Munis improve along with USTs, but hefty new-issue slate awaits
8 min read
Municipals were firmer Monday ahead of an increase in supply, as U.S. Treasury yields fell and equities ended mixed.
With another week of increased supply, pressure in the near-term will continue, “but with higher yields and muni-to-Treasury ratios cheapening, munis are at attractive levels as yields are at year-to-date highs,” said Jason Wong, vice president of municipals at AmeriVet Securities.
This week’s surge in issuance, which tops $14 billion, is “likely going to keep a lid on any enthusiasm,” Birch Creek strategists said in a weekly report.
Munis ended the month of May in the red, as the asset class posted losses of 0.29% for the month, pushing year-to-date losses to 1.91%, Wong said.
The front end and belly of the curve saw losses of -0.6% and -1.18%, respectively, while the long end saw gains +0.4% for May.
Muni yields were weaker at the start of last week’s week as the asset class sold off on Wednesday before taking a breather to end the week.
Following USTs’ turnaround on Thursday and Friday, “so did muni sentiment, though caution was still abound,” Birch Creek strategists said.
On Thursday, for example, “dealers were stocking AAA paper inside of +10, which was somewhat encouraging given the lack of interest just a day prior,” they said.
Rising yields led to munis cheapening compared to USTs as “10-year munis are now yielding 68.94%, compared to the prior week when the ratio was at 67.30%,” Wong said.
The two-year muni-to-Treasury ratio Monday was at 68%, the three-year at 68%, the five-year at 70%, the 10-year at 70% and the 30-year at 86%, according to Refinitiv Municipal Market Data’s 3 p.m. EST read. ICE Data Services had the two-year at 68%, the three-year at 69%, the five-year at 69%, the 10-year at 69% and the 30-year at 84% at 3:30 p.m.
Climbing muni-USTs ratios are a “positive for valuations as munis have been stuck for the better part of the past few years,” he said.
Despite yields falling Monday, munis are still close to year-to-date highs and ratios have “adjusted significantly, the relentless pace of primary sales alongside slowing to negative fund flows … does not bode well for near-term performance,” Birch Creek strategists said.
Muni mutual funds saw three consecutive weeks of outflows as investors pulled $89 million after outflows of $218 million the week prior, according to LSEG Lipper data.
However, “with the uptick in coupon and maturity redemptions set to hit in June, July, and August, any further sloppiness over the next few weeks could prove to be a strong entry point for cash on the sidelines,” Birch Creek strategists said.
And “if an account can effectively hedge the duration risk, it is highly likely that AAA paper trading 15-20bps wider than usual will revert back to its historical spread rather quickly,” they said.
AAA scales
Refinitiv MMD’s scale saw bumps: The one-year was at 3.34% (-3, -4bp June roll) and 3.29% (-3, -3bp June roll) in two years. The five-year was at 3.11% (-3, no June roll), the 10-year at 3.08% (-3, no June roll) and the 30-year at 3.93% (-3) at 3 p.m.
The ICE AAA yield curve was bumped two to five basis points: 3.39% (-2) in 2025 and 3.32% (-2) in 2026. The five-year was at 3.09% (-5), the 10-year was at 3.07% (-4) and the 30-year was at 3.89% (-3) at 3:30 p.m.
The S&P Global Market Intelligence municipal curve was bumped four basis points: The one-year was at 3.38% (-4) in 2025 and 3.30% (-4) in 2026. The five-year was at 3.09% (-4), the 10-year was at 3.05% (-4) and the 30-year yield was at 3.91% (-4), according to a 3 p.m. read.
Bloomberg BVAL was bumped two to three basis points: 3.38% (-3) in 2025 and 3.31% (-3) in 2026. The five-year at 3.09% (-2), the 10-year at 3.06% (-3) and the 30-year at 3.91% (-3) at 3 p.m.
Treasuries were firmer.
The two-year UST was yielding 4.822% (-6), the three-year was at 4.621% (-7), the five-year at 4.421% (-10), the 10-year at 4.405% (-10), the 20-year at 4.628% (-10) and the 30-year at 4.553% (-10) at 3:30 p.m.
Negotiated calendar:
San Antonio, Texas, Electric and Gas Systems (Aa2/AA-/AA-/) is set to price Tuesday $1.039 billion of revenue and revenue refunding bonds in three series, consisting of $445.81 million revenue refunding bonds, New Series 2024A, serials 2035-2044, term 2049; $392.645 million of revenue and refunding bonds, New Series 2024B, serials 2025-2044, terms 2049, 2054; and $200.905 million of revenue refunding bonds, New Series 2024C, serials 2035-2044, terms 2049, 2054. Jefferies LLC.
