May 25, 2024

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Munis little changed; returns down, volume up

6 min read
Munis little changed; returns down, volume up

Municipals were little changed Monday ahead of several large deals and the final session of April, which is poised to close out with another month of negative returns for the asset class. U.S. Treasuries were firmer, and equities were in the black.

The two-year muni-to-Treasury ratio Monday was at 65%, the three-year at 63%, the five-year at 61%, the 10-year at 61% 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 63%, the five-year at 61%, the 10-year at 61% and the 30-year at 82% at 3:30 p.m.

Munis remain on “track to have the second worst April returns in almost 20 years as yields continue to trend higher as the likelihood of a Fed Reserve interest rate cut looks more and more unlikely,” said Jason Wong, vice president of municipals at AmeriVet Securities.

While munis are returning negative 1.31% month-to-date, returns are still “far from our worst returns” seen in April 2022, he noted.

“We should still be cautious as we anticipate volatility in the markets as well as rising yields until we get a concrete timetable of when the Fed may cut rates,” he said.

With last week’s issuance at $13-plus billion, “the muni market passed its first true test of the year,” said Birch Creek strategists in a weekly report.

Refinitiv MMD yields were six to seven basis points weaker, underperforming USTs “the most up front where valuations are least compelling and slightly outperforming in the long end.”

The large new-issue calendar was led by the $3.1 billion Brightline Florida Passenger Rail project, “which saw high demand due to the high yield it provided,” Wong said.

The “complicated” Brightline deal, which consisted of $2.219 billion of low-investment grade bonds and $925 million of non-rated bonds, was “well received,” said Joshua Perry, a portfolio manager at Brown Advisory.

“That was good for the market in general,” he said.

The Brightline deal showed “appetite [is] there for bonds of all sorts,” he said.

Overall, negotiated deals last week “performed reasonably well, though with a large concentration around 10y paper, some spots felt heavy, which forced underwriters to price at generous concessions,” Birch Creek strategists said.

The nearly $3 billion of GOs from the Los Angeles Unified School District, for example, “came +25-30 in the 6-10y range and saw over $8 billion in orders,” they noted.

When the issuer last came to market in October, Birch Creek strategists said “10y bonds printed at +8.”

Similarly, a $218 million deal for Christus Health “saw very few orders for its $100 million 10y tranche,” but instead, the underwriter “rolled the entire size into the 8y tranche and sweetened the yield by 7bps, which enabled the full balance to clean up,” they said.

Conversely, “longer duration names, especially those with a bit more spread, saw strong interest,” they noted.

A $370 million deal for RWJ Barnabas Health, “saw its 30y discount bonds hit 10x oversubscription and re-priced 7bps tighter,” in line with similar bonds trading the day before, “suggesting very little if any concession necessary as accounts try to put size to work on ‘different name’ spready paper,” they said.

The surge in issuance will continue through the end of the month, with a slew of deals coming Tuesday, led by $1.912 billion of Novant Health Obligated Group healthcare facilities revenue bonds from the South Carolina Jobs-Economic Development Authority.

In the primary market Monday, Siebert Williams Shank held a one-day retail order for the Port Authority of New York and New Jersey’s (Aa3/AA-/AA-/) $651.030 million of consolidated bonds, Two Hundred Forty-Fourth Series, with 5s of 7/2030 at 3.02%, 5s of 2034 at 3.06%, 5s of 2039 at 3.49%, 5s of 2044 at 3.98%, 5s of 2049 at 4.23% and 5s of 2054 at 4.31%, callable 7/1/2034.

Preliminary issuance for April is at $39.391 billion, up 18% from April 2023.

More large-scale deals are on the horizon and The Bond Buyer’s 30-day visible supply sits at $11.06 billion.

Illinois is set to price the week of May 6 $1.8 billion of GOs.

The Bay Area Toll Authority is set to price the week of May 6 $1 billion of tax-exempt and taxable payroll mobility tax senior lien green bonds.

The New York City Transitional Finance Authority is set to price the week of May 13 $1 billion of tax-exempt and taxable future tax-secured subordinate revenue bonds.

The Dormitory of the State of New York is set to price the week of May 13 $970 million of School District Revenue Bond Financing Program revenue bonds.

Supply is “heavier” this year compared to 2023 at this time, Perry said.

Programs from the pandemic are “running out,” such as the American Rescue Plan, from which states and local governments have until the end of this year to allocate funds. The allocated money has to be spent by 2026, he said.

“The pandemic relief funds were one-time funds, so people that did one-time projects with that money will be fine,” but those funding their entire operations will be strapped for cash when the money runs out. The latter will have to turn to other funding sources or cut those projects, Perry said.

