Short-term munis sell off, yields rise in sympathy with USTs
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Short-term munis sold off Wednesday, as triple-A benchmarks rose in sympathy with U.S. Treasuries. Equities rallied.
Muni yields rose seven to 12 basis points five years in, while USTs rose two to eight basis points.
Performance-wise, Matthew Buscone, co-head of portfolio management at Breckinridge Capital Advisors, said the muni market has been soft this week.
“We’re starting to see dealers have a little bit of trouble distributing deals at original pricing levels and the market has been softer … in the part of the curve where there’s the deepest inversion in the muni market,” he said.
There has been weakness in the market this week, which he attributes to “a little bit of pickup in supply and some bigger benchmark deals,” he said, adding “a softer tone in the Treasury market never helps.”
He said munis had continued to outperform over the past few weeks, and ratios do not look overly compelling. Within 10 years, he said muni-UST ratios sit in a high-60s range.
The two-year muni-Treasury ratio Wednesday was at 69%, the three-year at 70%, the five-year at 69%, the 10-year at 66% and the 30-year at 88%, according to Refinitiv MMD’s 3 p.m. ET read. ICE Data Services had the two-year at 70%, the three-year at 72%, the five-year at 69%, the 10-year at 68% and the 30-year at 88% at 4 p.m.
It’s also a very flat ratio curve, Buscone said.
“Maybe it kind of caught up with people a little bit saying, ‘Ratios look a little bit low, curves feel pretty compelling. Maybe I can sit and do something short and wait for a better opportunity,'” he said.
There has not been a return of inflows into muni mutual funds, either, this year.
The Investment Company Institute reported investors pulled another $290 million out of municipal bond mutual funds in the week ending May 10, after $600 million of outflows the previous week. Exchange-traded funds saw more inflows to the tune of $258 million after $202 million of inflows the week prior.
Net flows are overly negative, but he noted they aren’t enough to drive much demand right now. Meanwhile, he said ETFs have “been up and down a little bit,” and has been a big source of demand in muni market over the past year.
“Despite more elevated yields, the pressure’s gone from last year whether it was heavy selling nearly every day [for] it seemed like for six or eight months,” he said.
“We haven’t seen a return of fund flows to drive demand across the curve,” he said.
Inflows into muni mutual funds could return in the coming summer months, but he doesn’t know if it will “be driven by fund flows per se.”
“I don’t know that either of these will have changed enough to get retail the say, ‘Now I want to get back in,'” he said.
The big differences “you’re going to see is just surely just a lot of internal demand from funds themselves,” he said. “The summer technical season is real in the muni market, and redemptions in May, June, July and August are pretty overwhelming.”
He said there is over $230 billion coming due over the summer reinvestment, “so a lot of people are going to have money to put back to work during the season.”
That’s “typically a little bit lower on the new-issue supply side,” Buscone said.
He believes this weakness is the muni market is “somewhat temporary over the next few weeks, but then as we start to get through June and heading closer to July, a lot of people are going to start seeing these numbers and saying, ‘If I wanted to get some money and put it to work, I should probably do it now,’ as opposed to waiting until July 15, when there’s probably not much overlap at all.”
In the primary market Wednesday, J.P. Morgan priced for the California Educational Facilities Authority (Aaa/AAA/AAA/) $241.545 million of revenue bonds, Series V-3, for Stanford University, with 5s of 6/2033 at 2.28.
BofA Securities priced for Harris County Industrial Development Corp., Texas, (Baa3/BBB-/BBB-/) $225 million Energy Transfer LP Project marine terminal refunding revenue bonds, with 4.05s of 11/2050 with a mandatory tender date at 6/1/2033 at par.
J.P. Morgan priced for the New Jersey Economic Development Authority (A1/A+//) $110 million of AMT New Jersey-American Water Co. project water facilities refunding revenue bonds with 3.75s of 11/2034 with a mandatory tender date at 6/1/2028 at par, noncall.
Citigroup Global Markets priced for the City and County of Honolulu (Aaa///) $100.535 million of Maunakea Tower Apartments multifamily housing revenue bonds, with 5s of 6/2027 with a mandatory tender date of 6/1/2026 at 3.43%, noncall.