The Metropolitan Washington Airports Authority (Aa3/AA-/AA-/) is set to price Wednesday $829.51 million of airport system revenue and refunding bonds, Series 2024A AMT, serials 2025-2044, terms 2049, 2054. BofA Securities.
The Bay Area Toll Authority is set to price Wednesday $719.14 million of San Francisco Bay Area toll bridge revenue bonds in three series, consisting of $77.375 million of Series F-1 (/AA/AA/), $250 million of Series F-2 (/AA/AA/) and $391.765 million Series S-11 (/AA-/AA-/). J.P. Morgan Securities LLC.
Massachusetts (Aa1/AA+/AA+/) is set to price $705.715 million of general obligation and GO refunding bonds, consisting of $650 million Series 1 and $55.715 million of refunding Series 2. Morgan Stanley & Co. LLC.
The Colorado Health Facilities Authority (Aa1/AA+//) is set to price Tuesday $570.26 million of Intermountain Health revenue refunding bonds, serials 2030-2037, 2042-2045, term 2054. RBC Capital Markets.
The Harris County Cultural Education Facilities Finance Corp. (Aa3/AA-//) is set to price Wednesday $565.385 million of Memorial Hermann Health System hospital revenue bonds. J.P. Morgan Securities LLC.
Charlotte, North Carolina, (Aaa/AAA//) is set to price Wednesday $543.775 million of water and sewer system revenue bonds, serials 2025-2044, terms 2049, 2054. BofA Securities.
The Los Angeles Department of Water and Power (Aa2/AA-//AA) is set to price Thursday $511.485 million of power system revenue refunding bonds, serials 2025-2044, terms 2049, 2054. RBC Capital Markets.
Connecticut (Aa3/AA-/AA-/AA+) is set to price Tuesday $450 million of tax-exempt and taxable general obligation bonds, consisting of $250 million of taxable general obligation bonds, serials 2025-2034, and $200 million of tax-exempt GOs, serials 2025-2044. BofA Securities.
Hutto, Texas (Williamson County) (/AA//) is set to price Thursday $291.205 million in two series, $15.745 million of Series 2024A, insured by Build America Mutual, serials 2028-2049, and $275.46 million of Series 2024B, serials 2026-2054. Baird.
The Economic Development Authority of the County of Chesterfield (Aa1/AA+/AA+/) is set to price Thursday $285.2 million of county mobility projects revenue bonds, serials 2026-2044, terms 2047, 2050. Wells Fargo Bank, N.A. Municipal Finance Group.
The Illinois Finance Authority is on the day-to-day calendar with $284 million of Endeavor Health Credit Group revenue refunding bonds (Aa3/AA-//), serials 2030, 2032. BofA Securities.
Waco, Texas (Aa1/AA+//) is set to price Tuesday $267.35 million, in three series, consisting of $203.43 million of combination tax and revenue certificates of obligation, Series 2024A $43.94 million of combination tax and revenue certificates of obligation, taxable Series 2024B, and $19.98 million of general obligation refunding bonds. Siebert Williams Shank & Co., LLC.
The Connecticut Health and Educational Facilities Authority (Aaa/AAA//) is set to price Tuesday $260 million of Yale University revenue bonds, Series 2015A remarketing, terms 2035. Barclays Capital Inc.
The Lower Colorado River Authority (/A/AA-/) is set to price Thursday $258.91 million of revenue refunding bonds, serials 2025-2045. BofA Securities.
The Massachusetts Housing Finance Agency (Aa2/AA+//) is set to price Tuesday $252.735 million of housing bonds, consisting of $90.385 million of Series A-1 non-AMT sustainability bonds, serials 2027-2036, terms 2039, 2044, 2049, 2054, 2059, 2064, 2067; and $162.35 million of Series A-3 non-AMT sustainability bonds, serials 2026, 2028-2029. BofA Securities.
The Colorado Health Facilities Authority (Aa2/AA/AA/) is set to price Tuesday $204.26 million of Advent Health Obligated Group hospital revenue bonds. BofA Securities.
The North Dakota Housing FInance Agency (Aa1///) is set to price Thursday $200 million of housing finance program non-AMT social bonds. RBC Capital Markets.
