Walloped on the front end, better out long, choppy all around

Municipals were mixed Tuesday with most AAA scales showing large cuts on the front end and smaller bumps out long. U.S. Treasuries rallied hard, and equities sold off.

The two-year muni-Treasury ratio Monday was at 66%, the three-year at 69%, the five-year at 68%, the 10-year at 69% and the 30-year at 92%, according to Refinitiv MMD’s 3 p.m. ET read. ICE Data Services had the two-year at 64%, three-year at 65%, the five-year at 64%, the 10-year at 66% and the 30-year at 91% at 4 p.m.

Continued weakness on the short end of the municipal curve made for a choppy market on Tuesday. Triple-A yield one-year yields rose as much as 10 basis points while short USTs saw yields fall as much as 20.

One underwriter called it a “violent inversion,” given that the short end of the municipal and Treasury yield curves were so dislocated.

“It’s unusual right now” as the two-year Treasury is at 3.946% Tuesday, which is down around 20 basis points from Monday’s close, but the municipal curve in two-years is “cheapening up to five basis points” for most AAA scales, a New York underwriter said.

“There is a dislocation from Treasuries and munis,” he said. “Usually they coincide but right now that is not happening.”

He suggested thin trading and discussions about the debt ceiling could be the culprits. 

“We are not getting the follow-up in munis like we should be, and we have the Fed planning to raise rates again 25 basis points in May,” he said.

There has been continuous weakness on the short end of the municipal curve, which is both attractive and concerning for retail investors, the underwriter noted.

Tuesday’s strong Treasury market and weak municipal market is getting mixed reactions from retail investors, the underwriter said.

Mom and pop investors like the attractive yields on the short end — but they don’t like the continuous pattern of weakness.

“Retail is going to like the front end now because we are passed tax time, so they seem to be coming in off the sidelines, but they don’t like seeing the short end cut every day,” he said.

“Absolute yields are attractive, but they like to see it more settled down,” he said, as opposed to prices being cut every day. 

One perk stemming from all the front-end weakness, according to the underwriter, is that percentages of municipals to Treasuries should increase.

“Percentage-wise we are going to get very attractive,” he said, noting that the percentage of municipals could get more attractive to Treasuries, and even increase by 3% to 5%, he noted.

Meanwhile, the bargain prices were piquing investors’ interest on Tuesday, according to John Mousseau, president and chief executive officer and director of fixed income at Cumberland Advisors.

“Cheap front ends of deals are way oversubscribed,” as well as the cheaper priced back ends of a deal, while the “belly is quite expensive,” Mousseau said Tuesday.

Otherwise, the market is holding its own and stable — after a rocking first quarter due to the banking crisis.

“It’s been back and forth, but the longer the banking crisis is in the rear view mirror, the better chance munis have from an overall participation level” among investors, Mousseau said.

In the primary market Tuesday, Citigroup Global Markets priced for the Health and Educational Facilities Authority of the State of Missouri (/A+/AA-/) $224.570 million of taxable SSM Health health facilities revenue bonds, Series 2023B. The first tranche, $112.285 million of Subseries 2023B-1, saw 4.89s of 6/2053 price at par, callable 4/27/2023.

The second tranche, $112.285 million of Subseries 2023B-2, saw 4.89s of 6/2053 price at par, callable 4/27/2023.

Loop Capital Markets priced for the New York State Environmental Facilities Corp. (Aaa/AAA/AAA/) $151.550 million of green 2010 Master Financing Program state revolving funds revenue bonds, Series 2023A, with 5s of 11/2023 at 2.85%, 5s of 5/2028 at 2.39%, 5s of 11/2028 at 2.39%, 5s of 5/2033 at 2.42%, 5s of 11/2033 at 2.42%, 5s of 11/2038 at 3.11% and 5s of 5/2043 at 3.45%, callable 5/15/2033.

J.P. Morgan priced for Nassau County, New York, (Aa3/AA-/A+/) $115.280 million of GO general improvement and refunding bonds, 2023 Series B, with 5s of 4/2033 at 2.61%, 5s of 2038 at 3.27% and 5s of 2043 at 3.66%, callable 4/1/2033.

In the competitive, Union County, North Carolina, (Aaa/AAA/AAA/) sold $134.405 million of GO school bonds, Series 2023, to Wells Fargo Bank, with 5s of 9/2024 at 2.84%, 5s of 2028 at 2.36%, 5s of 2033 at 2.33%, 5s of 2038 at 3.00% and 5s of 2043 at 3.26%, callable 9/1/2033.

Secondary trading
Florida 5s of 2024 at 3.12%. Connecticut 5s of 2024 at 3.00% versus 3.08%-3.00% Monday. Washington 5s of 2025 at 2.69%-2.68%.

