Munis little changed to start the week

Municipals were little changed Monday, while U.S. Treasuries were weaker and equities ended down.

November was a “positive month” for munis as triple-A yields fell on an average of 89 basis points, bringing month-to-date returns of 6.35% and pushing year-to-date returns to 3.98% through the end of the month, Jason Wong, vice president of municipals at AmeriVet Securities, said.

November was “the sixth-best monthly return on record and the second-best November since 1981,” he noted.

November’s positive returns pushed munis back into positive territory and munis are outpacing USTs by 331 basis points, he said.

“This positive momentum can carry over to December as, historically, December has been favorable to muni performance as munis have consistently generated positive returns since 2014,” Wong said.

Triple-A yields were bumped 21 to 33 basis points last week, according to Refinitiv MMD, and outperformed USTs in the 10- to 30-year range, Birch Creek Capital strategists said in a weekly report.

“The rallying UST market set the stage, but the overall tone was much improved after the technical picture shifted from its early fall dynamics,” Birch Creek strategists said.

“With the cash flow from bond coupons, maturities, and calls rising in November and December and high-grade yields in the mid-4s to 5% area firmly in the rear-view mirror, there seemed to be a bit of a FOMO trade as everyone rushed to get invested before year-end,” they said.

Recent laggards, including short call structures, were “back in vogue as one of the few bond types still trading at higher yields,” according to Birch Creek strategists.

With long high-grade 4s approaching the coupon, they said “investor focus also shifted to 3s still trading at a discount.”

“The bid for duration was evident as multiple sell side traders noted their accounts were seeking out high-quality [$10 million-plus] blocks they can use to lever up in [tender option bond] structures,” they said.

This week’s $9.4 billion calendar “should easily be absorbed as it is set to be the last full primary calendar of the year given the Fed meeting the following week and then Christmas and New Year’s holidays,” they said.

While dynamics are usually supportive through January, Birch Creek strategists noted “current valuations are leaving little to be desired.”

Muni-UST ratios were around 60% out to 10 years and 85% in 30 years on Monday, below their long-term averages.

The two-year muni-to-Treasury ratio Monday was at 61%, the three-year at 61%, the five-year at 61%, the 10-year at 61% and the 30-year at 85%, according to Refinitiv Municipal Market Data’s 3 p.m., ET, read. ICE Data Services had the two-year at 62%, the three-year at 62%, the five-year at 61%, the 10-year at 63% and the 30-year at 85% at 3:30 p.m.

“On an after-tax basis, only the 30-year looks reasonable, however, it is hovering near its lows for the year,” Birch Creek strategists said.

“While the momentum is clearly in the market’s favor, any sustained move higher in Treasury yields could easily spark a re-acceleration in muni outflows that causes underperformance from such lofty levels,” they noted.

Outflows have slowed as of late, with investors pulling $63.7 million from muni mutual funds last week after $292.5 million of inflows the week prior, according to LSEG Lipper.

“Despite having a record month of returns, investors are still hesitant to put money back into the muni markets,” Wong said.

Secondary volume for the last week of November was around $53.8 billion with about 54% of the trades being dealer sells, Wong said.

Investors put up about $9.2 billion up for the bid last week with Thursday seeing the largest in bids wanted at $2.1 billion, according to Bloomberg.

Secondary trading
Minnesota 5s of 2024 at 3.14% versus 3.20% Thursday. North Carolina 5s of 2025 at 2.86% versus 2.92% Thursday. Washington 5s of 2.80%.

Howard County, Maryland, 5s of 2028 at 2.57%-2.40% versus 2.61% Friday. California 5s of 2029 at 2.55%-2.54%. NYC TFA 5s of 2030 at 2.63% versus 3.07% on 11/20 and 3.28%-3.21% on 11/14.

DC 5s of 2033 at 2.66%. California 5s of 2034 at 2.61% versus 2.64% Friday and 3.11% on 11/17. Massachusetts 5s of 2036 at 3.00% versus 3.03%-3.00% Friday and 3.08%-3.04% Thursday.

NYC TFA 5s of 2046 at 3.91%. Oregon 5s of 2048 at 3.83% versus 3.85%-3.83% on Wednesday and 3.97%-3.96% Tuesday.

AAA scales
Refinitiv MMD’s scale was unchanged: The one-year was at 3.00% and 2.83% in two years. The five-year was at 2.57%, the 10-year at 2.61% and the 30-year at 3.77% at 3 p.m.

The ICE AAA yield curve was little changed: 2.98% (unch) in 2024 and 2.83% (-1) in 2025. The five-year was at 2.57% (+1), the 10-year was at 2.66% (+1) and the 30-year was at 3.76% (+2) at 3:30 p.m.

The S&P Global Market Intelligence municipal curve was bumped up to one basis point: The one-year was at 2.93% (unch) in 2024 and 2.80% (unch) in 2025. The five-year was at 2.64% (-1), the 10-year was at 2.71% (-1) and the 30-year yield was at 3.72% (-1), according to a 3 p.m. read.

Bloomberg BVAL was little changed: 2.87% (unch) in 2024 and 2.80% (unch) in 2025. The five-year at 2.54% (-1), the 10-year at 2.63% (unch) and the 30-year at 3.68% (unch) at 3:30 p.m.

