Investors await outsized new-issue slate filled with high grades

Municipals were steady to start off the week, awaiting an outsized new-issue calendar, while U.S. Treasuries were slightly firmer 10 years and in and equities ended mixed.

Despite the slow start for munis, “buyers are becoming more constructive, and there’s increased buying going on,” said Pat Luby, a CreditSights strategist.

He said this week’s $6.9 billion new-issue calendar “will energize institutional investors and draw demand in off from the sidelines.”

“This week’s new-issue supply is outsized and should be well received,” added Nuveen strategists Anders S. Persson and Daniel J. Close.

The calendar boasts new issues from high-profile issuers. Georgia will “get a fancy price” and see strong demand, particularly for the small taxable tranche, Luby said.

And while Massachusetts has cheapened up a little bit recently, he said the nearly $1 billion deal will also see good demand.

“We’ll see good demand,” Luby said. “We’ll see some frustrated investors because there’s going be a lot of money chasing deals.”

Next week will see big redemptions on Monday but little supply due to the Fourth of July.

As the end of the month approaches, Luby believes munis have room to rally as demand will outstrip supply. Bond Buyer 30-day visible supply sits at $12.41 billion.

As the second quarter closes this week, returns quarter-to-date are positive. As a result, Luby said, “if we get a positive print for the quarter that will be helpful for advisors and asset managers and will be constructive for retail investor sentiment.”

The Bloomberg Municipal Index is at positive 1.02% for June and 2.69% year-to-date. Taxable munis are returning 0.11% month-to-date and 5.04% in 2023. High-yield returns are in the black at 1.71% for June and 4.37% year-to-date.

The muni market continues to strengthen due to several factors.

First off, July marks “the second month of the $100 billion summer reinvestment money, with July 1 expected to provide $40 billion,” Nuveen strategists said.

Of the “$6.9 billion tax-exempt bonds forced to liquidate from spring bank failures,” they said around 77% has been sold.

The Fed “decided to keep rates steady at the June meeting, but its continued commitment to controlling inflation is benefiting fixed-income markets,” according to Nuveen strategists, who added they expect this positive tone “to continue for the foreseeable future.”

Since the start of June, ratios in the front end “have an average ratio of about 71.53% as we saw some relief in the front end from the relative richness in that part of the curve,” said Jason Wong, vice president of municipals at AmeriVet Securities.

Since then, munis have “become even richer as Treasury yields have risen while muni yields have been relatively stable in that same time frame,” he said.

Currently, he noted “the front end of the curve has an average ratio which has dropped about seven percentage points to roughly 64.33% in three weeks.”

Even though the front end of the curve is still around 10 percentage points away from February’s lows, Wong said “there is push by investors to start to looking further out into the curve as 30-year notes are yielding roughly 100 basis points more than 10-year notes and are about 25 percentage points cheaper in a relative value aspect to Treasuries.”

With the holiday-shortened week last week, munis “continued to be relatively tame … with yields on 10-year notes falling by 3.3 basis points to 2.53%.”

By holding steady, munis outperformed Treasuries “as the 10-year muni-to-Treasury ratio is now yielding 67.81% of Treasuries compared to 68.11% a week ago,” Wong noted.

The two-year muni-to-Treasury ratio Monday was at 62%, the three-year at 65%, the five-year at 66%, the 10-year at 68% and the 30-year at 91%, according to Refinitiv MMD’s 3 p.m. read. ICE Data Services had the two-year at 62%, the three-year at 64%, the five-year at 64%, the 10-year at 68% and the 30-year at 92% at 4 p.m.

Inflows returned last week as investors added $672 million to muni mutual funds for the week, according to Refinitiv Lipper. This is only the second time there have been inflows since February and the seventh time of inflows this year.

Secondary trading was around $31.13 billion with 56% of trading being dealer sells, Wong said. Clients put up around $ 4.67 billion up for the bid last week with Wednesday hitting highs of $1.30 billion, according to Bloomberg data.

In the competitive market Monday, King County, Washington, (Aa1/AA+//), sold $129.97 million of sewer revenue bonds, Series 2023A, to Jefferies, with 5s of 1/2024 at 3.05%, 4s of 2028 at 2.65%, 5s of 2033 at 2.60%, 4s of 2043 at 3.90% and 4s of 2047 at 4.07%, callable 7/1/2033.

Secondary trading
Wisconsin 5s of 2024 at 3.03% versus 3.12% on 6/14. Florida BOE 5s of 2024 at 3.03% versus 3.06% on 6/15 and 3.12%-3.06% on 6/14.

North Carolina 5s of 2027 at 2.66% versus 2.75%-2.72% on 6/2. LA USD 5s of 2027 at 2.50%-2.49%.

Minneapolis Special SD No. 1, Minnesota, 5s of 2030 at 2.63%.

NYC 5s of 2039 at 3.41%-3.42% versus 3.51% on 6/8 and 3.48%-3.47% on 6/7. California 5s of 2042 at 3.28% versus 3.29% Friday and 3.30% Thursday. Harris County Flood Control District, Texas, 4s of 2048 at 4.10% versus 4.11% Friday and 4.15% original on Wednesday.

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 2.60%, the 10-year at 2.53% and the 30-year at 3.46% at 3 p.m.

The ICE AAA yield curve was bumped up to one basis point: 3.02% (flat) in 2024 and 2.94% (flat) in 2025. The five-year was at 2.58% (-1), the 10-year was at 2.54% (flat) and the 30-year was at 3.51% (flat) at 4 p.m.

The IHS Markit municipal curve was unchanged: 3.03% in 2024 and 2.91% in 2025. The five-year was at 2.60%, the 10-year was at 2.53% and the 30-year yield was at 3.46%, according to a 3 p.m. read.

