New-issues price into firmer market ahead of rates decision
5 min read
Municipals were steady to slightly firmer in spots with several large new-issues pricing in the primary as U.S. Treasury yields fell and equities were mixed as market participants await the FOMC rate decision Wednesday.
“It’s all but a sure thing that the
Fed rate cuts “should lead to positive price action for both taxable and tax-exempt bonds, and current nominal yields remain well above where they were when the Fed was more dovish, implying generous room to rally from here,” said Matt Fabian, a partner at Municipal Market Analytics, Inc.
Muni returns continue to lag USTs and corporates, Howard said.
The asset class is returning 2.04% year-to-date, compared to UST and corporate returns of 2.98% and 5.87%, respectively.
“The bright spot of the underperformance is that relative valuations have improved,” Howard said.
The two-year muni-to-Treasury ratio Tuesday was at 65%, the three-year at 67%, the five-year at 67%, the 10-year at 72% and the 30-year at 89%, 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 67%, the five-year at 67%, the 10-year at 72% and the 30-year at 88% at 3 p.m.
Muni-UST ratios hover around 70% inside of 10 years, which is attractive compared to recent history, he said.
“We would not be surprised if relative yields move lower resulting in muni performance improving compared to comparable alternatives,” Howard said.
Despite this, MMA said a bit of caution is warranted, according to Fabian.
For one, tax-exempt munis have underperformed USTs and taxable munis in 2024, the latter of which is “fairly dramatically,” he said.
And despite 2a7 assets growing by $40 billion, “some/most of those dollars may be reluctant to quickly flow out of money funds, especially if their allocation in such is required for fast-growing model-based, passive or electronically traded strategies,” he said.
Additionally, with income-oriented SMA largely driving demand, it is unclear how “aggressively or rapidly those buyers will chase tax-exempt yields lower, even in a strong bull market,” he said, noting the market will wait and see until the Fed starts cutting rates.
In the primary market Tuesday, J.P. Morgan priced for the JEA
The second tranche, $122.6 million of subordinated 2024 Series A bonds (A2/A/AA/), saw 5s of 10/2027 at 2.58%, 5s of 2029 at 2.58%, 5s of 2034 at 3.02% and 5s of 2039 at 3.34%, callable 4/1/2035.
BofA Securities priced for the Public Power Generation Agency (A2//A/) $151.12 million of Whelan Energy Center Unit 2 revenue refunding bonds, Series A, with 5s of 1/2026 at 2.60%, 5s of 2029 at 2.60%, 5s of 2034 at 2.98% and 5s of 2037 at 3.20%, callable 1/1/2035.
BofA Securities priced for the New York City Housing Development Corp. (Aa2///) $143.39 million of taxable sustainable development housing impact bonds, Series D, with all bonds priced at par: 4.169s of 2/2030, 4.677s of 2/2034, 4.727s of 8/2034, 4.947s of 8/2039, 5.318s of 8/2044, 5.389s of 8/2049 and 5.448s of 8/2054, callable 8/1/2033.
BofA Securities priced for the Colorado Housing Finance Authority (Aaa/AAA//) $116.035 million of single-family mortgage Class I taxable social bonds, 2024 Series F-1, with 4.142s of 11/2025 at par, 4.008s of 5/2029 at par, 6s of 11/2029 at 4.038%, 4.692s of 5/2034 at par, 4.742s of 11/2034 at par, 4.892s of 11/2039 at par, 5.32s of 11/2043 at par and 6s of 11/2050 at 4.838%, callable 5/1/2033.
In the competitive, Illinois (A3/A-/A-/) sold $300 million of tax-exempt GOs, Series of October 2024C, to BofA Securities, with 4s of 10/2037 at 3.65%, 4s of 2039 at 3.75%, 4s of 2044 at 4.13% and 4s of 2048 at 4.20%, callable 10/1/2033.
The state also sold $150 million of tax-exempt GOs, Series of October 2024B, to BofA Securities, with 5s of 10/2025 at 2.90%, 5.25s of 2029 at 2.79%, 5s of 2034 at 3.21% and 5s of 2036 at 3.33%, callable 10/1/2033.
Additionally, Illinois sold $150 million taxable GOs, Series October 2024A, to J.P. Morgan, with all bonds priced at par: 4.45s of 10/2025, 4.14s of 2029 and 4.64s of 10/2034, noncall.
AAA scales
Refinitiv MMD’s scale was bumped up to two basis points: The one-year was at 2.50% (unch) and 2.30% (-2) in two years. The five-year was at 2.31% (unch), the 10-year at 2.63% (unch) and the 30-year at 3.50% (-2) at 3 p.m.
The ICE AAA yield curve was bumped one to three basis points: 2.51% (-1) in 2025 and 2.32% (-3) in 2026. The five-year was at 2.31% (-1), the 10-year was at 2.57% (-1) and the 30-year was at 3.47% (-1) at 3 p.m.
The S&P Global Market Intelligence municipal curve was little changed: The one-year was at 2.47% (+2) in 2025 and 2.32% (-2) in 2026. The five-year was at 2.33% (unch), the 10-year was at 2.58% (unch) and the 30-year yield was at 3.48% (-2) at 3 p.m.
Bloomberg BVAL was bumped up to two basis points: 2.44% (unch) in 2025 and 2.38% (unch) in 2026. The five-year at 2.36% (-1), the 10-year at 2.60% (-1) and the 30-year at 3.48% (-2) at 3 p.m.
Treasuries were better.
The two-year UST was yielding 3.589% (+3), the three-year was at 3.448% (+3), the five-year at 3.428% (+2), the 10-year at 3.639% (+2), the 20-year at 4.020% (+2) and the 30-year at 3.951% (+2) at 3:15 p.m.
Primary to come:
The Allegheny County Sanitary Authority (Aa3/AA-//) is set to price this week $360.46 million of sewer revenue refunding bond, serials 2024-2044, terms 2049, 2055. PNC Capital Markets.
The Washington State Housing Finance Commission (A3///) is set to price Thursday $314.403 million of municipal social certificates, Series 2024-1 Class A. Jefferies.
The Industrial Development Authority of the City of Yuma, Arizona, (/A/A/) is set to price Thursday $299 million of Yuma Regional Medical Center hospital revenue bonds, serials 2025-2044, term 2049, 2054. BofA Securities.
The Baseline Metropolitan District No. 1, Colorado, is set to price Thursday $155.075 million of special revenue refunding and improvement bonds and subordinate special revenue bonds, consisting of $132.575 million of special revenue refunding bonds (/AA//) insured by Assured Guaranty Inc., serials 2024-2039, terms 2044, 2049, 2054; and $22.5 million of unrated subordinated special revenue bonds, terms 2054. Wells Fargo.
Competitive:
The Empire State Development Corp. is set to sell $341.525 million of state sales tax revenue bonds at 10:45 a.m. eastern Thursday.
Clover School District #2, South Carolina, (MIG1///) is set to sell $112.5 million of GO bond anticipation notes at 11 a.m. eastern Thursday.
