Munis see large losses as Fed uncertainty hits all markets
5 min read
Municipals sold off Monday following U.S. Treasuries, which saw another session of large losses, as investors digested the likelihood of later and fewer Federal Reserve rate cuts. Equities ended down.
Triple-A muni yields rose 10 to 13 basis points, with the largest losses on the short end, while USTs saw yields rise 11 to14 basis points.
Munis have outperformed USTs as taxables have risen 30 basis points on the 10-year since the close Thursday while the 10-year muni has only risen 15 basis points.
The two-year muni-to-Treasury ratio Monday was at 61%, the three-year at 60%, the five-year at 58%, the 10-year at 58% and the 30-year at 82%, according to Refinitiv Municipal Market Data’s 3 p.m. EST read. ICE Data Services had the two-year at 63%, the three-year at 63%, the five-year at 62%, the 10-year at 62% and the 30-year at 84% at 3:30 p.m.
–
The “super strong” payroll number catalyzed a selloff in rates, which started Friday and continued through Monday, said Vikram Rai, head of municipals market strategy at Wells Fargo.
For most of last week, the muni market’s tone “was firm and supported by a fairly light new-issue calendar due to the FOMC meeting,” said AllianceBernstein strategists. However,
Last week’s light supply was “easily digested,” with deals being more than 15 to 20 times oversubscribed despite pricing with little to no concession, AllianceBernstein said.
The market received $32 billion of Feb. 1 reinvestment money last week, said Anders S. Persson, Nuveen’s chief investment officer for global fixed income, and Daniel J. Close, Nuveen’s head of municipals.
“Thus, even though the new-issue calendar is robust — and should remain so for several weeks — this supply should be easily absorbed,” they said.
However, as issuance rises to more than $7 billion this week, led by New York City Transitional Finance Authority (Aa1/AAA/AAA/) with $1 billion of tax-exempt future tax-secured subordinate bonds, the rate volatility may prove to be a challenging environment in which to price new deals.
Last week’s ratios and spreads “seemed to be pointing to the upcoming supply being absorbed well” had there been no rate volatility, but that was not the case following Friday’s jobs report, Rai said.
If the rate volatility abates over the next several days, which Rai said is possible, the supply should be well absorbed. If not, new-issues will have a hard time in this market, he said.
“A sustained rate selloff would surely derail the recent momentum, but Friday’s 5bp move higher while treasuries were off 11-17bps, showed munis can outperform given the strong tailwinds that should continue to drive the market for the next few weeks,” Birch Creek Capital strategists said in a weekly report.
In the primary market Monday, BofA Securities accelerated a $133.320 million sales tax secured bonds pricing from the Nassau County Interim Finance Authority, New York, (/AAA//), with yields little changed in the preliminary pricing from Monday morning’s retail offering: 5s of 11/2024 at 2.78% (unch), 5s of 2029 at 2.40% (unch) and 5s of 2030 at 2.41% (-1), noncall.
Secondary trading
Connecticut 5s of 2025 at 2.97%. North Carolina 5s of 2026 at 2.78%. Washington 5s of 2026 at 2.78%.
Triborough Bridge and Tunnel Authority 5s of 2028 at 2.55%. University of California 5s of 2029 at 2.31% versus 2.34%-2.32% Wednesday and 2.40%-2.37% original on 1/25. Ohio Water Development Authority 5s of 2030 at 2.52%-2.48%.
Massachusetts 5s of 2033 at 2.51% versus 2.51%-2.50% on 1/17. NYC 5s of 2035 at 2.69% versus 2.71%-2.70% on 1/25 and 2.69% on 1/23. California 5s of 2036 at 2.68%-2.65% versus 2.64% on 1/18.
Washington 5s of 2048 at 3.65%-3.64% versus 3.55%-3.52% Thursday and 3.92% original on 1/24. Conroe ISD, Texas, 5s of 2049 at 3.64%-3.50% versus 3.57%-3.56% Thursday and 3.73%-3.70% Wednesday.
AAA scales
Refinitiv MMD’s scale was cut by 10 to 12 basis points across the curve: The one-year was at 3.01% (+12) and 2.73% (+12) in two years. The five-year was at 2.41% (+10), the 10-year at 2.43% (+10) and the 30-year at 3.57% (+10) at 3 p.m.
The ICE AAA yield curve was cut 10 basis points: 2.97% (+10) in 2025 and 2.76% (+10) in 2026. The five-year was at 2.47% (+10), the 10-year was at 2.46% (+10) and the 30-year was at 3.55% (+10) at 3:30 p.m.
