April 20, 2024

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Munis end Q1 in negative territory as investors readjust

6 min read
Munis end Q1 in negative territory as investors readjust

Munis were little changed Monday as U.S. Treasuries sold off and equities ended mixed.

Following the conclusion of the first quarter, munis are seeing losses for the year with the asset class returning negative 0.39% for the year and March returns were at 0.00%, noted Jason Wong, vice president of municipals at AmeriVet Securities.

The uptick in supply amid tax season has led to a short-end correction and higher muni to UST short ratios, but the levels are still rather rich from a historical perspective.

The two-year muni-to-Treasury ratio Monday was at 63%, the three-year at 61%, the five-year at 59%, the 10-year at 58% and the 30-year at 83%, 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 63%, the five-year at 62%, the 10-year at 62% and the 30-year at 84% at 3:30 p.m.

“This underperformance in recent weeks is due to investors selling ahead of the tax return deadline of April 15 and not due to the lack of demand for munis,” Wong said.

The muni market continued to “struggle” last week, underperforming USTs, with the “biggest laggards coming from the wings of the curve,” Birch Creek strategists said.

Buyers were “laser-focused” on new issues that come to market at “meaningful concessions,” they noted.

Once the “dust settled and accounts still found themselves with plenty of cash and a very light calendar coming up next week,” the back half of the week saw an improved tone, they said.

Several of the billion-plus dollar deals from last week helped issuance in March see the third consecutive month of gains year-over-year.

March’s volume rose 7.1% to $36.405 billion, above the  $34.579 billion 10-year average, according to LSEG Refinitiv data. 

Issuance for Q1 also ticked above $100 billion, as the quarter rebounded after a slow 2023, due to issuers still flush with federal money and widespread fears of an impending recession.

However, issuance slows this week as the calendar falls to an estimated $3.921 billion.

The negotiated calendar is led by $918 million of lease revenue bonds from the California State Public Works Board, followed by $500 million of taxable corporate CUSIPs from Cornell University.

Dallas leads the competitive calendar with $568 million of GOs in two series.

Despite the low issuance, supply should gradually pick up with April supply estimated at $36 billion, said Peter Block, managing director of credit strategy at Ramirez.

Several large deals are already on tap for the rest of the month.

In the negotiated market, the Sacramento Municipal Utility District, California, is set to price April 9 $650 million of electric revenue bonds.

Cornell will also bring $610 million of tax-exempt refunding bonds April 11 via the Dormitory Authority of the State of New York.

The Port Authority of New York and New Jersey is set to price next week $600 million of new money and refunding bonds.

In the competitive market, California will sell on April 11 $1.485 billion of GOs in two series.

The estimated $36 billion of issuance is more than two times reinvestment for the month, potentially creating “some underperformance and better entry points heading into the spring,” Block said.

This week sees a “modest surge” of reinvestment demand as issuers return $13.3 billion of principal Monday, led by Texas at $2.4 billion, according to CreditSights.

Investors will also receive $8.2 billion of April 1 interest payments and on April 2, another $2.2 billion of principal, the firm noted.

For the year, reinvestment is expected to be below the average at around 74% of supply from the 100% from previous years, Block said.

He expects positive net supply to peak in April, May, September, and October.

AAA scales
Refinitiv MMD’s scale was little changed: The one-year was at 3.22% (unch, -2bp April roll) and 2.97% (unch, no April roll) in two years. The five-year was at 2.54% (unch, no April roll), the 10-year at 2.51% (unch, no April roll) and the 30-year at 3.68% (unch) at 3 p.m.

The ICE AAA yield curve was cut one to two basis points: 3.26% (+2) in 2025 and 3.00% (+2) in 2026. The five-year was at 2.61% (+2), the 10-year was at 2.56% (+2) and the 30-year was at 3.63% (+1) at 3:30 p.m.

The S&P Global Market Intelligence municipal curve was unchanged: The one-year was at 3.26% in 2025 and 3.00% in 2026. The five-year was at 2.57%, the 10-year was at 2.54% and the 30-year yield was at 3.66%, according to a 3 p.m. read.

Bloomberg BVAL was cut two to three basis points: 3.22% (+3) in 2025 and 3.00% (+3) in 2026. The five-year at 2.52% (+2), the 10-year at 2.52% (+2) and the 30-year at 3.69% (+2) at 3:30 p.m.

