Munis sell off across the curve, pushing ratios higher

Municipals played catch up to U.S. Treasury weakness and sold off Tuesday as supply pressure and secondary selling caught up to the asset class. Equities ended down.

Triple-A yields rose seven to 12 basis points, depending on the scale, while USTs yields rose up to four basis points.

Before Tuesday’s selloff, muni yields have been rising over the last several weeks due to “outsized” new-issue supply, said Anders S. Persson, Nuveen’s chief investment officer for global fixed income, and Daniel J. Close, Nuveen’s head of municipals.

“This supply has allowed institutional investors access to large blocks of bonds to reposition portfolios back to stated mandates,” they said.

Even with the selloff, Persson and Close noted munis remain rich to taxables.

They added any selloff could be a potential buying opportunity.

Supply this week is “hardly noteworthy,” said Vikram Rai, head of municipal markets strategy at Wells Fargo, as it falls to an estimated $3.9 billion.

Next week’s calendar likely surges to more than $12 billion, led by California in the competitive market with $1.485 billion of GOs in two series, Rai said.

The Bond Buyer 30-day visible supply sits at $10.98 billion.

Muni-UST ratios could see “a little bit of pressure … especially towards the front end of the curve, in anticipation,” he said.

Ratios rose Tuesday. The two-year muni-to-Treasury ratio was at 66%, the three-year at 64%, the five-year at 61%, the 10-year at 60% 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 65%, the three-year at 64%, the five-year at 62%, the 10-year at 62% and the 30-year at 84% at 3:30 p.m.

Rai believes March’s and April’s seasonal weakness is likely, to some extent, to be a “red herring” since investors have sufficient cash to put to work.

However, he noted this is “conditional on the hawkish risk from the FOMC remaining in check,” with Fed Chair Jerome Powell’s speech on Wednesday and the jobs report on Friday being “key events to watch out for.”

Meanwhile, combined mutual fund and exchange-traded funds, which have seen positive flows, have only been averaging around $1 billion weekly as of late, “perhaps weak NAV performance versus equities [year-to-date] is the issue,” said Matt Fabian, a partner at Municipal Market Analytics.

Banks appear to keep “retreating” from munis, he said.

“While large customer demand, as far as average buy sizes, has been improving, it remains well short of pre-Fed days,” Fabian said.

This, he said, is consistent with generic market sentiment: muni bond prices “have been too high, yields too low, for at least the last month.”

This is a “difficult position” as the worst “two-month stretch of the year” approaches, as far as reinvestment demand, Fabian said.

“Tax season is also now at its theoretical worst, but this impact has recently been less troublesome for tax-exempts, perhaps as lower corporate tax rates have cut some investor reliance on tax-exempt money funds for tactical cash management,” he said.

In the primary market Tuesday, Piper Sandler priced for the Northshore School District No. 417, Washington, (Aaa///) $243.900 million of unlimited tax general obligation and refunding bonds, Series 2024, with 5s of 12/2024 at 3.47%, 5s of 2029 at 2.83%, 4s of 2033 at 2.95%, 5s of 2039 at 3.36% and 5s of 2042 at 3.65%, callable 6/1/2034.

BofA Securities priced for the Colorado Bridge and Tunnel Enterprise (A2/A-//) $150 million of Assured Guaranty-insured senior infrastructure revenue bonds, Series 2024A, with 5s of 12/2041 at 3.78%, 5s of 2044 at 3.96%, 5.25s of 2049 at 4.15% and 5.5s of 2054 at 4.18%, callable 12/1/2034.

Barclays priced for the Rhode Island Health and Educational Building Corp. (A3/A-//) $132.795 million of Bryant University Issue higher education facility revenue bonds, Series 2024, with 5s of 6/2025 at 3.53%, 5s of 2029 at 3.01%, 5s of 2034 at 3.09%, 5s of 2039 at 3.56%, 5s of 2044 at 4.04% and 5s of 2048 at4.28%, callable 6/1/2034.

Wells Fargo priced for the Trinity River Authority of Texas (/AAA/AAA/) $130.455 million of Regional Wastewater System revenue improvement and refunding bonds, Series 2024, with 5s of 8/2024 at 3.45%, 5s of 2029 at 2.78%, 5s of 2034 at 2.84%, 5s of 2039 at 3.29% and 5s of 2044 at 3.74%, callable 8/1/2034.

In the competitive market, Anne Arundel County, Maryland, (Aaa/AAA/AAA/) sold $164.230 million of consolidated general improvements, to BofA Securities, with 5s of 10/2024 at 3.19%, 5s of 2029 at 2.74%, 5s of 2034 at 2.79%, 5s of 2039 at 3.20%, 5s of 2044 at 3.56%, 5s of 2049 at 3.80% and 4s of 2053 at 4.24%, callable 4/1/2034.

The county also sold $76.820 million of consolidated water and sewer to BofA Securities, with 5s of 10/2024 at 3.19%, 5s of 2029 at 2.74%, 5s of 2034 at 2.79%, 5s of 2039 at 3.20%, 5s of 2044 at 3.56%, 5s of 2049 at 3.80% and 4s of 2053 at 4.24%, callable 4/1/2034.

AAA scales
Refinitiv MMD’s scale was cut 10 to 12 basis points: The one-year was at 3.34% (+12) and 3.09% (+12) in two years. The five-year was at 2.66% (+12), the 10-year at 2.63% (+12) and the 30-year at 3.78% (+10) at 3 p.m.

The ICE AAA yield curve was cut seven to 11 basis points: 3.32% (+7) in 2025 and 3.07% (+7) in 2026. The five-year was at 2.68% (+8), the 10-year was at 2.65% (+9) and the 30-year was at 3.74% (+11) at 3:30 p.m.

The S&P Global Market Intelligence municipal curve was cut 11 basis points: The one-year was at 3.37% (+11) in 2025 and 3.11% (+11) in 2026. The five-year was at 2.68% (+11), the 10-year was at 2.65% (+11) and the 30-year yield was at 3.77% (+11), according to a 3 p.m. read.

Bloomberg BVAL was cut eight to nine basis points: 3.31% (+9) in 2025 and 3.09% (+9) in 2026. The five-year at 2.60% (+8), the 10-year at 2.60% (+8) and the 30-year at 3.78% (+9) at 3:30 p.m.

Treasuries were weaker five years and out.

The two-year UST was yielding 4.700% (-1), the three-year was at 4.517% (flat), the five-year at 4.353% (+2), the 10-year at 4.362% (+4), the 20-year at 4.615% (+4) and the 30-year at 4.504% (+4) at 3:30 p.m.

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 university is pricing $610 million of tax-exempt refunding bonds on April 11 via the Dormitory Authority of the State of New York.

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.

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 refund the authority’s outstanding Build America Bonds.

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 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.

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.

CompetitiveDallas (/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.