Munis steady as hearty demand emerges

Municipals were steady Wednesday, U.S. Treasuries were little changed, no more than a basis point or two, and equities ended down.

A firm tone and hearty demand were noticeable in the municipal market as new issues were highly oversubscribed — especially on the long end — amid the summer doldrums, municipal players said.

Some of the deals are as many as five times oversubscribed in the current market, according to Chris Brigati, senior vice president and managing director of municipals at Valley National Bank.

“Prices are being bumped as much as 10 basis points lower in yield on the strong demand for some of the deals,” he said. “The holiday-shortened week and smaller calendar this week does not appear to be having much of an impact on the market activity,” he added.

In terms of flow, the long-end and front-end appear to have different flows, according to Brigati.

“Last week, the front-end experienced significant outflows, whereas the long-end had modest inflows,” he said. 

The Investment Company Institute reported investors added $16 million to municipal bond mutual funds in the week ending June 14, after $495 million of inflows the previous week. Exchange-traded funds saw inflows of $21 million after $136 million of inflows the week prior.

Meanwhile, the potential for supply of the 4% to 5% coupon bonds from Silicon Valley Bank liquidations could provide some sense of additional supply over the next several weeks, Brigati noted.

“I do not expect this to be a drag on the market as robust demand continues to be a theme,” he said, adding he has been awaiting the opportunity to engage on a significant portion of those sales as the credits and structure are of interest to his clients.

“New-issue supply during the first half of 2023 was significantly lower than forecasts and appears to be keeping municipal ratios at relatively low levels,” Brigati said.

“I do not foresee any meaningful change for the second half of the year in terms of the new-issue supply picture,” he added. 

Others, like Bill Walsh, president at Hennion & Walsh Inc., said the retail demand is consistent and current yield levels are appealing to the mom-and-pop crowd.

“While retail trading seems to be steady and at similar levels as [Tuesday], the muni market has a firm tone today,” he said. 

“With the summer months upon us, it is hard to gauge retail demand going forward, but it does feel like retail is being selective,” Walsh said, noting that if yields remain at the current levels so will retail demand.

Roberto Roffo, managing director and portfolio manager at SWBC Investment Company, agreed the municipal market was firm Wednesday.

“Ratios are above their year-to-date averages,” he said.

The two-year muni-to-Treasury ratio Wednesday was at 62%, the three-year at 65%, the five-year at 66%, the 10-year at 69% and the 30-year at 91%, according to Refinitiv MMD’s 3 p.m. read. ICE Data Services had the two-year at 63%, the three-year at 65%, the five-year at 65%, the 10-year at 69% and the 30-year at 92% at 4 p.m.

Ratios, Roffo said, “should provide a floor in prices in the near term,” adding that secondary activity has increased from Tuesday — which suffered from the effects of a long weekend — and bids are solid with investors looking to add to positions.  

“New issues are doing well as the majority of the larger deals are being repriced higher due to strong demand,” Roffo said.

“The relative cheapness of municipals, and the realization that new issuance is going to be lower than expected going into the second half of the year, should provide strong support for the municipal market for the rest of the year,” he added.

Through the first 24 weeks of the year, tax-exempt sales are down 12% year-over-year versus 59% for taxables, said Matt Fabian, a partner at Municipal Market Analytics.

Overall issuance is down 22%, he said.

All of this is “a bit better than earlier in the year and consistent with expectations for a better 2H23,” he added.

Part of this, Fabian noted, “will be new tax-exempt certificates exchanged via voluntary taxable or tax-exempt tenders; in the former case, the net creation of tax-exempt product is always welcome.”

Thin supply also isn’t the worst condition currently, he said.

‘With mutual fund flows anemic, to be generous, reinvestment demand a shadow of 2019-2021 peaks, and going-away demand still reliant on retail/[separately managed accounts], a wave of new, long-dated product might have meant yields markedly higher right now,” he said.

Ratios “also show retail fingerprints,” he said.