Treasuries were weaker.

The two-year UST was yielding 4.651% (+11), the three-year was at 4.414% (+12), the five-year at 4.235% (+11), the 10-year at 4.285% (+11), the 20-year at 4.610% (+5) and the 30-year Treasury was yielding 4.434% (+5) at 3:30 p.m.

Primary to come
The New York City Transitional Finance Authority (Aa1/AAA/AAA/) is set to price Wednesday $1.269 billion of tax-exempt future tax-secured subordinate bonds, consisting of $1.202 billion of Fiscal 2024 Series D, Subseries D-1, serials 2026-2042, and $67.065 million of Fiscal 2024 Series E, Subseries E-1, serials 2028-2040. Jefferies.

The Garland Independent School District, Texas, (Aaa//AAA/) is set to price Tuesday $773.520 million of PSF-insured unlimited tax school building bonds, Series 2023A, serials 2025-2043, term 2048. BOK Financial Securities.

Hawaii (Aa2/AA+/AA/) is set to price Wednesday $750 million of taxable GOs, Series 2023 GM. Morgan Stanley.

The Monroe County Industrial Development Corp., New York, (Aa3/AA-//) is set to price Tuesday $409.800 million of University of Rochester Project revenue bonds, consisting of $309.070 million of tax-exempts, Series 2023A, terms 2034, 2053, and $100.730 million of taxables, Series 2023B, term 2033. Barclays.

The Los Angeles Department of Water and Power (Aa2/AA-//AA/) is set to price Thursday $380.835 million of power system revenue refunding bonds, 2023 Series E, serials 2025, 2029-2045, term 2053. RBC Capital Markets.

The Arizona Industrial Development Authority (/A//) is set to price Tuesday for the Equitable School Revolving Fund $230 million of social Senior National Charter School Revolving Loan Fund revenue bonds, serials 2025-2043, terms 2048, 2053. Siebert Williams Shank & Co. 

The Indianapolis Local Public Improvement Bond Bank (A1//A/) is set to price Thursday $215.765 million of Indianapolis Airport Authority Project bonds, consisting of $70.025 million of non-AMT bonds, Series 2023I-1, serials 2026-2043, terms 2048, 2053, and $145.740 million of AMT bonds, Series 2023I-2, serials 2025-2043, terms 2048, 2053. Ramirez & Co.

The Sarasota County School Board, Florida, (Aa2///) is set to price Tuesday $198.485 million of certificates of participation, Series 2023A, serials 2024-2037. BofA Securities.

San Diego County (Aa1/AA+/AA+/) is set to price Tuesday $166.145 million of green County Public Health Laboratory and Capital Improvements certificates of participation, Series 2023, serials 2027-2043, terms 2048, 2053. Barclays.

The New York State Housing Finance Agency (Aa2///) is set to price Tuesday $131.770 million of sustainability affordable housing revenue bonds, consisting of $59.195 million of 2023 Series E-1, serials 2024-2035, terms 2038, 2043, 2048, 2053, 2058, 2063, and $75.575 million of 2023 Series E-2, terms 2063, 2063. Barclays.

The Housing Authority of Dekalb County, Georgia, (/A+//) is set to price Thursday $100.985 million of Kensington Station Project affordable multifamily housing senior revenue bonds, Series 2023A. KeyBanc Capital Markets.

The Wisconsin Housing and Economic Development Authority is set to price Tuesday $100.415 million of non-AMT housing revenue bonds, consisting of $33.095 million of 2023 Series D, terms 2026, 2027, 2028, 2029, 2030, 2031, 2032, 2033, 2034, 2035, 2038, 2043, 2048, 2053, 2058, and $67.320 million of 2023 Series E, term 2054. Wells Fargo Bank.

Competitive
The Louisville/Jefferson County Metro Government, Kentucky, (Aa1//AAA/) is set to sell $140.545 million of GOs, Series 2023A, at 10:30 a.m. eastern Tuesday.

Chandler, Arizona, (Aaa/AAA/AAA/) is set to sell $71.955 million of excise tax revenue obligations, Series 2023, at noon Tuesday, and $117.415 million of GOs, Series 2023, at 11 a.m. Tuesday.

Chattanooga, Tennessee, (Aa1//AA+/) is set to sell $113.035 million of electric system revenue bonds, Series 2023, at 10 a.m. Tuesday.

The New York City Transitional Finance Authority is set to sell $135.025 million of future tax-secured subordinate bonds, consisting of $113.425 million tax-exempts, Fiscal 2024 Series D, Subseries D-2, and $21.600 million of taxables, Fiscal 2024 Series E, Subseries E-2, at 11:15 a.m. Wednesday.

Pennsylvania (Aa3/A+/AA/) is set to sell $772.775 million of GOs, First Refunding Series of 2023, Bid Group A, at 10 a.m. Wednesday; $331.250 million of GOs, First Series of 2023, Bid Group B, at 10:30 a.m. Wednesday; $331.250 million of GOs, First Series of 2023, Bid Group C, at 11 a.m. Wednesday; and $672.500 million of GOs, First Series of 2023, Bid Group D, at noon Wednesday.