Large primary slate, weaker secondary tone forces higher yields
5 min read
A massive new-issue slate was the focus Tuesday, with investors digesting three large general obligation deals out of California, New York City and Washington, amid lighter but slightly weaker secondary trading.
The onslaught of new-issuance and approaching month- and quarter-end led triple-A yields to rise up to seven basis points on the short end and three to five elsewhere along the curve, despite stronger U.S. Treasuries.
Short municipal to UST ratios rose as a result. The two-year muni-to-Treasury ratio Tuesday was at 63%, the three-year at 62%, the five-year at 59%, the 10-year at 59% and the 30-year at 84%, according to Refinitiv Municipal Market Data’s 3 p.m. EST read. ICE Data Services had the two-year at 64%, the three-year at 62%, the five-year at 60%, the 10-year at 60% and the 30-year at 82% at 3:15 p.m.
The primary market has picked up steam and was particularly busy Tuesday, as three billion-plus dollar deals priced.
The “outsized” new issuance means munis continue to come under pressure, said Anders S. Persson, Nuveen’s chief investment officer for global fixed income, and Daniel J. Close, Nuveen’s head of municipals.
Institutional money managers have an “opportunity to get size allocations to retool bond funds to their stated mandates,” due to this outsized issuance, Persson and Close said.
“An uptick in new issue supply should be welcomed by investors, as valuations are finally starting to loosen in the municipal market,” said AllianceBernstein strategists.
AAA muni valuations “have been very expensive for the better part of this year due to a stronger technical environment,” they noted.
As valuations become more attractive, “it can create an opportunity to swap out of the taxable securities and rotate back into municipals” and make an “attractive entry point” for investors sitting on the sidelines, AllianceBernstein strategists said.
Additionally, issuance could continue to accelerate if the
“The narrowest view of tax-exempt market fundamentals is still appealing: still solid nominal yield/income available and persistently favorable near-term credit and rating expectations,” Fabian said.
That should “be enough” for individuals and
“But from a momentum and total return perspective, things are less flattering: only modest fund and ETF inflows, ongoing rundown of bank portfolios, very rich relative value measures, and a solid new-issue supply,
Institutional investors demanded more from the state Tuesday, with yields increasing by five to 10 basis points from Monday’s retail scales. Final pricing details were not yet available.
In the primary market Tuesday, J.P. Morgan preliminarily priced for institutions $2.609 billion of various purpose GOs from California (Aa2/AA-/AA/) with cuts five to 10 basis points from Monday’s retail pricing. The first tranche, $1.315 billion of new-issue bonds, saw 5s of 9/2025 at 3.12% (+10), 5s of 2030 at 2.65% (+10), 5s of 2034 at 2.74% (+10), 4s of 2034 at 2.85% (+10), 5s of 2039 at 3.18% (+10), 5s of 2044 at 3.58% (+5), 5s of 2048 at 3.78% (+5) and 5s of 2053 at 3.89% (+5), callable 3/1/2034.
The second tranche, $1.294 billion of refunding bonds, saw 5s of 9/2024 at 3.35% (+10), 5s of 2030 at 2.65% (+10), 5s of 2034 at 2.74% (+10), 5s of 2037 at 3.06% (+10), 4s of 2037 at 3.32% (+10) and 4s of 2043 at 3.81% (+10), callable 3/1/2034.
Jefferies priced and repriced for New York City (Aa2/AA/AA/AA+/)
The second tranche, $163.720 million of Fiscal 2024 Series E, saw 5s of 8/2025 at 3.14% (unch), 5s of 2029 at 2.79% (unch), 5s of 2034 at 2.89% (unch) and 5s of 2035 at 2.99% (unch), callable 8/1/2034.
The third tranche, $15.230 million of Fiscal 2024 Series F, saw 5s of 8/2024 at 3.30% (unch), 5s of 2029 at 2.79% (unch), 5s of 2034 at 2.89% (unch) and 5s of 2035 at 2.99% (unch), callable 8/1/2034.
The fourth tranche, $108.665 million of Fiscal 2024 Series I-4, saw 5s of 4/2028 at 2.78% (unch), 5s of 2029 at 2.79% (unch), 5s of 2034 at 2.87% (unch) and 5s of 2036 at 3.02% (unch), callable 4/1/2034.
