Softer inflation data pushes yields lower; primary kicks into gear

Municipal yields fell Tuesday as the primary kicked into gear, while munis underperformed an improved U.S. Treasury market as equities rallied after inflation data came in softer than expected.

Triple-A municipal curves saw bumps of two to four basis points with the better performance on the short end while Treasuries improved by four to eight basis points, also with the largest moves on the short end.

Muni to UST ratios were mostly steady Tuesday, with the two-year muni-to-Treasury ratio at 66%, the three-year at 69%, the five-year at 69%, the 10-year at 70% 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 68%, the 10-year at 69% and the 30-year at 84% at 4 p.m.

“There’s an important ‘date certain’ the market may overreact to, but by and large, [this] week is looking positive given a lighter new-issue calendar,” said AllianceBernstein strategists.

Issuance for the week only totals an estimated $7.4 billion, nearly half of last week’s whopping $15 billion new-issue calendar.

Along with lighter supply, the August 15 reinvestment will hit the market Thursday, expected to total about $21 billion.

“Not as big of a number as on August 1, but still cash coming into the market during a light calendar week,” AllianceBernstein strategists said.

The technical backdrop appears “supportive,” they said, adding that “inflation is not the driver of the Fed’s decision to cut or not; rather, employment data is,” they said.

Thirty-three weeks into 2024, and munis are “processing large amounts of primary supply,” said Matt Fabian, a partner at Municipal Market Analytics, Inc.

Issuance is just shy of $300 billion so far this year, setting up total volume for 2024 to exceed $450 billion, he said.

Last year, issuance topped $300 billion after 43 weeks, Fabian said.

“That this could be achieved with negative net demand from banks and insurance companies and inconsistent mutual fund flows highlights the evolving nature of municipal demand,” he said.

There were “sizable upticks” in exchange-traded fund redemptions last week, “either once prices turned soft or bonds could be bought directly,” Fabian said.

Despite last week’s whipsawing equities and USTs, the total transaction count for separately managed account buying approached 290,000, he said.

“The test of SMA demand durability will come once the Fed cuts its target rate and taxable and tax-exempt rates begin to fall as more cash enters via mutual funds and/or withdrawals from 2a7 funds,” Fabian said.

Another challenge for munis is that the asset class has “recently benefitted from seasonal reinvestment demand that, from now on in 2024, will be a less constructive vector,” he said.

Underwriters will face more pressure to bring primary loans with “attractive prices and spreads,” Fabian said.

In the negotiated market Tuesday, J.P. Morgan Securities LLC priced for the Board of Regents of the University of Houston (Aa2/AA//) $266.81 million of consolidated revenue and refunding bonds, consisting of $215.7 million of taxables, Series 2024B, with all bonds priced at par: 4.498% in 2025, 4.239% in 2029, 4.562% in 2034, 4.962% in 2039, 5.155% in 2044 and 5.272% in 2055, callable 2/15/2034; and $51.11 million, Series 2024A, with 5s of 2/2025 at 2.87%, 5s of 2029 at 2.84%, 5s of 2034 at 3.12%, 5s of 2039 at 3.39%, 4s of 2044 at 4.15%, 4s of 2049 at 4.27%, and 4.125s of 2055 at 4.33%, callable 2/15/2034.

J.P. Morgan Securities LLC priced for the El Paso County Hospital District (//A-/AA-/) $187.61 million of GO refunding bonds, Series 2024, with 5s of 8/2025 at 3.08%, 5s of 2029 at 3.12%, 5s of 2034 3.40%.

Wells Fargo priced for Ohio (Aa1/AA+//) $121.695 million of major new state infrastructure project revenue bonds, Series 2024-1, with 5s of 12/2025 at 2.74%, 5s of 2029 at 2.70%, 5s of 2034 at 2.95%, and 5s of 2036 at 3.05%, callable 12/15/2034.

BofA Securities priced for the South Carolina Greenville-Spartanburg Airport District (A3/A+//) $103.23 million of airport revenue bonds, consisting of $37.225 million of non-AMT bonds, Series 2024A, with bonds in 7/2054 with a 5.25% coupon yield 4.17%, callable 7/1/2034; and $66.005 million of taxables, Series 2024B, with all bonds priced at par: 4.748% in 7/2025, 4.637% in 2029, 5.056% in 2034, 5.306% in 2039 and 5.585% in 2048, callable 7/1/2034.

In the competitive market, the Miami-Dade County School District, Florida, sold $400 million of tax anticipation notes, Series 2024, to J.P. Morgan Securities LLC.

The North Dakota Public Financing Authority (Aaa/AAA/) sold $200.92 million of State Revolving Fund Program Bonds, Series 2024A, to Jefferies, LLC. Bonds in 2025 with a 5% coupon yield 2.70%, 5s of 2029 at 2.65%, 5s of 2034 at 2.80%, 5s of 2039 at 3.10% and 5s of 2044 at 3.45%.

Miami-Dade County, Florida, sold $180.83 million of Building Better Communities Program GO bonds, Series 2021A, to Morgan Stanley & Co. LLC, with 5s of 2025 at 2.83%, 5s of 2029 at 2.78%, 5s of 2034 at 3%, 5s of 2039 at 3.29%, 5s of 2044 at 3.67% and 5s of 2051 at 3.93%.

AAA scales
Refinitiv MMD’s scale was bumped three basis points on the short end: The one-year was at 2.65% (-3) and 2.61% (-3) in two years. The five-year was at 2.56% (-3), 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 better: 2.67% (-3) in 2025 and 2.63% (-4) in 2026. The five-year was at 2.56% (-3), the 10-year was at 2.68% (-2) and the 30-year was at 3.54% (-2) at 4 p.m.

The S&P Global Market Intelligence municipal curve was better: The one-year was at 2.68% (-2) in 2025 and 2.66% (-2) in 2026. The five-year was at 2.56% (-2), the 10-year was at 2.70% (unch) and the 30-year yield was at 3.56% (unch) at 3 p.m.

Bloomberg BVAL was bumped one to two basis points: 2.66% (-2) in 2025 and 2.64% (-2) in 2026. The five-year at 2.58% (-2), the 10-year at 2.64% (-1) and the 30-year at 3.57% (-1) at 4 p.m.

Treasuries improved.

The two-year UST was yielding 3.94% (-8), the three-year was at 3.757% (-7), the five-year at 3.682% (-7), the 10-year at 3.852% (-6), the 20-year at 4.243% (-5) and the 30-year at 4.161% (-4) 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 Maryland Economic Development Corporation (A3///) is set to preliminarily price this week $663.465 million of Prince George’s County Public Schools Alternative Construction Financing, Package 2 Project taxable sustainability revenue bonds. Wells Fargo,

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.

Allegheny County (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.

Competitive
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.