Treasuries were weaker.

The two-year UST was yielding 4.708% (+9), the three-year was at 4.516% (+11), the five-year at 4.333% (+12), the 10-year at 4.326% (+13), the 20-year at 4.576% (+12) and the 30-year at 4.468% (+12) at the close.

Primary to come:
The California State Public Works Board (Aa3/A+/AA-/) is set to price Thursday $918.295 million of Department of General Services May Lee State Office Complex lease revenue bonds, consisting of $687.420 million of tax-exempts, 2024 Series A, serials 2034-2044, term 2049; and $230.875 million of taxables, 2024 Series B, serials 2025-2034. Barclays.

Cornell University is set to price Thursday $500 million of taxable corporate CUSIPs, Series 2024B. Goldman Sachs.

The National Finance Authority (/BBB+//) is set to price Wednesday $450 million of Wheeling Power Company Project taxable utility refunding revenue bonds, Series 2024A, term 2034. KeyBanc Capital Markets.

The New York City Housing Development Corp. (Aa2///) is set to price Thursday $323.335 million of sustainable development multi-family housing revenue bonds, consisting of $133.415 million of Series A-1 and $189.920 million of Series A-2. J.P. Morgan.

The Northshore School District No. 417, Washington, (Aaa///) is set to price Tuesday $242.505 million of unlimited tax general obligation and refunding bonds, Series 2024. Piper Sandler.

Chicago (/A+/A+/AA-/) is set to price Wednesday $223.750 million of second lien wastewater transmission revenue refunding bonds, Series 2024A, serials 2025-2044. Loop Capital Markets.

The North Carolina Turnpike Authority (Aa1//AA+/) is set to price Thursday $184.070 million of Monroe Expressway System state appropriation revenue refunding bonds, Series 2024, serials 2025-2041. BofA Securities. Part of the proceeds will be used to refund the authority’s outstanding Build America Bonds.

The Trinity River Authority of Texas (/AAA/AAA/) is set to price Tuesday $162.220 million of Regional Wastewater System revenue improvement and refunding bonds, Series 2024, serials 2024-2044. Wells Fargo.

The Colorado Bridge and Tunnel Enterprise (A2/A-//) is set to price Tuesday $150 million of senior infrastructure revenue bonds, Series 2024A, serials 2041-2044, terms 2049, 2054. BofA Securities.

The Pennsylvania Higher Education Assistance Agency is set to price Thursday $146.410 million of tax-exempt AMT fixed-rate education loan revenue bonds, consisting of $109.410 million of senior bonds, Series 2024-1A, and $37 million of subordinate bonds, Series 2024-1C. RBC Capital Markets.

The Rhode Island Health and Educational Building Corp. (A3/A-//) is set to price Tuesday $132.665 million of Bryant University Issue higher education facility revenue bonds, Series 2024, serials 2025-2045, term 2048. Barclays.

The Chino Valley Unified School District, California, (Aa2/AA-//) is set to price Wednesday $117.405 million, consisting of $64.800 million of capital appreciation bonds, serials 2025-2026, terms 2049, 2055; $35 million of capital appreciation bonds, serials 2031-2048; and $17.605 million of refunding bonds, serials 2024-2030. Stifel, Nicolaus & Co.

Colby, Kansas, is set to price Tuesday $108.249 million of Citizens Medical Center Project hospital loan anticipation revenue bonds, Series 2024. Colliers Securities.

Seguin, Texas, (/AA//) is set to price Wednesday $105.495 million of combination tax and limited pledge revenue certificates of obligation, Series 2024, serials 2025-2058. RBC Capital Markets.

The Shaker Heights City School District, Ohio, (/AA//) is set to price Thursday $102.660 million of unlimited tax GO school facilities improvement bonds, Series 2024, serials 2025-2044, terms 2049, 2054, 2057, 2061. Stifel, Nicolaus & Co.

Competitive
Dallas (/AA-/AA/) is set to sell $197.190 million of combination tax and revenue certificates of obligation, Series 2024B, at 10:30 a.m. Thursday, and $370.400 million of GO refunding and improvement bonds, Series 2024B, at 11 a.m. Thursday.

Anne Arundel County, Maryland, (Aaa/AAA/AAA/) is set to sell $92.140 million of GOs at 11:15 a.m. eastern Tuesday and $239.640 million of GOs at 10:45 a.m. Tuesday.