (+3) in 2023 and 2.96% (+3) in 2024. The five-year was at 3.02% (+3), the 10-year was at 3.16% (+3) and the 30-year yield was at 3.78% (+5) at a 4 p.m. read.

Bloomberg BVAL was cut three to five basis points: 2.98% (+3) in 2023 and 3.01% (+4) in 2024. The five-year at 3.05% (+3), the 10-year at 3.18% (+4) and the 30-year at 3.82% (+4) at 4 p.m.

Treasuries sold off.

The two-year UST was yielding 4.550% (+12), the three-year was at 4.559% (+12), the five-year at 4.349% (+13), the seven-year 4.256% (+13), the 10-year yielding 4.129% (+12), the 20-year at 4.391% (+10) and the 30-year Treasury was yielding 4.130% (+10) at the close.

Primary to come:
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.

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 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.

Chip Barnett contributed to this story.