Smaller calendar awaits as issuers reassess volatile market

Municipals were little changed Friday and U.S. Treasuries were better while equities closed the week in the black, regaining much of the losses that hit Monday. Municipal issuance is expected to fall to about $7.4 billion next week as issuers take pause amid the market volatility.

The 10-year AAA fell 30 basis points for the first three trading sessions in August, “and then gave back a little more than a third of that decline in a consolidation,” noted BofA Global Research strategists in a weekly report. 

“By and large, the three-day event post Fed meeting in both equities and bond markets exhibit characteristics of a financial rogue wave — the term used for an unusual move at a scale three times or higher than a normal significant move,” BofA strategists Yingchen Li and Ian Rogow wrote.

“Empirical data shows that the extreme level reached during a financial rogue wave is almost always retested and exceeded weeks later,” they said. “Indeed, we only observed one exception in the past five decades, i.e., the event on March 23, 2020, when an unprecedented Fed QE prevented the retesting of the extreme levels reached during that collapse.”

Li and Rogow said the current market is the “rigorous phase of the rally we have been anticipating, although it is a surprise the phase started with the help of a rogue wave event. We should begin to assess where the market yields will be if the macro market retests and exceeds their Monday extremes some weeks later, as history suggests.”

“In all likelihood, muni yields will be much lower than Monday’s closing levels,” they said.

Barclays PLC said the “combination of higher Treasury yields, rich tax-exempt valuations and extremely heavy supply have put some pressure on our market.”

The Barclays strategists noted that secondary activity has become “extremely slow, while selling pressure has started to increase, although it is still much more measured compared with the peak of selling activity reached last October. High yield had one of the heaviest supply weeks in recent history (more than $6 billion), but it remained relatively solid, proving its underlying strength.”

Muni returns so far in August are in the black, with the Bloomberg Municipal Index at 0.53% this month and 1.04% year to date. High-yield continues to outperform with returns at 0.68% in August and 5.99% in 2024.

The Bond Buyer 30-day visible supply sits at $12.83 billion.

Taxable muni spreads have been relatively stable over the past several months, “but last week’s growth scare has finally put some pressure on this market,” Barclays strategists Mikhail Foux and Clare Pickering wrote. “In less than two weeks, taxable muni spreads have widened about 8-10 basis points, getting close to their highs reached in early January.”

Taxable munis are returning 0.19% in August and 2.71% year to date.

“Although the market tone in high grade has clearly changed, muni ratios have cheapened only slightly this week, meaning that we might see more downside ahead,” they wrote.

The two-year muni-to-Treasury ratio ended the week at 65%, the three-year at 68%, the five-year at 68%, the 10-year at 69% and the 30-year at 85%, according to Refinitiv Municipal Market Data’s 3 p.m. EST read. ICE Data Services had the two-year at 66%, the three-year at 67%, the five-year at 67%, the 10-year at 68% and the 30-year at 84% at 3:30 p.m.

“On a positive note, fund inflows have remained relatively robust, while next week’s supply should be manageable, and the 30-day visible pipeline number has declined substantially from its recent highs,” Foux and Pickering said. “However, issuance will likely remain heavy in the second half of August and September, and tax-exempts might remain under pressure, in our view, as heavy redemptions will not be there to support the market in September.”

Total expected volume for the week of Aug. 12 sits at about $7.4 billion, led by the California Community Choice Financing Authority (A1///) with $1 billion of Athene Annuity-funded Clean Energy Project revenue bonds. The Triborough Bridge and Tunnel Authority (/A+/AA+/AA+) is set to price Thursday $700 million of MTA Bridges and Tunnels revenue bonds and the Board of Regents of the University of Houston (Aa2/AA//) is set to price Tuesday $266.81 million of consolidated revenue and refunding bonds.

Miami-Dade County School District, Florida, leads the competitive slate with $400 million of tax anticipation notes, Series 2024, at 11 a.m. eastern Tuesday.

AAA scales
Refinitiv MMD’s scale was little changed: The one-year was at 2.68% (unch) and 2.64% (-2) in two years. The five-year was at 2.59% (unch), the 10-year at 2.70% (unch) and the 30-year at 3.58% (unch) at 3 p.m.

The ICE AAA yield curve was little changed: 2.72% (unch) in 2025 and 2.69% (unch) in 2026. The five-year was at 2.58% (unch), the 10-year was at 2.71% (unch) and the 30-year was at 3.57% (unch) at 3:30 p.m.

The S&P Global Market Intelligence municipal curve was little changed: The one-year was at 2.70% (unch) in 2025 and 2.68% (unch) in 2026. The five-year was at 2.57% (unch), the 10-year was at 2.70% (unch) and the 30-year yield was at 3.57% (unch) at 3 p.m.