The fifth tranche, $65.205 million of Fiscal 2024 Series I-5, saw 5s of 4/2028 at 2.78% (unch), 5s of 2029 at 2.79% (unch), 5s of 2034 at 2.87% (unch) and 5s of 2036 at 3.02% (unch), callable 4/1/2034.
Wells Fargo priced and repriced for Washington (Aaa/AA+/AA+/)
J.P. Morgan priced for the Michigan Finance Authority (A3///) $252.720 million of green Henry Ford Health Detroit South Campus Central Utility Plant Project Act 38 facilities senior revenue bonds, Series 2024, with 5s of 8/2027 at 3.34%, 5s of 2/2029 at 3.22%, 5s of 8/2029 at 3.22%, 5s of 2/2034 at 3.36%, 5s of 8/2034 at 3.39%, 5s of 2/2039 at 3.86%, 4.125s of 2/2044 at 4.43%, 5.5s of 2/2049 at 4.32%, 4.375s of 2/2054 at 4.60% and 5.5s of 2/2057 at 4.45%, callable 2/28/2034.
Raymond James priced for the Hospital Authority of Valdosta and Lowndes County, Georgia, (Aa2/AA-//) $131.290 million of South Georgia Medical Center Project revenue anticipation certificates, Series 2024, with 5s of 10/2025 at 3.06%, 5s of 2029 at 2.73%, 5s of 2034 at 2.91%, 5s of 2039 at 3.33%, 5s of 2044 at 3.83%, 4.125s of 2049 at 4.30% and 5s of 2054 at 4.20%, callable 10/1/2034.
In the competitive market, Oklahoma City, Oklahoma, sold $110.220 million of GOs, Series 2024, to Jefferies, with 4s of 3/2026 at 2.94%, 5s of 2029 at 2.57%, 5s of 2034 at 2.58%, 4s of 2039 at 3.54% and 4s of 2044 at 3.99%, callable 3/1/2032.
AAA scales
Refinitiv MMD’s scale was cut four to seven basis points: The one-year was at 3.14% (+7) and 2.91% (+7) in two years. The five-year was at 2.51% (+4), the 10-year at 2.51% (+4) and the 30-year at 3.70% (+5) at 3 p.m.
The ICE AAA yield curve saw cuts three to five basis points: 3.23% (+5) in 2025 and 2.95% (+5) in 2026. The five-year was at 2.56% (+4), the 10-year was at 2.53% (+4) and the 30-year was at 3.61% (+3) at 3:30 p.m.
The S&P Global Market Intelligence municipal curve was cut five to seven basis points: The one-year was at 3.15% (+7) in 2025 and 2.93% (+7) in 2026. The five-year was at 2.55% (+5), the 10-year was at 2.54% (+5) and the 30-year yield was at 3.67% (+5), according to a 3 p.m. read.
Bloomberg BVAL was cut one to five basis points: 3.11% (+5) in 2025 and 2.93% (+5) in 2026. The five-year at 2.50% (+4), the 10-year at 2.50% (+3) and the 30-year at 3.67% (+4) at 3:30 p.m.
Treasuries were firmer.
The two-year UST was yielding 4.590% (-4), the three-year was at 4.384% (-1), the five-year at 4.218% (-2), the 10-year at 4.231% (-2), the 20-year at 4.494% (-2) and the 30-year at 4.397% (-3) at 3:45 p.m.
Primary to come
The Northern California Energy Authority is set to price $675 million of commodity supply revenue refunding bonds, Series 2024. Goldman Sachs.
The South Dakota Housing Development Authority (Aaa/AAA//) is set to price Wednesday $148 million of homeownership mortgage bonds, consisting of $99 million of non-AMT bonds, 2024 Series A, terms 2044, 2049, 2055, and $49 million of taxables, 2024 Series B, serials 2025-2036, terms 2039, 2040. BofA Securities.
The Trustees of Purdue University are set to price Wednesday $72.430 million of Purdue University student fee bonds, Series GG. Jefferies. Part of the proceeds from the sale will be used to refund up to $69.44 million of outstanding BABs.
Competitive
The Santa Clara Unified School District, California, (Aaa/AAA//) is set to sell $148.260 of 2024 GO refunding bonds at 11:05 a.m. Wednesday.
