With $10B on tap, bond volume set to break record
6 min read
Municipal bond yields fell Friday following U.S. Treasuries’ gains after improved jobs data affirmed the Federal Reserve’s expected December rate cut path, while equities were mixed ahead of the close.
“Financial markets are now pricing in a cut at this month’s [Federal Open Market Committee] meeting and two more next year. Our call is for a total of two cuts between now and the end of next year,” said Wells Fargo Investment Institute Senior Global Market Strategist Scott Wren.
Wren said his firm sees a fed funds rate in the 4%-4.25% range by year end 2025, so it was “not a surprise 2-year and 10-year yields edged lower on the news.”
The underlying growth in labor demand “remains solid despite the small uptick in the unemployment rate — payrolls have grown by 172,000 per month over the last three months, probably closer to 200,000 if we allow for the October distortions,” noted Brian Coulton, chief economist at Fitch Ratings. “At the same time wage growth looks to have bottomed out at 4% in year-on-year terms and has crept up to 4.4% on a three month on three month annualized basis.”
That won’t stop the Fed from cutting rates again later this month, he said, adding “it will give them pause for thought — 4.4% wage growth doesn’t really work with 2% price inflation.”
Triple-A yields fell one to two basis points while govies improved by one to five basis points Friday afternoon with the best performance on the short end.
Municipals are returning 0.31% in the first five sessions of December and 2.86% year-to-date as issuance grows and investor demand appears to be ready to meet the supply.
Total issuance as of Friday sits at $473.202 billion in 2024, per LSEG data, which is about
Investors will see more than $10 billion of issuance next week led by nearly $2.2 billion of sales tax revenue refunding bonds from the Dormitory Authority of the State of New York, $1.25 billion of clean energy project revenue green bonds from the California Community Choice Financing Authority and $570.865 million of sales tax receipts revenue refunding bonds from the Chicago Transit Authority.
Massachusetts will sell three competitive general obligation loans totaling $800 million Tuesday.
“With the approach of year-end, certain dynamics are playing out in more historical fashion — elevated bid list volume, a surge of issuance and credit spread contraction among some sectors,” said Kim Olsan, senior portfolio manager at NewSquare Capital.
“Issuers are capitalizing on the stock-it-now-for-the-January-trade theme that often takes hold at this time of the year,” she said.
The metrics related to demand are showing a supportive tone, Olsan said, pointing to
“There is a case for buyers to capture yield opportunity with high-quality intermediate bonds trading above 3.00%,” she said.
Secondary selling suggests “portfolios are being aligned to either take advantage of tax loss swaps or by those interested in accumulating inventory ahead of the new year,” she said, adding that Bloomberg bid list tallies have steadily increased since Thanksgiving week and dealer positions are holding around $15 billion, which is 15% above the year’s average level.
Valuations are rich, though, as municipal outperformance in November has ratios hovering in the low 60s on the short end and below 70% on the 10-year.
The two-year municipal to UST ratio Friday 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 62%, the 10-year at 65% and the 30-year at 81% at 3 p.m.
“Richer relative value across the curve has left all but the least liquid portions of the market appearing generally unattractive,” said Peter DeGroot, managing director at J.P. Morgan. “We expect better opportunities to purchase long discounts and bellwether high-yield around the release of non-consensus data or with unexpected policy developments. This is particularly true given our emphasis on prospective uncertainty, volatility, and a backdrop of elevated tax-exempt supply.”
Next year’s “January effect” will likely be muted due to heavier issuance and rich valuations reached by the end of the year, said Barclays’ strategist Mikhail Foux. “We recommend lightening up in late December.”
Foux said long-dated Treasury rates “might stay close to current levels, while the front end might finally disinvert.”
“In our view, the 3-5-year part of the muni yield curve should continue doing well despite its relative richness; we also like the 15-20-year portion,” he said. “With rates staying range-bound, we still see some upside for lower coupon bonds, and securities with 3-7 year calls.”
Primary to come:
The Dormitory Authority of the State of New York is set to price $2.193 billion of state sales tax revenue refunding bonds (Aa1//AAA) Tuesday, consisting of $2.09 billion of Series 24B-1, $100 million of Series 24B-2 and $2.495 million of Series 24C. Morgan Stanley & Co. LLC.
The California Community Choice Financing Authority is set to price Tuesday $1.25 billion of clean energy project revenue green bonds (New York Life Insurance Co.) (Aaa///), serial 2056. Goldman Sachs & Co. LLC.