Bloomberg BVAL was bumped up to a basis point: 2.69% (-1) in 2025 and 2.66% (-1) in 2026. The five-year at 2.60% (-1), the 10-year at 2.66% (unch) and the 30-year at 3.58% (unch) at 3:30 p.m.

Treasuries were mixed.

The two-year UST was yielding 4.049% (unch), the three-year was at 3.871% (-1), the five-year at 3.793% (-4), the 10-year at 3.946% (-6), the 20-year at 4.312% (-7) and the 30-year at 4.228% (-6) at the close.

Primary calendar
The California Community Choice Financing Authority (A1///) is set to price $1 billion of Athene Annuity-funded Clean Energy Project Revenue Bonds, Series 2024. Goldman Sachs. 

The Triborough Bridge and Tunnel Authority (/A+/AA+/AA+) is set to price Thursday $700 million of MTA Bridges and Tunnels Revenue Bonds, consisting of $300 million general revenue bonds, Subseries 2024 A-1, and $445 million general revenue refunding bonds, Subseries 2024 A-2. Ramirez & Co.

The Board of Regents of the University of Houston (Aa2/AA//) is set to price Tuesday $266.81 million of consolidated revenue and refunding bonds, consisting of $215.7 million taxables, Series 2024B, and $51.11 million, Series 2024A. J.P. Morgan.

Jacksonville, Florida (/AA/AA+/AA) is set to price Tuesday $246.19 million of special revenue and refunding bonds, Series 2024, serial 2025-2054. RBC Capital Markets.

The New Jersey Health Care Facilities Financing Authority (A2//AA-/) is set to price Thursday $234.515 million of Inspira Health Obligated Group Issues revenue and refunding bonds, Series 2024A. J.P. Morgan.

The Reno-Tahoe Airport Authority (A3/A//A+) is set to price Thursday $234.510 million of airport revenue bonds, consisting of $156.915 million AMT-bonds, Series 2024A, serial 2025-2044, terms 2049, 2054, and $77.595 million non-AMT bonds, Series 2024B, serial 2027-2044, terms 2049, 2054. BofA Securities.

The County of Allegheny (Aa3/AA-//) is set to price Wednesday $218.485 million of GO refunding bonds, consisting of $152.635 million, Series C-80, serial 2026-2054, and $65.85 million, Series C-81, serial 2024-2034. PNC Capital Markets.

The El Paso County Hospital District (//A-/AA-) is set to price Tuesday $187.42 million of GO refunding bonds, Series 2024. J.P. Morgan Securities.

The VIA Metropolitan Transit Advanced Transportation District, Texas, (/AAA//) is set to price Tuesday $144.52 million of sales tax revenue bonds, Series 2024, serial 2028-2044, terms 2049, 2054. RBC Capital Markets.

The Providence Public Buildings Authority (A1/AA//) is set to price Tuesday $135 million of Assured Guaranty-Insured capital improvement program projects revenue bonds, serial 2025-2044. Raymond James.

Ohio (Aa1/AA+//) is set to price Tuesday $121.695 million of major new state infrastructure project revenue bonds, Series 2024-1, serial 2025-2036. Wells Fargo.

The Maine State Housing Authority (Aa1/AA+//) is set to price Tuesday $120 million of mortgage purchase social bonds, 2024 Series E, serial 2054. BofA Securities.

The South Carolina Greenville-Spartanburg Airport District (A3/A+//) is set to price Tuesday $105.275 million of airport revenue bonds, consisting of $39.12 million of non-AMT bonds, Series 2024A, term 2054, and $66.155 million of taxables, Series 2024B, serial 2025-2039, term 2048. BofA Securities. 

The Joshua Independent School District, Texas, (/AAA//) is set to price Tuesday $101.06 million of PSF-insured unlimited tax school building bonds, serial 2025-2044, term 2049. BOK Financial Securities.

The Maryland Department of Housing and Community Development (Aa1//AA+) is set to price Monday $100 million of taxable residential revenue social bonds, 2024 Series D. Morgan Stanley & Co.

The Delaware Valley Regional Finance Authority (A1/A+//) is set to price Tuesday $100 million of local government revenue bonds, 2024 Series A. RBC Capital Markets. 

Competitive
Miami-Dade County School District, Florida, is set to price $400 million of tax anticipation notes, Series 2024, at 11 a.m. eastern Tuesday.

Miami-Dade County, Florida, is set to sell $185.655 million of Building Better Communities Program GO bonds, Series 2021A, 9:30 a.m. eastern Tuesday.

The North Dakota Public Financing Authority (Aaa/AAA/) is set to sell $205.540 million of State Revolving Fund Program Bonds, Series 2024A, 11:15 a.m. eastern Tuesday.

The Las Vegas Valley Water Department is set to sell $295.215 million of GO water refunding bonds, Series 2024A, 11:15 a.m. eastern Wednesday.

Layla Kennington contributed to this report.