Munis little changed amid billion-dollar pricings

Municipals were little changed in secondary trading Wednesday amid an active primary market with two billion-dollar deals priced, although details on one were not immediately available. U.S. Treasury yields were weaker in spots and equities ended mixed.

The three-year muni-UST ratio was at 59%, the five-year at 61%, the 10-year at 66% and the 30-year at 92%, according to Refinitiv MMD’s 3 p.m. ET read. ICE Data Services had the three at 60%, the five at 61%, the 10 at 66% and the 30 at 94% at 4 p.m.

In testimony to the House Financial Services Committee on Wednesday, Federal Reserve Board Chair Jerome Powell attempted to clarify his statement about faster rate hikes, stressing no decision has been made and larger hikes would be considered only if dictated by data.

“The Federal Reserve’s march toward higher rates has now been accepted by markets as an inevitability, but the outcome of the FOMC’s March meeting is still in question,” said Phil Rasori, chief operating officer at Mortgage Capital Trading. “A quarter-point increase in the federal funds rate is still the most likely outcome, but a half-point increase will be priced in if data on inflation and labor conditions continue to run hotter than expected.”

Still, data released Wednesday suggested the labor market remains strong. ADP reported private-sector jobs rose 242,000 in February, surpassing the 195,000 estimated to have been added by economists polled by IFR Markets.

Additionally, the Job Openings and Labor Turnover Survey showed 10.8 million job openings in January, down from December, but higher than expected.

“This ADP report reinforces the view the Fed has a lot more work to do to cool the economy down enough to bring inflation back to 2.0%,” said Scott Anderson, chief economist at Bank of the West. The job openings total remains “too elevated for the Fed and supports the case for higher interest rates perhaps for a longer period of time.”

“Yields have moved up largely because expectations for rate hikes continue to ratchet higher due to a confluence of reports suggesting that the path to 2% inflation will be long and bumpy,” said Cooper Howard, a fixed-income specialist focused on munis at Charles Schwab.

Fed officials, including Powell, have said “more rate hikes are needed,” he noted, and talk about a 50-basis point increase this month has gained steam, although the upcoming employment report and inflation numbers will be the determinant of Fed action.

The Fed will hike two to three more times this year by 25 basis points each time, Howard believes. There’s a 25% probability of a 50-basis-point rate hike at the March 22 meeting, he said.

“The market’s also expecting the peak fed funds rate to reach 5.5% later this year before rate cuts occur,” he said. “We don’t believe that rate cuts will occur later this year, however.”

“A tentative tone has taken hold in a period with increased muni issuance and multiple data inputs,” said Kim Olsan, senior vice president of municipal bond trading at FHN Financial.

Secondary volume “remains muted as bidders assess the near-term impacts of Fed-speak and upcoming economic releases,” she said. Since the beginning of March, “daily secondary volume has failed to pass the $10 billion mark, after February’s volatile conditions brought figures running near $12 billion par value.” Generic yields, she noted, have held in a tight range since the month began, “in contrast to UST yields that show heightened reactions to monetary activities. “

“If relative values inside the first 15 years were not holding near resistance levels, fewer impediments to better directional flows might develop,” she said.

The result of 2022’s rate selloff “has brought with it a conflicting condition with low ratios and high yields,” according to Olsan.

“Stubborn high-grade ratios below 70% out to 10 years on the curve come with much higher absolute yields, as compared to 2021 when rates fell to historic lows but ratios traded well higher than current levels,” she said.

The one-year MMD rate reached 0.05% during the spring of 2021, but the corresponding muni-UST ratio was above 100%. “The 10-year MMD fell to 0.69% in February 2021 but its relative value rose to more than 80% by the end of the quarter,” she said.

Syndicate results, she said, “point to buyers engaging along the credit spectrum.”

A sale of AAA-rated Howard County, Maryland, GOs “drew single-digit and negative spreads in certain spots out to the first 15 years of the issue,” she said.

Final levels on a “A3/A-plus Pennsylvania Turnpike subordinate revenue bonds brought the 10-year spread +57/BVAL and the maximum 20-year maturity yielded 4.18% (to a 10-year call) for an attractive ratio near 105%/UST,” she said.

Among the largest issues priced this week was Aaa/AAA University of Texas bonds, “the new issue 10-year priced as 5s to yield 2.79% (+16/BVAL) and 5% due 2041 came at 3.67% (+33 BVAL).”

In 2019, “the 10-year priced at 1.89% (+8/BVAL) and the 20-year came as 3s at 2.44% (+64/BVAL),” she said. In that year, the state’s total supply was $43 billion, per Bloomberg data, or 11% of all volume.

In 2020, a “pricing brought a 10-year 5% at 1.15% (+15/BVAL) while the 20-year maturity priced at 1.94% (+57/BVAL and just ahead of the pandemic),” while in April 2021, “the issuer priced a 10-year at 1.19% (+12/BVAL) and the 20-year maturity came as 3s to yield 1.80% (+28/BVAL),” she said.

Between those two years, Olsan said the state’s issuance was 10% to 12% of all supply.

While the issuer paid higher absolute rates, Olsan said “its longer spreads to AAA benchmarks remained tighter than earlier issuance as buyers responded to greater yield options for a historically strong AAA credit.”

In the primary market Wednesday, Wells Fargo Bank priced for California $1.8 billion of taxable various purpose GOs. Pricing details were not available by 4 p.m.