The North Carolina Housing Finance Agency (Aa1/AA+//) is set to price Tuesday $199.5 million of home ownership non-AMT 1998 Trust Agreement revenue bonds, serials 2025-2036, terms 2039, 2044, 2050, 2055, 2055). RBC Capital Markets.
The Metropolitan Water District of South Carolina (/AA+/AA+/) is set to price Wednesday $173.445 million of subordinate water revenue refunding bonds (mandatory PUT bonds). Loop Capital Markets.
The Bremerton School District No. 100-C, Kitsap County, Washington, (Aaa///) is set to price Tuesday $140.8 million of unlimited tax general obligation bonds, insured by Washington School Bond Guarantee Program. D.A. Davison & Co.
The E-470 Public Highway Authority (A1/A+//) is set to price Wednesday $138.64 million of senior revenue SOFR Index term rate bonds, term 2039. Wells Fargo Bank, N.A. Municipal Finance Group.
The Pennsylvania Economic Development Financing Authority (B3/BB-/BB-/) is set to price Thursday $130.57 million of PPL Energy Supply, LLC Project exempt facilities revenue refunding bonds. Morgan Stanley & Co. LLC.
The Hutto Independent School District, Texas (Aaa/AAA//) Is set to price Wednesday $125 million of unlimited tax school building bonds, PSF Guarantee, serials 2026-2054. RBC Capital Markets.
The North Ridgeville City School District, Ohio, (Aa2///) is set to price Tuesday $121.845 million unlimited tax general obligation school improvement bonds, serials 2025-2044, terms 2047, 2049, 2053, 2057, 2061. Stifel, Nicolaus & Company, Inc.
The Colorado Springs School District 11 (A1/AA//) is set to price Tuesday $120 million of certificates of participation, insured by Build America Mutual, serials 2024-2044, term 2048. RBC Capital Markets.
King County, Washington, (Aa2/AA//) is set to price Wednesday $115.58 million of junior lien sewer revenue refunding bonds. Morgan Stanley & Co. LLC.
The Turnpike Authority of Kentucky (Aa3///AA-) is set to price Thursday $109.07 millin of economic development road revenue refunding revitalization projects bonds. Morgan Securities LLC.
The Mississippi Home Corporation (Aaa///) is set to price Tuesday $100 million of single family mortgage revenue bonds, non-AMT, serials 2029-2036, terms 2039, 2044, 2049, 2054. Raymond James & Associates, Inc.
The North Carolina Housing Finance Agency (Aa1/AA+//) of taxable home ownership revenue bonds, serials 2025-2036, terms 2039, 2044, 2049, 2055, 2055. RBC Capital Markets.
Competitive:
The Fayetteville School District No. 1, Arkansas, (Aa2///) is set to sell $177.63 million of construction bonds, at 11 a.m. Tuesday.
Prince George’s County, Maryland, (//AAA/) is set to sell $186.61 million of GO consolidated public improvement bonds, Series 2024A, at 10:45 a.m. Tuesday, and $98.36 million of GO consolidated public improvement refunding bonds, Series 2024B, at 11:15 a.m. Tuesday.
The Renewable Water Resources, South Carolina, (Aa1/AAA//) is set to sell $121.085 million of sewer system revenue bonds, Series 2024A, at 11 a.m. Tuesday.
Richmond, Virginia, (Aa1/AA+/AAA/) is set to sell $121.11 million of taxable GOs, at 10:30 a.m. Tuesday.
The Port of Seattle (Aaa/AA/AA-/) is set to sell $94.65 million of limited tax GO refunding bonds, Series 2024A, at 10:45 a.m. Tuesday; $67.53 million of AMT limited tax GOs, Series 2024B, at 10 a.m. Tuesday; and $95.515 million of taxable limited tax GOs, Series 2024C, at 10:15 a.m. Tuesday.
Maryland (Aaa/AAA/AAA/) is set to sell $351.63 million of GO state and local facilities loan of 2024, First Series A, Bidding Group 1, at 10:30 a.m. Wednesday; $300.505 million of GO state and local facilities loan of 2024, First Series A, Bidding Group 2, at 11 a.m. Wednesday; $347.865 million of GO state and local facilities loan of 2024, First Series A, Bidding Group 3, at 11:30 a.m. Wednesday; and $200 million of taxable GO state and local facilities loan of 2024, First Series B, Bidding Group 1, at noon Wednesday.
The Sacramento City Unified School District, California, is set to sell $262.5 million of Election of 2020 (Measure H) GOs, 2024 Series B, at noon Thursday.
