May 29, 2024

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Southeast Energy, University of Texas, NYC waters lead large new-issue day

6 min read
Southeast Energy, University of Texas, NYC waters lead large new-issue day

Municipals were slightly weaker as the focus turned to a large new-issue day with deals upsized and accelerated. The asset class followed U.S. Treasuries to higher yields while equities closed the session up.

Triple-A yields rose one to five basis points, depending on the curve, while UST yields rose up to four basis points.

The majority of the week’s new-issue calendar priced Tuesday as Morgan Stanley accelerated a $941.635 million of energy supply revenue bond pricing for Energy Southeast, Alabama, J.P. Morgan priced an upsized $800 million deal for the Board of Regents of the University of Texas System, and Barclays priced $788.555 million for the New York City Municipal Water Finance Authority.

Tuesday marked another volatile session for USTs with munis following along, with muni returns falling deeper in the red.

“Our market is amid its worst seasonal trends, with an uptick in small-lot selling last week consistent with tax day, and only grim May reinvestment expectations ahead,” said Matt Fabian, a partner at Municipal Market Analytics, Inc. in a weekly Outlook report.

“April has been one of the worst-performing months over the past five years, which we believe warrants continued caution,” BlackRock strategists said in a report.

Higher rates have led total returns to continue to struggle this year, said Cooper Howard, a fixed-income strategist at Charles Schwab.

The broad market is down 0.86% month-to-date and 1.25% year-to-date. Meanwhile, USTs are seeing losses of 2.28% so far in April and 5.10% so far this year, and corporates are posting negative returns of 2.53% month-to-date and 2.92% year-to-date.

Higher-rated issuers are underperforming “by a greater degree” relative to lower-rated issuers, Howard said.

BlackRock strategists expect seasonal supply-and-demand dynamics to be a “headwind” in the near term.

Supply will “tick up” this month, while “reinvestment income is expected to further decline, exacerbating the onus of net positive supply,” according to BlackRock’s Patrick Haskell, James Schwartz, and Sean Carney.

Net supply sits at negative $4.031 billion, according to Bloomberg data. Bond Buyer 30-day visible supply is at $9.92 billion.

Despite triple-A tax-exempt yields rising by about 20 basis points since March 1, “the offered curve has not been cut enough and still reads as well overbought along the second half of the curve,” Fabian said. “This reasonably reflects the still backpedaling bank sector, disinterested crossover buyer, and ambivalent traditional mutual fund and ETF investor.”

Aggregate fund and exchange-traded fund inflows exceed $11.5 billion year-to-date and only above $4.7 billion since March 1, Fabian said, adding that those “are not strong enough numbers to drive prices higher and/or tighten spreads.”

Fabian said “term spreads continue to widen as the back end of the curve does not benefit — as much — from still growing [separately managed account] platforms that favor well-rated and shorter maturity structures.”

Despite this, relative yields remain rich, Howard said, when looking at muni to UST ratios.

The two-year muni-to-Treasury ratio Tuesday was at 64%, the three-year at 62%, the five-year at 59%, the 10-year at 59% 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 64%, the three-year at 63%, the five-year at 60%, the 10-year at 61% and the 30-year at 82% at 3:30 p.m.

In the primary market Tuesday, Morgan Stanley accelerated a pricing for Energy Southeast, Alabama, (A1///) $941.635 million of energy supply revenue bonds, 2024 Series B, with 5s of 12/2026 at 4.45%, 5s of 6/2029 at 4.31%, 5s of 12/2029 at 4.31% and 5s of 6/2032 at 4.42%, callable 3/1/2032.

J.P. Morgan priced for the Board of Regents of the University of Texas System (Aaa/AAA/AAA/) an upsized $800 million of revenue financing system bonds, Series 2024A, with 5s of 8/2025 at 3.35%, 5s of 2029 at 2.93%, 5s of 2034 at 2.97%, 5s of 2039 at 3.37%, 5s of 2044 at 3.78%, 4s of 2049 at 4.28% and 4.125s of 2054 at 4.35%, callable 8/15/2034.

Barclays priced for the New York City Municipal Water Finance Authority (Aa1/AA+/AA+/) $788.555 million of water and sewer system second general resolution revenue bonds Fiscal 2024 Series CC. The first tranche, $400 million of Subseries CC-1, saw 5.25s of 6/2054 at 4.22% and 4.25s of 2054 at 4.38%.

The second tranche, $388.555 million of Subseries CC-2, saw 5s of 6/2033 at 2.95%, 5s of 2034 at 2.97%, 5s of 2038 at 3.25% and 5s of 2046 at 3.96%

Goldman Sachs priced for the Ohio Water Development Authority (Aaa/AAA//) $347.505 million of Ohio Water Pollution Control Loan Fund revenue bonds. The first tranche, $180.190 million of green bonds, Series 2024A, saw 5s of 12/2039 at 3.31%, 5s of 2044 at 3.80% and 5s of 2047 at 3.97%, callable 6/1/2034.

The second tranche, $167.315 million of refunding bonds, Series 2024B, saw 5s of 12/2031 at 2.82%, 5s of 6/2034 at 2.91%, 5s of 12/2034 at 2.95% and 5s of 12/2036 at 3.11%, callable 6/1/2034.