Maryland 5s of 2028 at 2.39% versus 2.46% on 4/19. DASNY 5s of 2028 at 2.28%. Triborough Bridge and Tunnel Authority 5s of 2029 at 2.38%.

LA DWP 5s of 2033 at 2.32%-2.30% versus 2.35%-2.33% Monday. Raleigh, North Carolina, 5s of 2034 at 2.38%-2.39% versus 2.23% on 4/17 and 2.22% original on 4/14. University of California 5s of 2034 at 2.31%-2.30%.

California 5s of 2045 at 3.36%-3.35% versus 3.44% Friday and 3.27% on 4/17. San Jose Financing Authority, California, 5s of 2052 at 3.55%-3.56% versus 3.64% Thursday and 3.64%-3.52% on 4/19.

AAA scales
Refinitiv MMD’s scale was mixed: The one-year was at 2.95% (+10) and 2.61% (+5) in two years. The five-year was at 2.36% (unch), the 10-year at 2.33% (-3) and the 30-year at 3.37% (-3) at 3 p.m.

The ICE AAA yield curve was bumped up to three basis points: 2.92% (flat) in 2024 and 2.65% (flat) in 2025. The five-year was at 2.33% (-1), the 10-year was at 2.31% (-2) and the 30-year was at 3.38% (-3) at 4 p.m.

The IHS Markit municipal curve was mixed: 2.91% (+8) in 2024 and 2.61% (+5) in 2025. The five-year was at 2.36% (unch), the 10-year was at 2.33% (-2) and the 30-year yield was at 3.38% (-2), according to a 4 p.m. read.

Bloomberg BVAL was mixed: 2.75% (+7) in 2024 and 2.63% (+5) in 2025. The five-year at 2.31% (+1), the 10-year at 2.32% (-1) and the 30-year at 3.38% (-2) at 4 p.m.

Treasuries rallied.

The two-year UST was yielding 3.946% (-19), the three-year was at 3.64% (-19), the five-year at 3.449% (-16), the seven-year at 3.462% (-14), the 10-year at 3.40% (-12), the 20-year at 3.769% (-9) and the 30-year Treasury was yielding 3.665% (-7) at 4 p.m.

Primary to come
The Providence St. Joseph Health Obligated Group (A2/A/A/) is set to price Wednesday $585 million of taxable corporate CUSIPs, Series 2023. Morgan Stanley.

Columbus, Ohio, (Aaa/AAA/AAA/) is set to price Thursday $441.760 million of tax-exempt and taxable GOs, consisting of $320.215 million of Series 2023A, serials 2024-2043; $25.125 million of Series 2023B, serials 2024-2038; $23.960 million of Series 2023C, serials 2024-2041; $51.750 million of Series 2023D, serials 2024-2038; $5.325 million of Series 23-1, serials 2025, 2029; and $15.385 million of Series 23-2, serials 2024, 2026-2029. BofA Securities.

The Ohio Water Development Authority (Aaa/AAA//) is set to price Wednesday $339.030 million of Ohio Water Pollution Control Loan Fund refunding revenue bonds, Series 2023A, serials 2024-2032. Ramirez & Co.

The Virginia Port Authority (Aa1/AA+/AA+/) is set to price Wednesday $201.465 million of non-AMT Commonwealth Port Fund revenue bonds, consisting of $149.145 million of new bonds, Series 2023A, serials 2032-2048, and $52.320 million of refunding bonds, Series 2023B, serials 2028-2036. Wells Fargo Bank.

The Greater Asheville Regional Airport Authority (Baa2///A+/) is set to price Thursday $175 million of AMT airport system revenue bonds, Series 2023, serials 2027-2043, terms 2048, 2053. Siebert Williams Shank & Co.

Hartford, Connecticut, (Aa3/AA-//) is set to price Wednesday $124.090 million of special obligation refunding bonds, Series 2023, serials 2024-2033. Siebert Williams Shank & Co.

The Albuquerque Municipal School District No. 12, New Mexico, (/AA//) is set to price Wednesday $117 million, consisting of $70 million of Series A and $47 million of Series B. Stifel, Nicolaus & Co.

Competitive
Delaware (/AAA//) is set to see $362.84 million of general obligation bonds at 11 a.m. eastern and $34.115 million of GOs at 11:30 a.m. Wednesday.

Washington (Aaa/AA+/AA+/) is set to sell $1.332 billion Wednesday: $206.325 million of various purpose general obligation refunding bonds at 11:15 a.m. eastern; $289.26 million of various purpose GO refunding bonds at 10:45 a.m. eastern; $327.32 million of various purpose GO refunding bonds at 10:15 a.m. eastern and $509.68 million of motor vehicle fuel tax and vehicle-related fees general obligation refunding bonds at 11:45 a.m. eastern. 

Nassau County, New York, (Aa3/AA-/A+/) is set to sell $154.68 million of general improvement bonds at 10 a.m. eastern Thursday.