Bloomberg BVAL was bumped up to one basis point: 2.98% (-1) in 2024 and 2.88% (-1) in 2025. The five-year at 2.58% (unch), the 10-year at 2.51% (unch) and the 30-year at 3.49% (unch) at 4 p.m.

Treasuries were slightly firmer 10 years and in.

The two-year UST was yielding 4.727% (-2), the three-year was at 4.299% (-3), the five-year at 3.962% (-3), the 10-year at 3.720% (-2), the 20-year at 4.014% (flat) and the 30-year Treasury was yielding 3.825% (+1) at 4 p.m.

Primary to come:
Los Angeles is set to price Wednesday $1.491 billion of 2023 tax and revenue anticipation notes, term 2024. UBS Financial Services. 

Massachusetts (Aa1/AA+/AA+/) is set to price Wednesday $993.465 million of general obligation refunding bonds, consisting of $720 million of Series 2023A and $273.465 Series 2023B. J.P. Morgan Securities. 

The Battery Park City Authority, New York, (Aaa//AAA/) is set to price Wednesday $743.710 million of senior revenue bonds, consisting of $341.700 million of sustainability bonds, Series 2023A; $392.805 million of bonds, Series 2023B; and $9.205 million of taxable bonds, Series 2023C. Morgan Stanley.

Springdale, Arkansas, (/AA//) is set to price Tuesday $312.440 million of Build America Mutual-insured sales and use tax refunding and improvement bonds, consisting of $168.720 million of refunding taxable bonds, Series 2023A, serials 2024-2040, terms 2042, 2046, and $145.720 million of new-issue bonds, Series 2023B, serials 2024-2038, terms 2048, 2053 Crews & Associates.

The Middlesex County Improvement Authority, New Jersey, (Aa3/A+//) is set to price Wednesday on behalf of Rutgers University t $307.405 million of GO lease revenue bonds for the New Jersey Health + Life Science Exchange — H-1 Project, consisting of $193.655 million of tax-exempts, Series 2023A, serial 2053 and $113.750 million of taxables, Series 2023B, serials 2027-2036. Citigroup Global Markets.  Citigroup Global Markets. 

The authority is also set to price Wednesday on behalf of Middlesex County $111.35 million for the New Jersey Health + Life Science Exchange — H-1 Project, consisting of $42.380 million of taxable guaranteed lease revenue and revenue bonds, Series 2023B, serials 2027-2033, terms 2038, 2047; $25.610 million of taxable guaranteed revenue bonds, Series 2023D, serials 2027-2036; $25.135 million of guaranteed lease revenue and revenue bonds, Series 2023A, terms 2049, 2053; and $18.225 million of guaranteed revenue bonds, Series 2023C, serials 2027-2036. Citigroup Global Markets.

Collin County, Texas, (Aaa/AAA//) is set to price Wednesday $245.445 million of limited tax permanent improvement bonds, Series 2023, serials 2024-2043. Jefferies.

The Tennessee Housing Development Agency (Aa1/AA+//) is set to price Tuesday $235 million of social residential finance program bonds, consisting of $135 million of non-AMT bonds, Issue 2023-2A, serials 2024-2035, terms 2038, 2043, 2053, 2054, and $100 million of taxables, Issue 2023-2B, serials 2025-2033, terms 2038, 2043, 2053, 2054. RBC Capital Markets. 

The California Statewide Communities Development Authority is set to price Thursday $220.355 million of taxable sustainability Open Properly Assessed Clean Energy program limited obligation improvement bonds, Series 2023. KeyBanc Capital Markets. 

The Williamsburg Economic Development Authority, Virginia, (/AA//) is set to price Wednesday on behalf of the Provident Group — Williamsburg Properties — Williams & Mary Project $208.975 million of student housing revenue bonds, Series 2023A, serials 2027-2043, terms 2048, 2053, 2058, 2063, insured by Assured Guaranty. RBC Capital Markets.

The Chula Vista Elementary School District, California, (/AA-//), is set to price Thursday $162.500 million of bonds, consisting of $100 million of Series A, serials 2024-2025, 2028-2044, and $62.500 million of Series B, serials 2024-2038. Loop Capital Markets. 

Corpus Christi, Texas, is set to price Thursday $150.780 million of utility system senior lien revenue improvement and refunding bonds, Series 2023, serials 2024-2043, terms 2048, 2053. Jefferies.

Competitive
Georgia is set to (Aaa/AAA/AAA/) $201.390 million of $201.390 million of GOs, Series 2023A, Bidding Group 2, at 11:15 a.m. eastern Tuesday; $220.120 million of GOs, Series 2023A, Bidding Group 1, at 10:45 a.m. Tuesday; $203.600 million of taxable GOs, Series 2023B, at 12:15 p.m. Tuesday; and $261.050 million of refunding GOs, Series 2023C, at 11:45 a.m. Tuesday.

The Klein Intermediate School District, Texas, (Aaa/AAA//) is set to sell $326.480 million of PSF-insured unlimited tax schoolhouse bonds, Series 2023, at 11:00 a.m. eastern Tuesday, $41.060 million of PSF-insured unlimited tax refunding bonds, Series 2023A, at 11 a.m. Tuesday; and $11.280 million of non-PSF-insured unlimited tax refunding bonds, Series 2023B, at 11 a.m. Tuesday. RBC Capital Markets. 

The Clark County School District, Nevada (A1/AA-//), is set to sell $200 million of limited tax GO building bonds, Series 2023A, at 11:30 a.m. eastern Wednesday. 

The Clark County Water District, Nevada (A1/AA-//), is set to sell $340 million of limited tax GO water reclamation bonds, Series 2023, at 11:30 a.m. eastern Thursday.