The Chicago Transit Authority (/AA//AA) is set to price Tuesday $570.865 million of sales tax receipts revenue refunding bonds, Series 2024A, serials 2025-2049. Jefferies LLC.
The National Finance Authority is set to price Wednesday $435.357 million of municipal certificates, consisting of $153.611 million of Series 2024-4 Class A-US (/AA-//), $32.584 million of Series 2024-4 Class BUS Subordinate (/BBB//), serials 2042, $205.558 million of Series 2024ACA (/AA-//), serials 2039, and $43.603 million of Series 2024BCA subordinate social certificates (/BBB//), serials 2040. Jefferies LLC.
The Metropolitan Water Reclamation District of Greater Chicago (/AA+/AAA/) is set to price Tuesday $317.745 million of general obligation limited tax capital improvement bonds, consisting of $253.815 million of 2024 Series A green bonds, $18.14 million of Series B green refunding bonds, $45.79 million of Series C refunding bonds, as well as Series D and E bonds, the total of which will be subject to tender offer results. Barclays Capital Inc.
The MIDA Mountain Village Public Infrastructure District, Utah, (////) is set to price Wednesday $300 million of subordinate tax allocation revenue bonds. Piper Sandler & Co.
Douglas County School District RE-1, Colorado, (Aa1//AA+/) is set to price Wednesday $270 million of general obligation bonds, insured by Colorado State Intercept Program, serials 2029-2044. RBC Capital Markets.
The Michigan Finance Authority (Aaa//AAA/) is set to price Wednesday $249.805 million of state revolving fund programs revenue bonds, serials 2025-2048. BofA Securities.
The Capital Trust Authority, Florida, is set to price $200.245 million of nonrated Alpha Lifestyle Partners, Inc. Project senior living facilities bonds. Stifel, Nicolaus & Company, Inc.
The Public Finance Authority is set to price $172.595 million of nonrated Inperium Project revenue refunding bonds, terms 2034, 2044, 2049. KeyBanc Capital Markets.
Mansfield, Texas, (Aa1/AAA/AA+/) is set to price $158.035 million of combination tax and revenue certificates of obligation, Series 2025, and general obligation refunding and improvement bonds, Series 2025. Raymond James & Associates, Inc.
The Iowa Finance Authority is set to price Thursday $148.56 million of Lifespace Communities, Inc. revenue bonds (//BBB/). HJ Sims & Co.
Aurora, Colorado, (/AA+/AA+/) is set to price Tuesday $137.44 million of first-lien water revenue bonds, serial 2025-2044, terms 2049, 2054. RBC Capital Markets.
The Philadelphia Redevelopment Authority (A1/A+/A+/) is set to price Tuesday $127.84 million of City Service Agreement taxable revenue bonds, City of Philadelphia Neighborhood Preservation Initiative. Morgan Stanley & Co. LLC.
The New York State Housing Finance Agency (Aa1///) is set to price Thursday $124.275 million of state personal income tax revenue bonds, economic development and housing sustainability bonds, Siebert Williams Shank & Co., LLC.
The San Luis Coastal Unified School District, California, (Aa1///) is set to price Wednesday $115 million of GO Bonds Election of 2022, Series B refunding. Raymond James & Associates, Inc.
The Westminster Public Schools, Adams County, Colorado, (Aa2///) is set to price Tuesday $111 million of tax-exempt and taxable general obligation bonds, insured by the Colorado State Intercept Program. RBC Capital Markets.
Adams County, Colorado, (Aa2/AA//) is set to price Tuesday $103.885 million of certificates of participation, serials 2025-2044, terms 2049, 2054. Stifel, Nicolaus & Company, Inc.
The Illinois Housing Development Authority (Aaa///) is set to price $101.065 million of tax-exempt non-AMT and taxable multifamily revenue bonds. J.P. Morgan Securities LLC.
The Sheboygan Area School District, Wisconsin, (Aa2///) is set to price Tuesday $93 million of general obligation promissory notes, serials 2025-2044. Baird.
Competitive:
Massachusetts (Aa1/AA+/AA+/) is set to sell $800 million of general obligation bonds in three sales consisting of $210 million of GOs at 10 a.m., $315 million of GOs at 10:30 a.m. and $275 million of GOs at 11 a.m. eastern.
Suffolk County, New York, is set to sell $350 million of tax anticipation notes at 11 a.m. eastern.
