Munis weaken as investors digest large new-issue line-up
6 min read
Municipals weakened further Tuesday in secondary trading as a large new-issue slate took focus in the primary market. U.S. Treasury yields fell and equities were in the black.
Muni yields were cut up to seven basis points, depending on the scale, while UST yields fell two to three basis points, pushing muni to UST ratios higher.
The two-year muni-to-Treasury ratio Tuesday was at 66%, the three-year at 66%, the five-year at 65%, the 10-year at 65% 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 65%, the five-year at 65%, the 10-year at 65% and the 30-year at 83% at 3:30 p.m.
The new-issue calendar swells to nearly $13 billion this week — with Tuesday a particularly busy day — perhaps forcing underwriters to grow “more concessionary,” said Matt Fabian, a partner at Municipal Market Analytics.
In the primary market Tuesday, Raymond James preliminarily priced for Harris County, Texas, (Aa2//AA/) $950 million of toll road first lien revenue and refunding bonds, Series 2024A, with 5s of 8/2025 at 3.35%, 5s of 2029 at 3.16%, 5s of 2034 at 3.23%, 5s of 2039 at 3.52%, 5s of 2044 at 3.88%, 4s of 2054 at 4.41% and 5.25s of 2054 at 4.11%, callable 8/15/2034.
BofA Securities priced for institutions $841.395 million from the Los Angeles Community College District (Aaa/AA+//), with cuts on the front end from Monday’s retail pricing. The first tranche, $741.395 million of tax-exempt 2024 GO refunding bonds, saw 5s of 8/2024 at 3.25% (unch), 5s of 2029 at 2.98% (+3), 5s of 2034 at 3.02% (+5), 5s of 2039 at 3.18% (-5) and 5s of 2040 at 3.27% (-6), callable 8/1/2034.
The second tranche, $100 million of taxable 2022 Election GOs, Series B, saw all bonds price at par: 5.53s of 8/2024 and 4.78s of 2027, noncall.
Wells Fargo priced for Texas State University System Board of Regents (Aa2//AA/) $609.425 million of Revenue Financing System revenue and refunding bonds, Series 2024, with 5s of 3/2025 at 3.43%, 5s of 2029 at 3.14%, 5s of 2034 at 3.25%, 5s of 2039 at 3.53%, 5s of 2044 at 3.85%, 4s of 2049 at 4.33% and 5.25s of 2054 at 4.11%, callable 3/15/2034.
Goldman Sachs priced for the Southern California Public Power Authority (A2///) $592.27 million of Clean Energy Project revenue bonds, Series 2024A, with 5s of 9/2025 at 4.05%, 5s of 9/2029 at 3.89%, 5s of 9/2030 at 3.91% and 5s of 4/2055 at 4%.
Ramirez priced for Austin, Texas, (Aa2/AA/AA-/) $452.735 million of water and wastewater system revenue refunding and improvement bonds, Series 2024, with 5s of 11/2025 at 3.32%, 5s of 2029 at 3.08%, 5s of 2034 at 3.21%, 5s of 2039 at 3.47%, 5s of 2044 at 3.80%, 5s of 2049 at 4.03% and 5s of 2053 at 4.11%, callable 11/15/2034.
Morgan Stanley priced for the Iowa Finance Authority (Aaa/AAA//) $206.875 million of green State Revolving Fund revenue bonds, Series 2024A, with 5s of 8/2025 at 3.23%, 5s of 2029 at 2.95% and 5s of 2034 at 3.10%, callable 5/1/2034.
Goldman Sachs priced for the Trustees of Indiana University (Aaa/AAA//) is set to price Tuesday $102.05 million of Indiana University consolidated revenue bonds, Series 2024A, with 5s of 6/2034 at 3.07%, callable 3/1/2034.
In the competitive market, the Virginia Public Building Authority (Aa1/AA+/AA+/) sold $222.305 million of public facilities revenue bonds, Series 2024A, to BofA Securities, with 5s of 8/2025 at 3.39%, 5s of 2029 at 3.12%, 5s of 2034 at 3.10%, 5s of 2039 at 3.39% and 5s of 2044 at 3.74%, callable 8/1/2034.
The authority also sold $135.965 million of public facilities revenue refunding bonds, Series 2024B, to BofA Securities, with 5s of 8/2025 at 3.39%, 5s of 2029 at 3.02% and 5s of 2034 at 3.11%, noncall.
Fort Worth, Texas, (/AA/AA/) sold $153.535 million of general purpose bonds, Series 2024, to BofA Securities, with 5s of 3/2025 at 3.45%, 5s of 2029 at 3.14%, 5s of 2034 at 3.15%, 4s of 2039 at 3.82% and 4.125s of 2044 at par, callable 3/1/2033.
Wake County, North Carolina, (Aaa/AAA/AAA/) sold $165.055 million of GO refunding bonds, Series 2024B, to J.P. Morgan with 5s of 9/2025 at 3.20%, 5s of 2029 at 2.91% and 5s of 2034 at 2.95%, noncall.
Several weeks of elevated supply should theoretically be “weighing more on performance, but the market is now just ahead of its largest reinvestment season, which so far in 2024 has become even more pronounced, with an additional $19.5 billion scheduled for call/redemption between [June 1 and August 30],” Fabian said.