Goldman Sachs & Co. priced for institutions for $1.295 billion of water and sewer system second general resolution revenue bonds, Fiscal 2023 Series DD, for the New York City Municipal Water Finance Authority, with some maturities bumped up to five basis points and cuts up to three basis points from Tuesday’s retail offering: 5s of 6/2026 at 2.87% (-5), 5s of 2028 at 2.76% (-3), 5s of 2033 at 2.85% (-2), 5s of 2038 at 3.60% (-6), 4.125s of 4.35%, 5s of 2046 at 4.02% (unch), 5.25s of 2046 at 3.97%, 4.125s of 2047at 4.38% (+3), 5s of 2047 at 4.05% and 5.25s of 2047 at 4.00% (+2), callable 6/15/2033.

BofA Securities priced for Pasco County, Florida, (A1/AA//) $321.750 million of capital improvement cigarette tax allocation bonds (H. Lee Moffitt Cancer Center Project), Series 2023A, with 5.25s of 9/2025 at 3.29%, 5.25s of 2028 at 3.34%, 5.25s of 2033 at 3.52%, 5.5s of 2038 at 4.18%, 5.5s of 2043 at 4.40%, 5s of 2048 at 4.80% and 5.75s of 2054 at 4.65%, callable 3/1/2033.

BofA Securities priced for the Connecticut Housing Finance Authority (Aaa/AAA//) $168.370 million of social Housing Mortgage Finance Program bonds, 2023 Series A, with all bonds pricing at par — 3.05s of 11/2023, 3.45s of 5/2028, 3.5s of 11/2028, 3.85s of 5/2033, 3.9s of 11/2033, 4.4s of 11/2038, 4.7s of 11/2043 and 4.85s of 5/2048 — except 5.25s of 11/2053 at 4.01%, callable 11/15/2031.

In the competitive, Baltimore County, Maryland, (Aaa/AAA/AAA/) sold $225 million of general obligation Metropolitan District bonds (84th Issue), to BofA Securities, with 5s of 2/2024 at 2.93%, 5s of 2028 at 2.66%, 5s of 2033 at 2.64%, 5s of 2038 at 3.32%, 5s of 2043 at 3.55%. 5s of 2048 at 3.73% and 5s of 2053 at 3.78%, callable 3/1/2033.

Outflows lessened, with the Investment Company Institute reporting investors pulled $344 million from mutual funds in the week ending March 1, after $1.148 billion of outflows the previous week.

Exchange-traded funds saw outflows of $130 million after $298 million of outflows the week prior, per ICI data.

Secondary trading
NYC 5s of 2024 at 2.95%. Maryland 5s of 2024 at 2.93% versus 3.03% on 2/16. Connecticut 5s of 2026 at 2.87%.

Maryland 4s of 2029 at 2.69%. NYC TFA 5s of 2029 at 2.80%-2.78%. California 5s of 2030 at 2.60%-2.65% versus 2.64%-2.66% on 2/28 and 2.26% on 2/15.

Board of Regents of the University of Texas System 5s of 2032 at 2.70%. DC 5s of 2033 at 2.77%.

Fort Lauderdale, Florida, 5s of 2052 at 3.95%. Tampa water, Florida, 5s of 2052 at 3.97%-3.96%. Prosper ISD, Texas, 4s of 2053 at 4.26% versus 4.26% Tuesday and 4.31% on 2/23.

AAA scales
Refinitiv MMD’s scale was bumped two basis points five years and in. The one-year was at 2.93% (-2) and 2.92% (-2) in two years. The five-year was at 2.64% (-2), the 10-year at 2.61% (unch) and the 30-year at 3.58% (unch) at 3 p.m.

The ICE AAA yield curve was mixed: 2.93% (flat) in 2024 and 2.91% (-1) in 2025. The five-year was at 2.65% (-1), the 10-year was at 2.63% (-1) and the 30-year yield was at 3.64% (+1) at 4 p.m.

The IHS Markit municipal curve was bumped up to two basis points: 2.94% (-2) in 2024 and 2.92% (-2) in 2025. The five-year was at 2.64% (unch), the 10-year was at 2.60% (unch) and the 30-year yield was at 3.60% (unch) at a 4 p.m. read.

Bloomberg BVAL was bumped up to three basis points: 2.98% (-3) in 2024 and 2.90% (-2) in 2025. The five-year at 2.63% (-1), the 10-year at 2.63% (unch) and the 30-year at 3.59% (-1).

Treasuries were weaker in spots.

The two-year UST was yielding 5.060% (+4), the three-year was at 4.728% (flat), the five-year at 4.336% (+2), the seven-year at 4.185% (+1), the 10-year at 3.979% (+1), the 20-year at 4.109% (-1) and the 30-year Treasury was yielding 3.877% (flat) at 4 p.m.

Primary to come:
The week’s largest deal — a $3.5 billion sale of Series 2023 taxable customer rate relief bonds from the Texas National Gas Securitization Finance Corp. — is planned for Thursday by Jefferies LLC, and will consist of $1.76 billion of Series A1 term bonds in 2035 and $1.76 billion of Series A2 term bonds in 2041.

The District of Columbia is planning a $826.3 million sale of GO refunding bonds on Thursday. The sale consists of $587 million in Series 1 and $239 million of Series 2 and will be senior managed by Morgan Stanley & Co. The bonds are rated Aaa by Moody’s and AA-plus by S&P and Fitch.

Louisiana will bring to market $200 million of revenue refunding bonds from the Parish of St. John the Baptist on Thursday in a remarketing led by PNC Capital Markets LLC. The deal, which is rated Baa3 by Moody’s and BBB-minus by S&P and Fitch, is a remarketing of Series 2017 on behalf of the Marathon Oil Corp. project. The financing consists of sub-series 2017 A non-AMT paper which contains a term bond in 2037.

A $153.7 million sale of auxiliary facilities system refunding revenue bonds will come to market from the Board of Trustees of the University of Illinois on Thursday. The Series 2023 bonds, which are rated Aa3 by Moody’s and AA-minus by S&P, are being senior-managed by JPMorgan Securities.