Munis improve ahead of rebound in issuance
6 min read
Municipals were firmer Wednesday following U.S. Treasury yields lower as economic indicators sent investors the signal the Federal Reserve will likely continue on its rate-cutting path.
“While this month’s core PCE inflation, data was certainly a little higher than the Fed would like it to be, it was very much in line with their and the market’s expectations given the CPI and PPI data we got earlier this month,” said Greg Wilensky, head of U.S. Fixed Income at Janus Henderson Investors. “Given the broad consensus-like reading across the slew of economic data releases today, we do not see any meaningful impact on the Fed’s upcoming rate decision in December.”
Wilensky said his firm still believes a 25-basis-point reduction to the policy rate is “extremely likely.”
“We feel the odds of a cut are still higher than the 70% currently implied in the futures market,” he said. “In our view, it will take a combination of a very strong [non-farm payrolls] print and a higher-than-expected core CPI release to cause a pause at the December meeting.”
Triple-A yields fell as much as to five basis points while USTs saw gains of up to seven basis points.
“The path for policy rates over the next year is certainly more difficult to forecast as the economy and markets will be impacted by governmental policy decisions in the U.S. and around the world; however, with a little less than 75 basis points of cumulative cuts to the fed funds rate priced in over the next year, we think the odds favor more cuts and this keeps us constructive on the short to intermediate part of the U.S. Treasury curve,” Wilensky said.
Municipals have mostly outperformed USTs in November and ratios have held mostly steady.
The two-year municipal to UST ratio Wednesday was at 61%, the five-year at 63%, the 10-year at 66% 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 62%, the five-year at 63%, the 10-year at 67% and the 30-year at 82% at 3 p.m.
The Investment Company Institute reported $1.221 billion of inflows into municipal bond mutual funds for the week ending Nov. 20, following $360 million of inflows the previous week. Exchange-traded funds saw inflows of $836 million after $351 million of inflows the week prior.
Money market funds saw inflows of $298.6 million for the latest reporting week, moving assets under management to $136.405 billion, according to the Money Fund Report, a weekly publication of EPFR.
The average seven-day simple yield for all tax-free and municipal money-market funds fell to 2.73% from 2.95%.
December is historically a “technically positive” environment for munis, with usually very little supply and much demand, said Miguel Laranjeiro, investment director at abrdn.
Over the last decade, munis — especially investment-grades — have seen positive returns, he said.
Heading into 2025, he expects a rally, particularly in January, noting technicals are “hugely positive” during the first month of the year.
From a technical standpoint, January sees a lot of maturities and a lot of interest payments that are “looking for a new home,” according to Laranjeiro.
And from a demand perspective, that creates a technically positive environment for investors, driving up prices in the secondary market and then also the primary market, he said.
Issuance came in lower in November than last year’s totals for the month but
Bond Buyer 30-day supply sits at $16.24 billion. Next week’s calendar grows to just about $8 billion, led by a $1.5 billion deal from the New Jersey Transportation Trust Fund Authority.
Supply may slow in December, potentially even into January 2025, but market strategists are predicting 2025 to be another heavy year, with most on the street calling for an initial forecast of around $500 billion.
“There’s a ton of infrastructure that needs to be done, and that’s generally done locally through the municipal market,” Laranjeiro said. “That together with these high interest rates, make a good environment for investors looking to deploy capital and [take advantage] of these elevated tax-exempt yields.”
AAA scales
Refinitiv MMD’s scale was bumped up to 5 basis points: The one-year was at 2.73% (unch) and 2.59% (unch) in two years. The five-year was at 2.61% (-3), the 10-year at 2.78% (-5) and the 30-year at 3.62% (-5) at 3 p.m.
The ICE AAA yield curve was bumped up to four basis points: 2.82% (unch) in 2025 and 2.64% (-1) in 2026. The five-year was at 2.62% (-1), the 10-year was at 2.82% (-4) and the 30-year was at 3.62% (-3) at 3 p.m.
Treasuries made gains.
The two-year UST was yielding 4.207% (-5), the three-year was at 4.149% (-6), the five-year at 4.106% (-7), the 10-year at 4.232% (-7), the 20-year at 4.503% (-7) and the 30-year at 4.419% (-6).
Primary to come:
The New Jersey Transportation Trust Fund Authority (A2/A-/A/A) is set to price Thursday $1.5 billion of transportation program bonds, 2024 Series CC, serials 2030-2044, terms 2049, 2055. Barclays Capital Inc.
The Greater Orlando Aviation Authority is set to price Thursday $804.515 million of senior and subordinate revenue bonds, consisting of $152.53 million of senior (Aa2/AA/AA/AA+) and $651.985 million of subordinate (Aa3/AA-/AA-/AA). J.P. Morgan Securities LLC.
