Larger primary led by DASNY’s $1B of school bonds takes focus

Municipals were steady Tuesday as a larger primary calendar took the focus while U.S. Treasuries were slightly weaker and equities ended down.

Slight Treasury weakness, a quiet municipal market with weaker bids and a lot of uncertainty preceded the arrival of some of this week’s biggest deals in the primary market, according to a New York trader.

“The market is focused on the $7.5 billion new-issue calendar, especially the $1 billion New York State Dormitory Authority financing,” he said on Monday.

“Treasuries are basically in a very narrow trading range, and the same with munis,” John Farawell, managing director of underwriting at Roosevelt & Cross, said on Tuesday.

He said new issues in general, especially the Dormitory deal, are doing well.

The Dorm deal, he said, should do very well based on its name recognition and previous sales.

In the primary market Tuesday, RBC Capital Markets held a one-day retail order period for the Dormitory Authority of the State of New York’s pricing of $1.086 billion of school districts revenue bonds, insured by Assured Guaranty Municipal Corp. The first tranche, $795.325 million of Series 2023A (Aa3/AA/AA-/), saw 5s of 10/2024 at 3.07%, 5s of 2028 at 2.51%, 5s of 2033 at 2.62%, 5s of 2038 at 3.32%, 5s of 2043 at 3.62% and 5.25s of 2050 at 3.83%, callable 10/1/2031.

The second tranche, $119.760 million of Series 2023B (Aa2/AA/AA-/), saw 5s of 10/2024 at 3.04%, 5s of 2028 at 2.48%, 5s of 2033 at 2.59%, 5s of 2038 at 3.29%, 5s of 2043 at 3.59% and 4s of 2050 at 4.20%, callable 10/1/2031.

The third tranche, $65.985 million of Series 2023C (/AA/AA-/), saw 5s of 10/2024 at 3.04%, 5s of 2028 at 2.48%, 5s of 2033 at 2.59% and 5s of 2038 at 3.29%, callable 10/1/2031.

The fourth tranche, $104.655 million of Series 2023D (Aa3/AA/AA-/), saw 5s of 10/2024 at 3.15%, 5s of 2028 at 2.59%, 5s of 2033 at 2.70%, 5s of 2038 at 3.40% and 5s of 2039 at 3.47%, callable 10/1/2031.

Despite the attraction for new issues, sources said there is still uncertainty overall in the municipal market stemming from the regional banking crisis.

“The market treading on water,” Farawell said, noting the latest Federal Reserve Board’s rate hike last week.

When the Fed stops raising rates, he said that will “close a lot of uncertainty moving forward and it will be data-driven.”

Others have taken a cautious approach on the buy-side this week, with some loose ends still remaining on the banking crisis spooking investors, according to John Mousseau, president and director of fixed income at Cumberland Advisors.

Some resolution of the banking crisis has helped retail investors allay their fears, but many are still on the sidelines awaiting further clarity.

“J.P. Morgan buying First Republic takes a big bank portfolio away from overhanging the market, but we still haven’t seen anything from the [Silicon Valley Bank] portfolio,” he said Tuesday.

“Beyond those sales should lie some better markets, particularly as you enter the summer season,” Mousseau added.

Elsewhere in the primary market, J.P. Morgan priced for the Lower Colorado River Authority $473.430 million of LCRA Transmission Services Corp. Project transmission contract refunding revenue bonds, Series 2023A, with 5s of 5/2024 at 3.11%, 5s of 2028 at 2.54%, 5s of 2033 at 2.71%, 5s of 2037 at 3.16%, 4s of 2043 at 4.05%, 5.25s of 2048 at 3.95% and 5.25s of 2053 at 3.96%, callable 5/15/2033.

J.P. Morgan priced for Dallas (/AA-/AA/) $445.625 million of GOs. The first tranche, $390.605 million of GO refunding and improvement bonds, Series 2023A, saw 5s of 2/2034 at 3.12%, 5s of 2028 at 2.60%, 5s of 2033 at 2.69%, 5s of 2038 at 3.24% and 5s of 2043 at 3.57%, callable 2/15/2033.

The second tranche, $55.020 million of combination tax and revenue certificates of obligation, Series 2023B, saw 5s of 2/2034 at 3.12%, 5s of 2028 at 2.60% and 5s of 2033 at 2.69%, noncall.

Morgan Stanley priced for the Board of Trustees of Michigan State University (Aa2/AA//) $307.300 million of general revenue refunding bonds, Series 2023A, with 5s of 2/2024 at 3.08%, 5s of 2/2028 at 2.46%, 5s of 8/2028 at 2.46%, 5s of 2/2033 at 2.58%, 5s of 8/2033 at 2.60%, 5s of 8/2038 at 3.22%, 5s of 2/2043 at 3.57% and 5s of 2/2048 at 3.81%, callable 2/15/2033.

RBC Capital Markets priced for the Texas Water Development Board (/AAA/AAA/) $192.325 million of State Revolving Fund revenue bonds, New Series 2023, with 5s of 8/2024 at 3.02%, 5s of 2028 at 2.41%, 5s of 2033 at 2.50%, 5s of 2038 at 3.10%, 5s of 2043 at 3.47% and 5s of 2044 at 3.53%, callable 8/1/2033

Citigroup Global Markets priced for the Illinois Housing Development Authority (Aaa///) $160 million of non-AMT social revenue bonds. The first tranche, $100 million of 2023 Series D, saw all bonds price at par: 3.05s of 10/2024, 3.15s of 10/2028, 3.65s of 10/2033, 4.1s of 10/2038, 4.45s of 10/2043 and 4.6s of 4/2047, except 5.5s of 102/2053 at 3.73%, callable 10/1/2032.