The S&P Global Market Intelligence municipal curve was cut 10 to 13 basis points: The one-year was at 2.30% (+13) in 2025 and 2.78% (+12) in 2026. The five-year was at 2.46% (+13), the 10-year was at 2.46% (+13) and the 30-year yield was at 3.55% (+10), according to a 3 p.m. read.
Bloomberg BVAL was cut nine to 10 basis points: 2.91% (+9) in 2025 and 2.77% (+10) in 2026. The five-year at 2.42% (+9), the 10-year at 2.49% (+9) and the 30-year at 3.60% (+10) at 3:30 p.m.
Treasuries sold off.
The two-year UST was yielding 4.477% (+11), the three-year was at 4.269% (+12), the five-year at 4.123% (+13), the 10-year at 4.163% (+14), the 20-year at 4.452% (+12) and the 30-year Treasury was yielding 4.343% (+13) at 3:45 p.m.
Primary to come:
The New York City Transitional Finance Authority (Aa1/AAA/AAA/) is set to price Wednesday $1 billion of tax-exempt future tax-secured subordinate bonds, Fiscal 2024 Series F, Subseries F-1, serials 2036-2049, term 2054. Siebert Williams Shank & Co.
Massachusetts (Aa1/AA+/AA+/) is set to price Wednesday $540 million of GO refunding bonds, 2024 Series B. Jefferies.
The East Bay Municipal Utility District, California, (Aaa/AAA//) is set to price Wednesday $432.355 million of water sewer revenue bonds, consisting of $248.250 million of green bonds, Series 2024A, and $184.105 million of refunding bonds, Series 2024B. J.P. Morgan.
The Aldine Independent School District, Texas, (Aaa/AAA//) is set to price Tuesday $339.395 million of PSF-insured unlimited tax school building bonds, Series 2024, serials 2025-2044, terms 2049, 2054. RBC Capital Markets.
The University of Washington (Aaa/AA+//) is set to price Thursday $304.515 million of general revenue bonds, consisting of $222.190 million of new-issue bonds, Series 2024A, serials 2025-2044; and $82.325 million of refunding bonds, Series 2024B, serials 2024-2041. BofA Securities.
The Fort Worth Independent School District, Texas, (Aaa///) is set to price Tuesday $299.905 million of PSF-insured unlimited tax school building bonds, Series 2024, serials 2025-2049. Stifel, Nicolaus & Co.
The Clifton Higher Education Finance Corp., Texas, (Aaa///) is set to price Thursday $293.710 million of PSF-insured International Leadership of Texas education revenue and refunding bonds, consisting of $209.810 million of Series 2024A and $83.900 million of Series 2024B. RBC Capital Markets.
The Houston Higher Education Finance Corp. (Aaa/AAA//) is set to price Tuesday $290 million of Rice University Project higher education revenue bonds, Series 2024, serial 2034. Jefferies.
The Oklahoma County Finance Authority (A1/A+//) is set to price Thursday $240.825 million of Midwest City-Del City Public Schools Project educational facilities lease revenue bonds, Series 2024. D.A. Davidson.
The Wisconsin Housing and Economic Development Authority (Aa2/AA+//) is set to price Tuesday $190 million of non-AMT social home ownership revenue bonds, 2024 Series A, serials 2025-2036, terms 2039, 2044, 2050, 2054. RBC Capital Markets
The Illinois Housing Development Authority (Aaa///) is set to price Thursday $145 million of non-AMT social revenue bonds, 2024 Series A, serials 2025-2036, terms 2039, 2044, 2049, 2054. RBC Capital Markets.
The San Diego Community College District (Aa1/AAA//) is set to price Wednesday $100 million of 2024 dedicated unlimited ad valorem property tax GO refunding bonds. RBC Capital Markets.
Competitive
The University of Kentucky (Aa2/AA+//) is set to sell $40.740 million of taxable general receipt bonds, 2024 Series C, at 10:30 a.m. eastern Tuesday, and $162.955 million of tax-exempt general receipt bonds, 2024 Series B, at 11 a.m. Tuesday.
The Osseo Independent School District No. 279, Minnesota, is set to sell $238.350 million of GO school building and facilities maintenance bonds, Series 2024A, at 10:30 Tuesday.
Wisconsin is set to sell $254.450 million of GOs, Series 2024A, at 10:45 a.m. Tuesday, and $150 million of green Environmental Improvement Fund revenue bonds, Series 2024A, at 10:45 a.m. Wednesday.
The New York City Transitional Finance Authority is set to sell $250 million of taxable future tax-secured subordinate bonds, Fiscal 2024 Series F, Subseries F-2, at 11:15 a.m. Wednesday.
The Washington Suburban Sanitary District, Maryland, is set to sell $329.240 million of consolidated public improvement bonds of 2024 at 10:15 a.m. Thursday.