Connecticut (Aa3/AA/AA-/AAA) is set to price Wednesday $768.78 million of special tax obligation bonds transportation infrastructure purposes, Series 2024 A-2. Goldman Sachs & Co. LLC.
Hawaii (Aa2/AA+/AA/) is set to price Wednesday $750 million of taxable general obligation bonds, Series GN, serials 2025-2043. BofA Securities.
The Sales Tax Securitization Corp., Illinois, is set to price Wednesday $546.31 million of sales tax securitization refunding bonds, consisting of $142.09 million of senior lien refunding bonds, Series 1, (/AA-/AAA/AAA), serials 2029, 2031-2044; $ 404.22 million of second-lien Series 2, (/AA-/AA-/AA+), serials 2029-2030, 2032-2041. RBC Capital Markets.
The Industrial Development Authority of Mobile County, Alabama, (Baa3/BBB-//) is set to price $480 million of AM/NS Calvert LLC Project solid waste disposal revenue bonds, Series 2024B. BofA Securities.
Austin, Texas, (/AAA/AA+/) is set to price Wednesday $434.965 million in three series, consisting of $301.525 million of public improvement and refunding bonds, Series 1, $103.67 million of Series 2024 certificates of participation, and $29.77 million of Series 3 public property finance contractual obligations. Piper Sandler & Co.
The Parish of St. John the Baptist, Louisiana, (A2/A-/A/) is set to price Thursday $400 million of Marathon Oil Corporation Project revenue refunding bonds, Series 2017, remarketing, serials 2037. Barclays Capital Inc.
The New York City Housing Development Corp. (Aa2/AA+//) is set to price Thursday $397.725 million of multi-family housing revenue bonds, consisting of $269.53 million of 2024 Series F-1 sustainable development bonds and $128.195 million of Series F2 sustainable development bonds. Jefferies LLC.
St. Vrain Valley School District, Colorado, (Aa1/AA+//) is set to price Wednesday $346.55 million of general obligation bonds, insured by Colorado State Intercept Program, serials 2025-2032, 2034-2039. Stifel, Nicolaus & Company, Inc.
The New York City Housing Development Corp. is set to price Tuesday $346.1 million of 8 Spruce Street taxable multi-family mortgage revenue bonds consisting of $276.8 million of Series A taxables (Aaa///), serials 2031, $49.6 million of Series B taxables (Aa3///), and $19.7 million of Series C taxables (A2///), serials 2031. BofA Securities.
The Cherry Creek School District No. 5, Colorado, (Aa1/AA+//) is set to price Tuesday $316.67 million of general obligation bonds Series 2024, insured by Colorado State Intercept Program, serials 2025-2026, 2032-2044. RBC Capital Markets.
The New Jersey Housing and Mortgage Finance Agency (/AA-//) is set to price Tuesday (retail Monday) $272.875 million of non-AMT social multi-family revenue bonds. Barclays Capital Inc.
The Cumberland County Industrial Development Facilities and Pollution Control Financing Authority (Aaa///) is set to price Thursday $250 million of Project Aero solid waste disposal revenue bonds, serials 2027. Oppenheimer & Co.
The Wisconsin Health and Educational Facilities Authority (nonrated) is set to price Wednesday $239.655 million of Chiara Housing and Services, Inc. Project senior living revenue bonds, terms 2035, 2045, 2055, 2060. D.A. Davidson & Co.
The Colorado Bridge and Tunnel Enterprise (Aa1/AA+//) is set to price Thursday $238.975 million of senior revenue refunding bonds, Series 2024B, serials 2028-2049. Wells Fargo Bank, N.A. Municipal Finance Group.
The New York City Housing Development Corp. is set to price Tuesday $203.9 million of 8 Spruce Street tax-exempt multi-family mortgage revenue bonds, consisting of $25.5 million of Series D (Baa1///), serials 2031, $52.5 million of Series E (Baa3///), serials 2031, and $125.9 million of Series F (nonrated), serials 2031. BofA Securities.
The Illinois Housing Development Authority (Aaa///) is set to price Tuesday $200 million of non-AMT social revenue bonds, serials 2029, terms 2044, 2050, 2055. Wells Fargo Bank, N.A. Municipal Finance Group.
The Westfield Washington Multi-School Building Corp., Indiana, (/AA+//) is set to price Tuesday $188.61 million of ad valorem property tax first mortgage bonds, insured by Indiana State Aid Intercept Program, serials 2027-2044. Stifel, Nicolaus & Company, Inc.
Competitive:
Anchorage (/A//) is set to sell $181.86 million of AMT port revenue bonds, Series 2024A, at 11 a.m. eastern Tuesday.
Jessica Lerner contributed to this report.
