Massachusetts upsizes deal, primary sees good demand, AAAs little changed

Municipals were little changed in secondary trading Wednesday while sizable deals from Massachusetts, the Triborough Bridge and Tunnel Authority and others enjoyed ample demand in the primary and municipal bond mutual funds saw more inflows. U.S. Treasuries were firmer and equities closed mixed.

Triple-A yield curves were firmer by a basis point in spots while UST improved slightly.

The Investment Company Institute reported investors added $338 million to municipal bond mutual funds in the week ending June 21, after $16 million of inflows the previous week. Exchange-traded funds saw inflows of $884 million after $21 million of inflows the week prior.

With the first half of the year ending on Friday, municipal sources say the second half of the year is off to a good start.

“Given the combination of attractive yields and strong credit conditions, we have a positive view on the muni market over the remainder of the year,” Cooper Howard, fixed income strategist specializing in municipals at Charles Schwab, said Wednesday.

“Despite an awful 2022 for total returns and an eventful first half of the year dominated by concerns about banking instability and the debt-ceiling drama, the outlook for the muni market is largely unchanged from our 2023 outlook,” Howard said.

One positive advantage is that supply is starting to pick up — but unfortunately not enough to meet overwhelming demand, especially the increase in seasonal demand, he noted.

This week’s new-issue supply is led by two deals of note — a $1.49 billion Los Angeles tax and revenue anticipation note deal and a $1.24 billion Massachusetts general obligation refunding bonds.

“Although supply has picked up, it continues to be dwarfed by the amount of money that’s coming due either via calls, maturities, or other redemptions,” Howard explained. 

At the same time, the percentage of municipals to Treasuries is impacted by the supply shortage, he pointed out.

“We expect ratios to move lower in the near-term as the market begins to adjust to this” supply insufficiency, he added.

The two-year muni-to-Treasury ratio Wednesday was at 61%, the three-year at 64%, the five-year at 65%, 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 61%, the three-year at 63%, the five-year at 63%, the 10-year at 68% and the 30-year at 92% at 4 p.m.

“The bond markets have been trading in a tight range throughout June, with munis trading even tighter as technicals have shielded tax-exempts from some of the rate uncertainty,” said Jeff Lipton, managing director of credit research at Oppenheimer Inc.

Munis have been exhibiting a firm tone, “making up for the losses booked in May with month-to-date June returns above 1%, he said, “comparing favorably to the 23-basis point loss and the 43-basis point gain being earned on UST and corporates respectively for the same time period.”

Year-to-date, he noted “the screens are flashing green across domestic fixed income cohorts, with munis, Treasuries, and corporates” earning 2.78%, 1.87%, and 3.03% respectively.

The good foundation established in June, he said, is consistent with his favorable outlook for the second half of 2023.

Lipton expects “the favorable bias to remain largely intact as we finish out the year with elevated recession concerns.”

He said the market may start to see intermittent inflows into muni mutual funds, but he is not “not ready yet to call a cyclical change,” although he thinks the extended period of outflows has receded.

With the summer reinvestment period in full swing, he said July should benefit. Bond Buyer 30-day visible supply is at $5.26 billion while net negative supply is $22.7 billion, according to Bloomberg.

“With the favorable market tone and promising outperformance for munis, ratios, although stable throughout the past several trading sessions, remain on the richer side as value opportunities continue unevenly along the muni curve,” Lipton said.

Despite the front-end showing “some earlier relative cheapening, rising Treasury yields and static muni yields with active summer reinvestment have returned ratios to somewhat more expensive levels,” he said.

Due to the “compliance/regulatory framework for broker/dealers,” separately managed account business (1-15) has been “quite the force,” he noted.

There have been “active bids committed to front-end-ish paper where SMAs have demand against a backdrop of supply shortages, with the value play finding it hard to gain traction.”

The long-end, from a value perspective, “is far more attractive, but the needs of SMAs seem to outweigh a pure value play and we can expect this trend to capture greater momentum,” he said.

In the primary market Wednesday, UBS Financial Services priced for Los Angeles $1.491 billion of 2023 tax and revenue anticipation notes, with 5s of 6/2024 at 3.20%, noncall.

J.P. Morgan priced and repriced for Massachusetts (Aa1/AA+/AA+/) an upsized deal of $1.241 billion of GO refunding bonds that saw yields bumped two to seven basis points from the preliminary pricing of $993.465 million of GO refunding bonds. The first tranche, $970 million of Series 2023A, saw 5s of 5/2025 at 2.94% (-2), 5s of 2028 at 2.64% (-3), 5s of 2033 at 2.76% (-2), 5s of 2038 at 3.25% (-7), 5s of 2043 at 3.56% (-5), 5s of 2048 at 3.76% (-5) and 5s of 2053 at 3.83% (-5), callable 5/1/2033.

The second tranche, $270.955 million of Series 2023B, saw 5s of 5/2033 at 2.76% (-2), 5s of 2038 at 3.25% (-7), 5s of 2043 at 3.56% (-5) and 5s of 2044 at 3.61% (-4), callable 5/1/2033.