Wells Fargo priced for the Arizona Board of Regents $322.445 million of Arizona State University tax-exempt system revenue bonds. The first tranche, $153.975 million of green bonds, Series 2024A, saw 5s of 7/2025 at 3.36%, 5s of 2029 at 2.89%, 5s of 2034 at 2.97%, 5s of 2039 at 3.38%, 5s of 2044 at 3.88%, 5s of 2050 at 4.16% and 5s of 2054 at 4.22%, callable 7/1/2034.

The second tranche, $168.470 of Series 2024B, saw 5s of 7/2025 at 3.36%, 5s of 2029 at 2.89%, 5s of 2034 at 2.97%, 5s of 2039 at 3.38 and 5s of 2044 at 3.88%, callable 7/1/2034.

In the competitive market, the Virginia College Building Authority (Aa1/AA+/AA+/) sold $337.900 million of 21st Century College and Equipment Programs educational facilities revenue bonds, Series 2024A, Bidding Group 2, to Truist Securities, with 5s of 2/3035 at 2.96%, 5s of 2039 at 3.35% and 4s of 2044 at 4.15%, callable 2/1/2034.

The authority also sold $301.805 million of 21st Century College and Equipment Programs educational facilities revenue bonds, Series 2024A, Bidding Group 1, to Jefferies, with 5s of 2/2025 at 3.45%, 5s of 2029 at 2.84% and 5s of 2034 at 2.90%, noncall.

The Leon County-City of Tallahassee Blueprint Intergovernmental Agency (Aa2//AA/) sold $121.570 million of sales tax revenue bonds, Series 2024, to BofA Securities, with 6s of 10/2025 at 3.40%, 5.5s of 2029 at 2.95%, 5s of 2034 at 3.00% and 5s of 2038 at 3.33%, callable 10/1/2032.

AAA scales
Refinitiv MMD’s scale was cut two to five basis points: The one-year was at 3.38% (+2) and 3.15% (+2) in two years. The five-year was at 2.78% (+5), the 10-year at 2.74% (+4) and the 30-year at 3.90% (+5) at 3 p.m.

The ICE AAA yield curve was cut one to four basis points: 3.37% (+1) in 2025 and 3.17% (+3) in 2026. The five-year was at 2.78% (+3), the 10-year was at 2.78% (+3) and the 30-year was at 3.87% (+4) at 3:30 p.m.

The S&P Global Market Intelligence municipal curve was cut three to four basis points: The one-year was at 3.43% (+3) in 2025 and 3.20% (+3) in 2026. The five-year was at 2.80% (+4), the 10-year was at 2.79% (+4) and the 30-year yield was at 3.89% (+4), according to a 3 p.m. read.

Bloomberg BVAL was cut three to four basis points: 3.41% (+3) in 2025 and 3.19% (+3) in 2026. The five-year at 2.72% (+3), the 10-year at 2.72% (+3) and the 30-year at 3.91% (+4) at 3:30 p.m.

Treasuries were weaker across the curve.

The two-year UST was yielding 4.969% (+4), the three-year was at 4.824% (+4), the five-year at 4.686% (+4), the 10-year at 4.658% (+3), the 20-year at 4.878% (+2) and the 30-year at 4.757% (+2) at the close.

Primary to come
The Florida State Board of Administration Finance Corp. (Aa3/AA/AA/AA/) is set to price Wednesday $1.5 billion of taxable revenue bonds, Series 2024A. Morgan Stanley.

The Arizona Board of Regents (Aa3/AA-//) is set to price Thursday $150.655 million of Arizona State University SPEED revenue bonds, Series 2024. Goldman Sachs.

The Indiana Housing and Community Development Authority (Aaa//AA+/) is set to price Wednesday $198.945 million of single-family mortgage revenue bonds, consisting of $85.935 million of non-AMT social bonds, 2024 Series B-1; $4.065 million of AMT social bonds 2024 Series B-2; and $108.945 million of taxable social bonds, 2024 Series B-3. J.P. Morgan.

The Washington State Housing Finance Commission (/BBB-//) is set to price Thursday $189.995 million of Radford Court and Nordheim Court Portfolio nonprofit revenue bonds, Series 2024, serials 2028-2039, terms 2044, 2049, 2054, 2059. Barclays.

The Oklahoma Capital Improvement Authority (/AA-/AA-/) is set to price Thursday $167.900 million of state facilities refunding revenue bonds, consisting of $121.360 million of Series 2024A, serials 2025-2030, and $46.540 million of Series 2024B, serials 2025-2034. RBC Capital Markets.

The Oregon Department of Administrative Services (Aa2/AAA//) is set to price Thursday 147.650 million of tax-exempt Oregon State Lottery revenue refunding bonds, consisting of $92.895 million of 2024 Series A, $29.465 million of 2024 Series and $25.290 million of 2024 Series D. Goldman Sachs.

Wake County, North Carolina, (Aa1/AA+/AA+/) is set to price Thursday $137 million of limited obligation bonds, Series 2024A, serials 2025-2043. Truist.

Competitive
The Charleston County School District is set to sell $146.005 million of Sales Tax Projects – Phase V GO bond anticipation notes at 11 a.m. Wednesday.

Albuquerque, New Mexico, (/AAA//) is set to sell $111.850 million of GO general purpose bonds, Series 2024A, and GO storm sewer bonds, Series 2024B, at 11 a.m. Thursday.