Between two- and 10-year spots are “showing strong outperformance, with only the 30-year — where retail demand is light — still treading water at its rolling average,” according to Fabian.

As “more insurance companies pulling back on a catastrophe-and-reinsurance linked decline in profitability, and banks carrying steadily fewer munis securities holdings,” he said, “going-away institutional demand seems set to stay thin.

The upside is fund total return, he said, which could mean more inflows.

In the primary market Wednesday, Goldman Sachs priced for the Port Authority of New York and New Jersey (Aa3/AA-/AA-/) $380.120 million of consolidated bonds. The first tranche, $200 million of 240th Series, saw 5s of 7/2040 at 3.53%, 5s of 2043 at 3.66%, 5s of 2048 at 3.85% and 5s of 2053 at 3.93%, callable 7/15/2033.

The second tranche, $180.120 million of 241st Series, saw 5s of 7/2040 at 3.53%, 5s of 2043 at 3.66%, 5s of 2048 at 3.85% and 5s of 2053 at 3.93%, callable 7/15/2033.

Citigroup Global Markets priced for the New York State Environmental Facilities Corp. (Aaa/AAA/AAA/) $306.945 million of subordinated SRF second resolution state clean water and drinking water revolving funds revenue bonds, Series 2023 B, with 5s of 6/2024 at 3.03%, 5s of 2028 at 2.66%, 5s of 2033 at 2.67%, 5s of 2038 at 3.19%, 5s of 2043 at 3.49%, 5s of 2048 at 3.66% and 5s of 2053 at 3.74%, callable 6/15/2033.

Barclays Capital priced for Pennsylvania State University (Aa1/AA//) $205.925 million of bonds, Series 2023, with 5s of 9/2024 at 3.03%, 5s of 2028 at 2.66%, 5s of 2033 at 2.70%, 5s of 2038 at 3.24%, 5s of 2043 at 3.54% , 5.25s of 2048 at 3.71% and 5.25s of 2053 at 3.78%, callable 9/1/2033.

BofA Securities priced for the Massachusetts Development Finance Agency (Aa3/AA-//) $200.950 million of Boston University issue refunding revenue bonds. The first tranche, $150.535 million of 2023 Series FF, saw 5s of 10/2024 at 3.04%, 5s of 2028 at 2.70%, 5s of 2033 at 2.67%, 4s of 2046 at 4.06% and 5s of 2048 at 3.81%, callable 10/1/2033.

The second tranche, $50.415 million of 2023 Series GG, saw 5s of 10/2042 with a mandatory tender date of 10/1/2028 at 2.90%, callable 7/1/2028.

BofA Securities priced for the Triborough Bridge and Tunnel Authority $185 million of general revenue variable rate refunding bonds, Series 2005B-3, with 4.2s of 1/2035 at par.

Ramirez & Co. priced for Lansing, Michigan, (/AA//AA-/) $175 million of unlimited tax GO capital improvement and refunding bonds, with 5s of 6/2024 at 3.20%, 5s of 2028 at 2.87%, 5s of 2033 at 2.93%, 4s of 2038 at 3.90%, 5s of 2043 at 3.83%, 4.125s of 2048 at 4.30% and 5s of 2048 at 4.00%, callable 6/1/2033.

In the competitive market, the Putnam County School District, Florida (A1/AA/A+/) sold $99.955 million of GOs, Series 2023, to Wells Fargo Bank with 5s of 7/2024 at 3.20%, 5s of 2028 at 2.85%, 5s 2033 at 2.85%, 5s of 2038 at 3.45%, 4s of 2044 at par, 4.125s of 2047 at par and 4.25s of 2052 at par, callable 7/1/2033.

Muni CUSIP requests rose
Municipal CUSIP request volume increased in May on a year-over-year basis, following a decrease in April, according to CUSIP Global Services.

For muni bonds specifically, there was an increase of 10.7% month-over-month and a 23.1% 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, rose 12.5% versus April totals. On a year-over-year basis, overall municipal volumes were down 18.7%. CUSIP requests are an indicator of future issuance.