AAA scales
Refinitiv MMD’s scale was unchanged: The one-year was at 3.45% and 3.22% in two years. The five-year was at 2.85%, the 10-year at 2.81% and the 30-year at 3.96% at 3 p.m.

The ICE AAA yield curve was bumped up to three basis points: 3.43% (unch) in 2025 and 3.23% (-1) in 2026. The five-year was at 2.86% (-2), the 10-year was at 2.83% (-3) and the 30-year was at 3.90% (-2) at 3:30 p.m.

The S&P Global Market Intelligence municipal curve was bumped one basis point: The one-year was at 3.46% (-1) in 2025 and 3.23% (-1) in 2026. The five-year was at 2.84% (-1), the 10-year was at 2.84% (-1) and the 30-year yield was at 3.94% (-1), according to a 3 p.m. read.

Bloomberg BVAL was unchanged: 3.46% in 2025 and 3.25% in 2026. The five-year at 2.79%, the 10-year at 2.78% and the 30-year at 3.95% at 3 p.m.

Treasuries were better.

The two-year UST was yielding 4.980% (-2), the three-year was at 4.813% (-3), the five-year at 4.654% (-4), the 10-year at 4.627% (-4), the 20-year at 4.862% (-3) and the 30-year at 4.749% (-3) at 3:45 p.m.

Negotiated calendar
The South Carolina Jobs-Economic Development Authority (A1/A+/AA-/) is set to price Tuesday $1.912 billion of Novant Health Obligated Group healthcare facilities revenue bonds, Series 2024A. J.P. Morgan.

The Board of Regents of the Texas A&M University System (Aaa/AAA/AAA/) is set to price Tuesday $424.51 million of revenue financing system bonds, Series 2024A, serials 2025-2044, terms 2049, 2054. Jefferies.

The Illinois Housing Development Authority (Aaa///) is set to price Tuesday $227.5 million of taxable social revenue bonds, 2024 Series D, serials 2025-2034, terms 2039, 2044, 2049, 2054, 2054. Jefferies.

The authority is also set to price $116.14 million of non-AMT social revenue bonds, 2024 Series C. J.P. Morgan.

The Connecticut Housing Finance Authority (Aaa/AAA//) is set to price Tuesday $245.84 million of social Housing Mortgage Finance Program bonds, 2024 Series C, consisting of $95.84 million of tax-exempts, 2024 Subseries C-1, serials 2025-2036, terms 2039, 2044, 2050, 2054; and $150 million of taxables, 2024 Subseries C-2, serials 2025-2034, terms 2039, 2044, 2049, 2054. RBC Capital Markets.

The New Jersey Higher Education Student Assistance Authority is set to price Thursday $226.550 million of student loan revenue and refunding bonds, Series 2024, consisting of $24.8 million of Series A (/AA//), serials 2027-2033; $176 million of Series B (/AA//), serials 2027-2033, term 2045, and $25.75 million of Series C (/BBB//), serial 2054. RBC Capital Markets.

San Francisco (Aa1/AA+/AAA/) is set to price Thursday $218.56 million of tax-exempt Multiple Capital Improvement Projects refunding certificates of participation, Series 2024-R1. RBC Capital Markets.

The New Jersey Health Care Facilities Financing Authority (A2/A-/A/) is set to price Tuesday $163.265 million of Department of Human Services lease revenue refunding bonds, Series 2024, consisting of $109.51 million for the Greystone Park Psychiatric Hospital Project and $53.755 million for the Marlboro Psychiatric Hospital Project. J.P. Morgan.

The Virginia Resources Authority (Aaa/AAA//) is set to price Tuesday $135.73 million of Virginia Pooled Financing Program infrastructure revenue refunding bonds, Series 2024A, serials 2024-2054. Raymond James.

The Nevada Housing Division (/AA+//) is set to price Tuesday $127.395 million of senior single-family mortgage revenue bonds, consisting of $102.395 million of taxables and $25 million on non-AMT bonds. J.P. Morgan.

Fort Bend County, Texas, (/AA//) is set to price Wednesday $123.74 million of senior lien toll road revenue and refunding bonds, Series 2024. Mesirow Financial.

Competitive
Santa Barbara County, California, (/AA+//) is set to sell $102.790 million of 2024 certificates of participation at 11 a.m. eastern Tuesday.

Delaware is set to sell $298.010 million of GO school bonds, Series 2024A, at 10:45 a.m. Tuesday and $69.085 million of GO refunding bonds, Series 2024B, at 11:15 a.m. Tuesday.

The Nauset Regional School District, Massachusetts, is set to sell $120.5 million of unlimited tax GO school bonds, at 11 a.m. Thursday.

The Washoe County School District, Nevada, (Aa3/AA//) is set to sell $130 million of limited tax GO school improvement bonds, Series 2024A, at 11:30 a.m. Thursday.