This could help explain the “
However, if the Fed starts cutting rates, tax-exempt triple-A benchmarks most likely cannot “keep pace” with taxables, assuming that USTs “can unwind an aggregation of investor trepidation over federal budget challenges (i.e., supply), political volatility (i.e., credit quality), and persistent inflation,” he said.
A bond rally, which will most likely occur, following Fed policy changes will be softened by these factors, Fabian said.
To minimize their lag, municipals will need participation from their “institutional demand component,” but banks and insurance companies cannot be expected as buyers until the end of 2024, even if Basel capital requirements are “watered” down, Fabian said.
And other help from Washington, D.C., via legislative changes, is unlikely before the November elections, he said.
AAA scales
Refinitiv MMD’s scale was cut up three basis points: The one-year was at 3.26% (+3) and 3.20% (+3) in two years. The five-year was at 2.89% (+3), the 10-year at 2.88% (+3) and the 30-year at 3.82% (+3) at 3 p.m.
The ICE AAA yield curve was cut one to four basis points: 3.26% (+1) in 2025 and 3.15% (+4) in 2026. The five-year was at 2.89% (+3), the 10-year was at 2.87% (+4) and the 30-year was at 3.78% (+2) at 3:30 p.m.
The S&P Global Market Intelligence municipal curve was cut up to two basis points: The one-year was at 3.25% (unch) in 2025 and 3.15% (unch) in 2026. The five-year was at 2.86% (+2), the 10-year was at 2.82% (+2) and the 30-year yield was at 3.80% (+2), according to a 3 p.m. read.
Bloomberg BVAL was cut one to seven basis points: 3.32% (+1) in 2025 and 3.15% (+2) in 2026. The five-year at 2.80% (+7), the 10-year at 2.77% (+) and the 30-year at 3.81% (+1) at 3:30 p.m.
Treasuries were firmer.
The two-year UST was yielding 4.829% (-2), the three-year was at 4.603% (-3), the five-year at 4.431% (-2), the 10-year at 4.411% (-3), the 20-year at 4.651% (-3) and the 30-year at 4.549% (-3) at 3:45 p.m.
Primary to come
The Burbank-Glendale-Pasadena Airport Authority (A2/A/A-/) is set to price Wednesday $736.11 million of airport senior revenue bonds, consisting of $32.305 million of non-AMT bonds, Series 2024A, serial 2054; $649 million of AMT bonds, Series 2024B, serials 2031-2044, terms 2049, 2054; and $54.805 million of taxables, Series 2024C, serials 2028-2031. BofA Securities.
The California Enterprise Development Authority (Aa3/AA-//) is set to price Wednesday $519.845 million of Riverside County – Mead Valley Wellness Village Project lease revenue bonds, $429.845 million of Series 2024A and $90 million of Series 2024B. Morgan Stanley.
The Edmonds School District No. 15, Washington, (Aaa///) is set to price Wednesday $289.815 million of unlimited tax GO and refunding bonds, Series 2024. Piper Sandler.
The Illinois Finance Authority (Aa3/AA-//) is set to price Thursday $285.895 million of Endeavor Health Credit Group revenue refunding bonds, Series 2024A. BofA Securities.
The Florida Housing Finance Corp. (Aaa///) is set to price Wednesday $250 million of homeowner mortgage revenue bonds, consisting of $100 million of non-AMT bonds, 2024 Series 3, serials 2025-2036, terms 2039, 2044, 2049, 2054, 2055, and $150 million of taxables, 2024 Series 4, serials 2025-2036, terms 2039, 2044, 2049, 2054, 2055. BofA Securities.
The corporation is also set to price Wednesday $146.64 million of SFP – Tampa I – The Henry Project student housing revenue bonds, consisting of $104.79 million of tax-exempt senior bonds (A-1 //BB+/), Series 2024A-1, terms 2044, 2054, 2059; $13.15 million of taxable senior bonds (A-2 //BB+/), Series 2024A-2, term 2037; and $28.7 million of non-rated tax-exempt subordinate bonds, Series 2024B, serial 2059. RBC Capital Markets.
Corpus Christi, Texas, (/AA-/AA-/) is set to price Thursday $244.765 million of utility system senior lien revenue improvement and refunding bonds, Series 2024, serials 2025-2044, terms 2049, 2054. Ramirez.
The Astoria Hospital Facilities Authority, Oregon, (/BBB/BBB+/) is set to price Wednesday $200 million of Columbia Memorial Hospital Project revenue bonds, Series 2024, serials 2030-2044, terms 2049, 2054. BofA Securities.
The Port of Beaumont Navigation District, Texas, is set to price $199.695 million of non-rated Jefferson Gulf Coast Energy Project Dock and Wharf Facility revenue bonds, Series 2024B. Morgan Stanley.
Competitive
Clark County, Nevada, is set to sell $206.895 million of highway revenue improvement and refunding bonds, Series 2024, at 11:30 a.m. Wednesday.
Fort Worth, Texas, is set to sell $150 million of water and sewer system revenue bonds at 10:30 a.m. Wednesday.