Secondary trading
Washington 5s of 2024 at 3.18%-3.13%. Maryland 5s of 2024 at 3.09%. New York City 5s of 2025 at 3.04% versus 3.09% Tuesday.

Minnesota 5s of 2028 at 2.62%. Florida BOE 5s of 2029 at 2.65%. Georgia 5s of 2030 at 2.56% versus 2.60% Tuesday and 2.59% on 6/7.

Washington 5s of 2032 at 2.64% versus 2.65%-2.64% on 6/15 and 2.67%-2.66% on 6/1. Connecticut 5s of 2032 at 2.71% versus 2.77% on 6/13 and 2.81%-2.80% on 6/2. Maryland 5s of 2034 at 2.66%.

Los Angeles Department of Water & Power 5s of 2049 at 3.61%-3.59% versus 3.63% on 6/15 and 6.63%-3.65% on 6/14. Charleston waters, South Carolina, 5s of 2052 at 3.72%-3.68%. Massachusetts 5s of 2052 at 3.75% versus 3.75% Tuesday and 3.82% on 6/13.

AAA scales
Refinitiv MMD’s scale was unchanged: The one-year was at 3.03% and 2.91% in two years. The five-year was at 2.62%, the 10-year at 2.55% and the 30-year at 3.48% at 3 p.m.

The ICE AAA yield curve was bumped up to one basis point: 3.05% (-1) in 2024 and 2.96% (-1) in 2025. The five-year was at 2.59% (-1), the 10-year was at 2.56% (flat) and the 30-year was at 3.52% (flat) at 4 p.m.

The IHS Markit municipal curve was bumped up to one basis point: 3.03% (unch) in 2024 and 2.91% (-1) in 2025. The five-year was at 2.62% (-1), the 10-year was at 2.55% (unch) and the 30-year yield was at 3.48% (unch), according to a 4 p.m. read.

Bloomberg BVAL was unchanged: 2.99% in 2024 and 2.90% in 2025. The five-year at 2.59%, the 10-year at 2.53% and the 30-year at 3.50% at 4 p.m.

Treasuries were little changed.

The two-year UST was yielding 4.714% (+2), the three-year was at 4.295% (+1), the five-year at 3.961% (+1), the 10-year at 3.726% (flat), the 20-year at 3.996% (flat) and the 30-year Treasury was yielding 3.807% (flat) at 4 p.m.

Primary to come:
The New York City Housing Development Corp. (Aa2///) is set to price Thursday $320.305 million of housing impact sustainable development bonds, consisting of $$290.725 million of tax-exempts, 2023 Series A, terms 2043, 2048, 2053, and $29.580 million of taxables, 2023 Series B, serials 2027-2033, term 2039. Jefferies.

The New York State Housing Finance Agency (Aa2///) is set to price Thursday $307.405 million of affordable housing revenue sustainability bonds, consisting of $88.890 million of Series 2023 C-1, and $218.515 million of Series C-2. Morgan Stanley.  

The National Finance Authority, Nevada, (/AA//) is set to price Thursday $149.550 of Build America Mutual-insured lease revenue bonds, consisting of $148.950 million of Series 2023A, serials 2023-2036, terms 2037, 2038, 2039, 2040, 2041, 2042, 2043, 2048, 2053, and $600,000 of taxables, Series 2023B, serial 2024, Wells Fargo Bank. 

Forsyth, Montana, (A3//A-/) is set to price Thursday on behalf of the Northwestern Corp. Constrip Project $144.660 million of pollution control revenue refunding bonds, Series 2023, serial 2028. BofA Securities. 

Competitive
Denton, Texas, is set to sell $150.340 million of certificates of obligation, at 10:45 a.m. eastern Thursday.

The Swarthmore Borough Authority, Pennsylvania, (Aaa/AAA//) is set to sell $125.850 million of Swarthmore College revenue bonds, at 10:15 a.m. Thursday.