June 15, 2024

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Munis little changed, ignoring further Treasury losses

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Munis little changed, ignoring further Treasury losses

Municipals were little changed Monday as investors await a smaller calendar amid an FOMC week, outperforming Treasuries, which saw small losses, while equities were up near the close.

The two-year muni-to-Treasury ratio Monday was at 65%, the three-year at 65%, the five-year at 66%, the 10-year at 65% 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 65%, the three-year at 66%, the five-year at 66%, the 10-year at 67% and the 30-year at 84% at 3:30 p.m.

With USTs rallying earlier last week, the muni market “shook off their spate of negative performance after yields and ratios in most of the curve began the month at [year-to-date] highs,” Birch Creek Capital strategists said.

Munis saw yields fall for the first time in three weeks, “as 10-year notes fell by 17.6 basis points to 2.93%, pushing yields below 3% for the first time since May 23,” said Jason Wong, vice president of Municipals at AmeriVet Securities.

Due to this, munis outperformed USTs last week as the 10-year muni-to-UST ratio is at 66.35% versus the ratio of 69.02% the week before, Wong said.

“This is some positive news for munis as the last two weeks of May saw yields rise by over 20 basis points across the curve with the belly of the curve seeing significant losses,” he said.

Munis are returning 1.07% month-to-date, pushing year-to-date losses to 0.86%, according to Bloomberg data.

Despite the “whopping” $16 billion new-issue calendar last week, “early signals that deals would be oversubscribed and fears of missing out on cheap valuations led muni buyers to come off the sidelines in droves,” Birch Creek strategists said.

Some market participants were surprised by the changing sentiment, “leading to a ‘short covering’ rally as more buyers piled on to the trade,” they said.

“Although we had the largest issuance since December 2021 this past week, many would have thought this would have over-saturated the markets, but the influx of cash from reinvestments brought some reassurance to the markets,” Wong said.

“Some strength in the market can be ascribed to the reinvestment demand from the $26 billion of principal and interest that issuers paid out as of June 1,” said Pat Luby, head of municipal strategy at CreditSights.

Munis should continue to rally this week as issuance falls to $5.2 billion this week and cash still needs to be reinvested, Wong said.

In the primary market Monday, Raymond James accelerated a $715.45 million of gas supply revenue bonds from Main Street Natural Gas (A3///). The first tranche, $60.145 million, saw 5s of 12/2025 at 4.13%, 5s of 2029 at 4.12% and 5s of 2031 at 4.19%, callable 9/1/2031.

The second tranche, $655.305 million, saw 5s of 12/2054 with a mandatory tender of 12/1/2031 at 4.25%, callable 9/1/2031.

Despite the fall in issuance this week, there are still a few large deals coming in next several weeks. Bond Buyer 30-day visible supply sits at $13.33 billion.

The New York Transportation Development Corp. is set to price the week of June 17 $1.5 billion of John F. Kennedy International Airport New Terminal One special facilities revenue bonds.

Tennergy Corp. is set to price $625 million of gas supply revenue bonds.

AAA scales
Refinitiv MMD’s scale was unchanged: The one-year was at 3.20% and 3.16% in two years. The five-year was at 2.97%, the 10-year at 2.92% and the 30-year at 3.79% at 3 p.m.

The ICE AAA yield curve was cut up to two basis points: 3.25% (unch) in 2025 and 3.19% (unch) in 2026. The five-year was at 2.97% (+1), the 10-year was at 2.95% (+1) and the 30-year was at 3.81% (+1) at 3:30 p.m.

The S&P Global Market Intelligence municipal curve was unchanged: The one-year was at 3.25% in 2025 and 3.17% in 2026. The five-year was at 2.96%, the 10-year was at 2.92% and the 30-year yield was at 3.77%, at 4 p.m.

Bloomberg BVAL was little changed: 3.26% (unch) in 2025 and 3.21% (unch) in 2026. The five-year at 2.99% (+1), the 10-year at 2.92% (unch) and the 30-year at 3.80% (unch) at 3:30 p.m.

Treasuries were weaker.

The two-year UST was yielding 4.881% (flat), the three-year was at 4.673% (+1), the five-year at 4.479% (+2), the 10-year at 4.466% (+3), the 20-year at 4.683% (+4) and the 30-year at 4.592% (+4) at the close.

Negotiated calendar
Los Angeles County is set to price Tuesday $700 million of 2024-2025 tax and revenue anticipation notes. Morgan Stanley.

The Massachusetts Water Resources Authority (Aa1/AA+/AA+/) is set to price Tuesday $477.255 million of general revenue bonds, Series B, consisting of $166.265 million of green general revenue bonds, serials 2025-2049, and $310.960 million of green general revenue refunding bonds, serials 2027-2043. Barclays.

The New York City Housing Development (Aa2/AA+//) is set to price Tuesday $442.025 million of multi-family housing revenue bonds, consisting of $134.190 million non-AMT sustainable development bonds, series 1, and $307.835 million of non-AMT sustainable development bonds, series 2. Morgan Stanley.

The Oklahoma Industries Authority (/AA-//) is set to price Tuesday $436.980 million of Oklahoma City Public Schools Project educational facilities lease revenue bonds, series 2024, serial 2025-2034. D.A. Davidson.

The Industrial Development Authority of Mobile County, Alabama, (Baa3/BBB-//) is set to price Tuesday $378 million of AM/NS Calvert LLC Project solid waste disposal revenue bonds, serial 2054. BofA Securities. 

The Michigan State University Board of Trustees (Aa2/AA//) is set to price Tuesday $363.985 million of general revenue bonds, series 2024A, serial 2025-2044, term 2049, 2054. BofA Securities. 

The Maryland Economic Development Corporation (A3///) is set to price Tuesday $345.540 million of University of Maryland NextGen Energy Program Project taxable green revenue bonds, series 2024. Wells Fargo.

The Connecticut Health and Educational Facilities Authority (/AA-/A+/) is set to price Tuesday $322.000 million of Yale New Haven Health Issue revenue refunding bonds, series 2024A and series 2024B, consisting of $160 million serial 2025-2023 and 2044-2048, and $162.000 million, term 2049. Barclays.

The Illinois Finance Authority (Aa3/AA-//) is set to price Tuesday $284 million of Endeavor Health Credit Group revenue refunding bonds, series 2024A, serial 2030, 2032. BofA Securities. 

The Rhode Island Housing and Mortgage Finance Corp. (Aa1/AA+/NR/NR) is set to price Tuesday $194.150 million of homeownership opportunity bonds, consisting of $104 million Series 83-T taxables, $84 million Series 83-A non-AMT social bonds, and $6 million Series 83-B AMT social bonds. J.P. Morgan.

The Chambers County Justice Center Public Facilities Corp., Texas, (/AA-//) is set to price Tuesday $152.950 million of Justice Center Project lease revenue bonds, series 2024. Piper Sandler.

The Minnesota Housing Finance Authority (Aa1/AA+//) is set to price Tuesday $105 million of taxable residential housing finance social bonds, series 2024 M, serial 2025-2036, terms 2039, 2044, 2049, 2051. RBC Capital Markets.