In the competitive market, Fort Worth, Texas, (Aa1/AA+//) sold $180 million of water and sewer system revenue bonds to Jefferies, with 5s of 2/2024 at 3.10%, 4s of 2028 at 2.63%, 5s of 2033 at 2.62%, 5s of 2038 at 3.24%, 4s of 2043 at par, 4.125s of 2046 at par and 4.25s of 2053 at par, callable 2/15/2032.
Muni CUSIP requests fall
Municipal CUSIP request volume decreased in April on a year-over-year basis, following an increase in March, according to CUSIP Global Services.
For muni bonds specifically, there was an increase of 0.5% month-over-month and a 24% decrease year-over-year.
The aggregate total of identifier requests for new municipal securities, including municipal bonds, long-term and short-term notes, and commercial paper, fell 1.5% versus March totals. On a year-over-year basis, overall municipal volumes were down 18.7%. CUSIP requests are an indicator of future issuance.
Secondary trading
NYC 5s of 2024 at 3.05% versus 3.06% Tuesday and 3.00% on 5/11. Maryland 5s of 2024 at 3.06% versus 3.07% Tuesday and 3.02% Friday. California 5s of 2025 at 2.85% versus 2,68%-2.70% on 4/27.
DC 5s of 2027 at 2.57%. Oregon 5s of 2028 at 2.54% versus 2.43% on 5/11. California 5s of 2029 at 2.50%-2.49% versus 2.37%-2.46% Tuesday.
University of California 5s of 2032 at 2.21%. Wisconsin 5s of 2036 at 2.81%-2.80% versus 2.98% original on 4/28.
Palm Beach County, Florida, 5s of 2043 at 3.49% versus 3.37% original on 5/10. San Jose Financing Authority, California, 5s of 2047 at 3.40% versus 3.43$% Tuesday and 3.43%-3.42% on 5/3. Waco ISD, Texas, 4s of 2048 at 4.12%-4.06% versus 4.14% Tuesday and 4.12% on 5/5.
AAA scales
Refinitiv MMD’s scale was cut four to 12 basis points: The one-year was at 3.11% (+8) and 2.85% (+12) in two years. The five-year was at 2.47% (+12), the 10-year at 2.37% (+4) and the 30-year at 3.40% (+4) at 3 p.m.
The ICE AAA yield curve was cut two to eight basis points: 3.15% (+8) in 2024 and 2.87% (+8) in 2025. The five-year was at 2.46% (+8), the 10-year was at 2.37% (+4) and the 30-year was at 3.42% (+2) at 4 p.m.
The IHS Markit municipal curve was cut four to 12 basis points: 3.10% (+8) in 2024 and 2.85% (+12) in 2025. The five-year was at 2.47% (+12), the 10-year was at 2.36% (+4) and the 30-year yield was at 3.40% (+4), according to a 4 p.m. read.
Bloomberg BVAL was cut three to eight basis points: 2.93% (+7) in 2024 and 2.80% (+7) in 2025. The five-year at 2.44% (+8), the 10-year at 2.38% (+5) and the 30-year at 3.44% (+3) at 4 p.m.
Treasuries were weaker.
The two-year UST was yielding 4.152% (+8), the three-year was at 3.810% (+8), the five-year at 3.587% (+8), the 10-year at 3.578% (+4), the 20-year at 3.977% (+3) and the 30-year Treasury was yielding 3.879% (+2) at 4 p.m.
Primary to come:
The Dormitory Authority of the State of New York (Aaa/AAA//) is set to price $275 million of Columbia University revenue bonds on Thursday. Goldman Sachs & Co.
The Springfield School District R-XII, Missouri, (/AA+//) is set to price $190 million of general obligation school building bonds insured by the Missouri Director Deposit program. Serials 2024-2043. Stifel, Nicolaus & Co.
El Paso, Texas, (/AA+/AA+/) is set to price $181.260 million of water and sewer revenue improvement and refunding bonds. Serials 2024-2027 and 2029-2043. Term 2045 and 2049. Stifel, Nicolaus & Co.
The Development Authority of Burke County, Georgia, (Baa1/BBB+/BBB+/) is set to price $115 million of pollution control revenue bonds for the Georgia Power Company Plant Vogtle Project). Serials 2032. Barclays Capital.