Morgan Stanley held a one-day retail order for $731.945 million of senior revenue bonds for the Battery Park City Authority, New York. (Aaa//AAA/). The first tranche, $338.180 million of sustainability bonds, Series 2023A, saw 5s of 11/2041 at 3.41%, 5s of 2043 at 3.46%, 5s of 2048 at 3.66% and 5s of 2053 at 3.74%, callable 11/1/2033.

The second tranche, $384.560 million of bonds, Series 2023B, saw 5s of 11/2023 at 3.01%, 5s of 2028 at 2.66%, 5s of 2033 at 2.70% and 5s of 2038 at 3.21%, callable 11/1/2033.

The third tranche, $9.205 million of taxable sustainability bonds, Series 2023C., saw 4.5s of 11/2028 price at par.

Ramirez & Co. priced for institutions $600 million of climate-bond payroll mobility tax senior lien green bonds from the Triborough Bridge and Tunnel Authority (/AA+/AA+/AA+/) with yields lowered one to four basis points from Tuesday’s retail offering: 5s of 11/2028 at 2.84% (-1) and 5s of 2033 at 2.88% (-4).

BofA Securities priced for the Florida Insurance Assistance Interlocal Agency (A2/A/) $465.325 million of insurance assessment revenue bonds, Series 2023A-1, with 5s of 9/2024 at 3.45% and 5s of 2028 at 3.26%, callable 9/1/2026 except 5s of 2025 and 5s of 2026, which can be called at 3/1/2025 and 3/1/2026, respectively.

Jefferies priced for Collin County, Texas, (Aaa/AAA//) $243.395 million of limited tax permanent improvement bonds, with 5s of 2/2024 at 3.13%, 5s of 2028 at 2.77%, 5s of 2033 at 2.78%, 5s of 2038 at 3.27% and 4s of 2043 at 4.04%, callable 2/15/2033.

Citigroup Global Markets priced for the Middlesex County Improvement Authority, New Jersey, (Aa3/A+//) $191.015 million of GO lease revenue bonds on behalf of Rutgers University for the New Jersey Health + Life Science Exchange — H-1 Project, with 5s of 8/2053 at 4.01%, callable 8/15/2033.

In the competitive market, the Clark County School District, Nevada (A1/AA-/), sold $200 million of limited tax GO building bonds, Series 2023A, to Jefferies, with 5s of 6/2025 at 3.15%, 5s of 2028 at 2.93%, 5s of 2033 at 2.88%, 5s of 2038 at 3.56%, and 4s of 2043 at 4.15%, callable 6/15/2033. 

Texas (Aaa/AAA/) sold $133.515 million of AMT GO college student loan bonds, Series 2023A, to Jefferies, with 5.25s of 8/2027 at 3%, 5.25s of 2028 at 3.00%, 5.25s of 2033 at 3.10%, 5s of 2038 at 3.70%, 4s of 2043 at 4.148%, and 4.125s of 2046 at 4.262%, callable 8/1/2033.

Secondary trading
Massachusetts 5s of 2024 at 3.04%. NYC TFA5s of 2024 at 2.98%. Georgia 5s of 2025 at 2.95%-2.92%.

Minnesota 5s of 2028 at 2.58% versus 2.62% on 6/21. Virginia Public Building Authority 5s of 2029 at 2.67%-2.65% versus 2.70% on 6/15. NY State Urban Development Corp. 5s of 2030 at 2.58%-2.55%.

Virginia College Building Authority 5s of 2033 at 2.68%-2.67%. Board of Regents of the University of Texas System 5s of 2034 at 2.71% versus 2.71%-2.72% Friday and 2.85%-2.90% original on 6/7. Irving, Texas, 5s of 2035 at 2.94% versus 3.04%-3.03% on 6/13 and 3.09% original on 6/9.

Raleigh Combined Enterprise System, North Carolina, 5s of 2048 at 3.58% versus 3.65%-3.64% on 6/13 and 3.63%-3.60% original on 6/2. Indiana Finance Authority 5s of 2053 at 4.04% versus 4.05% on 6/21 and 4.07% on 6/16.

AAA scales
Refinitiv MMD’s scale was unchanged: The one-year was at 3.01% and 2.89% in two years. The five-year was at 2.58%, the 10-year at 2.53% and the 30-year at 3.46% at 3 p.m.

The ICE AAA yield curve was mixed: 3.00% (+1) in 2024 and 2.92% (+1) in 2025. The five-year was at 2.56% (-1), the 10-year was at 2.53% (flat) and the 30-year was at 3.50% (-1) at 4 p.m.

The IHS Markit municipal curve was unchanged: 3.01% in 2024 and 2.89% in 2025. The five-year was at 2.58%, 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: 2.97% (-1) in 2024 and 2.87% (-1) in 2025. The five-year at 2.56% (-1), the 10-year at 2.50% (unch) and the 30-year at 3.48% (-1) at 4 p.m.

Treasuries were firmer.

The two-year UST was yielding 4.718% (-4), the three-year was at 4.333% (-6), the five-year at 3.975% (-6), the 10-year at 3.715% (-5), the 20-year at 4.004% (-3) and the 30-year Treasury was yielding 3.809% (-3) near the close.

Primary to come:
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 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
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. 

Christina Baker contributed to this story.