The second tranche, $60 million of 2023 Series G, saw 3.5s of 10/2054 with a mandatory tender date of 6/4/2024 price at par, callable 4/1/2024.

In the competitive market, Ann Arbor Public Schools, Michigan, (Aa3///) sold $100 million of building and site bonds, to BofA Securities, with 4s of 5/2024 at 3.10%, 4s of 2028 at 2.49%, 4s of 2033 at 2.65%, 4s of 2038 at 3.65% and 4s of 2043 at 4.02%, callable 5/1/2033.

Readjusting, but still rich, ratios
Muni-UST ratios ended 2022 at very rich level, said Kara South, portfolio manager at GW&K Investment Management.

“They still are tight on a longer-term historical basis, although they have improved quite a bit from even where we were at the end of March,” South said.

The two-year muni-Treasury ratio Tuesday was at 66%, the three-year at 66%, the five-year at 66%, the 10-year at 66% and the 30-year at 87%, according to Refinitiv MMD’s 3 p.m. ET read. ICE Data Services had the two-year at 67%, the three-year at 67%, the five-year at 65%, the 10-year at 66% and the 30-year at 88% at 4 p.m.

“So we’ve seen established correction in the markets, but relative value ratios are still relatively rich,” she said.

This could “be a factor as far as not being one of the reasons that you could see munis outperform given that we are starting out rich levels,” she said.

Market technicals have been a big driver this year, especially in the first quarter when there was very little supply, South said.

Fund flows, while a big factor in the muni market last year, have not been as prominent as of a driver in 2023.

“It’s really been a supply story versus the demand kind of story we saw last year with the record demand outflows,” South said. “But given muted supply within the market, which is down year-over-year, there is still good demand.”

She said this is especially true on the separately managed account side, where supply has been “gobbled up.”

South noted credit is at a strong starting point.

“We’ve had double-digit revenue growth in 2021 and 2022,” she said. “States are flush with cash, have record reserves.”

There could be a slowdown, she said, if “we go into a weaker economic period,” but the general view is credit remains strong.

Secondary trading
Ohio 5s of 2024 at 3.04%-3.00%. Connecticut 5s of 2025 at 2.79%. Plano ISD, Texas, 5s of 2026 at 2.70% versus 2.72% on 5/3.

NYC 5s of 2028 at 2.47%. Connecticut 5s of 2029 at 2.47%. California 5s of 2030 at 2.28% versus 2.27% Thursday and 2.34%-2.33% on 5/3.

Maryland 5s of 2034 at 2.39%-2.40% versus 2.45% on 5/3. NYC TFA 5s of 2034 at 2.57% versus 2.55%-2.56% on 5/3 and 2.60% on 5/2. Oregon 5s of 2035 at 2.63% versus 2.50% on 4/18.

LA DWP 5s of 2052 at 3.64% versus 3.63% Thursday and 3.64%-3.63% on 4/26. Austin waters 5s of 2052 at 3.84%-3.83% versus 3.87% on 5/2.

AAA scales
Refinitiv MMD’s scale was unchanged: The one-year was at 2.97% and 2.66% in two years. The five-year was at 2.31%, the 10-year at 2.31% and the 30-year at 3.36% at 3 p.m.

The ICE AAA yield curve was changed up to two basis points: 3.01% (flat) in 2024 and 2.69% (flat) in 2025. The five-year was at 2.31% (flat), the 10-year was at 2.28% (-1) and the 30-year was at 3.35% (+1) at 4 p.m.

The IHS Markit municipal curve was unchanged: 2.96% in 2024 and 2.66% in 2025. The five-year was at 2.31%, the 10-year was at 2.30% and the 30-year yield was at 3.36%, according to a 4 p.m. read.

Bloomberg BVAL was unchanged: 2.80% in 2024 and 2.66% in 2025. The five-year at 2.31%, the 10-year at 2.30% and the 30-year at 3.39% at 4 p.m.

Treasuries were weaker.

The two-year UST was yielding 4.035% (+3), the three-year was at 3.734% (+1), the five-year at 3.509% (+1), the 10-year at 3.528% (+2), the 20-year at 3.935% (+2) and the 30-year Treasury was yielding 3.846% (+3) at 4 p.m.

Primary to come:

The California Housing Finance Agency (/BBB///) is slated to price $277.3 million of social certificates, some of which are partially exempt on Thursday. Serials 2036. Citigroup Global Markets Inc.  

The West Virginia Hospital Finance Authority (A2/A//) is slated to price $276.4 million of revenue bonds on behalf of the West Virginia University Health System on Wednesday. Serials 2024 to 2030, with terms in 2047 and 2053. BofA Securities.

The Arkansas Development Finance Authority (/BB-/BB/) is slated to price $240 million of environmental improvement revenue green bonds subject to the alternative minimum tax. Term bond in 2053. BofA Securities.

The Manatee County, Fla., School Board (/A+/A/) is set to price $154.3 million of certificates of participation on Wednesday. Serials 2024 to 2038. Raymond James.

The Liberty, Mo., School District #53 (/AA//) is set to price $120 million of GO school bonds on Thursday. Serials 2024 to 2043. Stifel, Nicolaus & Co.

The Metropolitan Atlanta Rapid Transit Authority (Aa2/AAA//AAA/) is slated to price $112.7 million of sales tax revenue green bonds. Serials 2024 to 2032. Wells Fargo Bank.

Fresno, Calif., (/AA//) will price $100.2 million of airport revenue bonds — both AMT and non-AMT paper — insured by Build America Mutual on Thursday. Serials 2024-2037, with terms in 2042, 2047, and 2053. Raymond James.

Competitive
Fort Worth, Tex., (Aa3/AA//) is set to sell $263.6 million of taxable bonds, certificates of obligation, and GO improvement bonds in three deals on Wednesday. Serials 2024 to 2043.