Investors focus on large primary as weaker tone hangs over

Municipals were slightly weaker Tuesday as investors digested a large amount of new-issuance against the backdrop of a weaker U.S. Treasury market while equities were mixed.

Muni yields were cut up to two basis points, depending on the scale, while UST yields rose by one to two basis points across the curve.

The two-year municipal to UST ratio Tuesday was at 61%, the five-year at 62%, the 10-year at 65% and the 30-year at 81%, according to 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 3:30 p.m.

Munis have been “surprisingly resilient” as yearend approaches, said Anders S. Persson, Nuveen’s chief investment officer for global fixed income, and Daniel J. Close, Nuveen’s head of municipals, noting munis are up 2.87% year-to-date.

They expect solid performance to continue through the end of 2024 and into January, as outsized reinvestment money will hit Jan. 1.

“This performance has been earned despite a record nearly $500 billion of new-issue supply this year,” they noted.

The technical backdrop was “expected to be a powerful force heading into November and December,” with the net supply of negative $23 billion providing a “significant tailwind” to returns, said Daryl Clements, a municipal portfolio manager at AllianceBernstein.

“Investors haven’t been disappointed,” he said.

Munis saw gains of 1.73% in November, which more than wiped out” October’s 1.52% losses, Clements said.

Yields “backed up significantly in October with the run-up to the presidential election,” as 10-year AAA muni yields rose 41 basis points, he said.

“This backup in yields set the stage for a strong performance as the Fed was likely to continue cutting rates and the technical picture was favorable,” he said.

Ten-year AAA muni yields have fallen 28 basis points since Oct. 31.

The strong technical tailwinds, along with “insatiable demand” for munis have set up the asset class to end this year and start next year with strong returns, Clements said.

Munis have seen strong demand this year, with $42 billion of inflows into mutual funds and exchange-traded funds, he said.

Clements pointed out that high-yield funds have accounted for 38% of total mutual fund and ETF flows.

This demand indicates the “risk-on mentality of today’s municipal bond investor,” he said. HY munis are up 8.4% year-to-date.

“With the Fed poised to cut rates by 25 bps at its December meeting and the technical tailwind likely to persist through February, munis should continue to perform well,” Clements said.

The market has priced in an 80% chance of a 25-basis-point rate cut at the Fed’s Dec. 18 meeting, he noted.

The market is pricing in 67 basis point rate cuts from now through the June 18, 2025, meeting, Clements said.

“With strong demand, rate cuts and favorable technicals, the muni market — outside of an unexpected shock — is set up to perform well over the next couple of months.”

In the primary market Tuesday, Morgan Stanley priced for institutions $2.155 billion of state sales tax revenue refunding bonds for the Dormitory Authority of the State of New York (Aa1///AAA), with small bumps throughout most of the curve from Monday’s retail pricing.

The first tranche, $2.152 billion of tax-exempts, Series 2024B, saw 5s of 3/2026 at 2.65% (-4), 5s of 2029 at 2.64% (-3), 5s of 2034 at 2.91% (-3), 5s of 2039 at 3.18% (-3), 5s of 2044 at 3.52% (-7), 5s of 2049 at 3.80% (-2), 5s of 2054 at 3.87% and 4s of 2054 at 4.15% (+3), callable 3/15/2035.

The second tranche, $3.895 million of taxables, Series 2024C, saw 4.25s of 3/2026 price at par, make whole call.

Jefferies priced for the Chicago Transit Authority (/AA//AA/) $656.395 million of sales tax receipts revenue refunding bonds, Series 2024A, with5s of 12/2025 at 2.84%, 5s of 2029 at 2.81%, 5s of 2034 at 3.14%, 5s of 2039 at 3.46%, 5s of 2044 at 3.82% and 5s of 2049 at 4.08%, callable 12/1/2034.

BofA Securities priced for King County $400.1 million refunding bonds. The first tranche, $170.07 million of Series B sewer revenue bonds (Aa1/AA+//) saw 5s of 7/2025 at 2.84%, 5s of 2029 at 2.64%, 5s of 2034 at 2.86%, 5s of 2039 at 3.12%, 5s of 2044 at 3.51% and 5s of 2046 at 3.62%, callable 7/1/2034.

The second tranche, $230.03 million of Series A limited tax GOs (Aaa/AAA//) saw 5s of 7/2025 at 2.82%, 5s of 2029 at 2.64%, 5s of 2034 at 2.86%, 5s of 2039 at 3.12%, 5s of 2044 at 3.51% and 5s of 2045 at 3.55%, callable 7/1/2034.

BofA Securities priced for the Michigan Finance Authority (Aaa//AAA/) $249.805 million of State Revolving Fund Programs revenue bonds, Series 2024A, with 5s of 10/2025 at 2.72%, 5s of 2029 at 2.65%, 5s of 2034 at 2.82%, 5s of 2039 at 3.10%, 5s of 2044 at 3.47% and 4s of 2048 at 4.05%, callable 10/1/2034.

J.P. Morgan priced for the Illinois Housing Development Authority (Aaa///) $101.64 million of multifamily revenue bonds. The first tranche, $100.61 million of non-AMT bonds, Series 2024H-1, saw 4s of 1/2042 at 4.16% and 4.5s of 7/2062 at 4.57%, callable 7/1/2033.

The second tranche, $1.03 million of taxables, Series 2024H-2, saw 4.48s of 7/2062 price at par, noncall.

Primary to come:
The National Finance Authority is set to price Wednesday $435.357 million of municipal certificates, consisting of $153.612 million of Series 2024-4 Class A-US (/AA-//), serial 2039; $32.584 million of Series 2024-4 Class B-US Subordinate (/BBB//), serials 2042; $205.558 million of Series 2024-4 Class A-CA (/AA-//), serial 2039; and $43.603 million of Series 2024-4 Class B-CA subordinate social certificates (/BBB//), serial 2040. Jefferies LLC.

The MIDA Mountain Village Public Infrastructure District, Utah, (////) is set to price Wednesday $300 million of subordinate tax allocation revenue bonds, consisting of $100 million of Series 2024-1 and $200 million of Series 2024-2. Piper Sandler.

The Douglas County School District #RE-1, Colorado, (Aa1//AA+/) is set to price Wednesday $270 million of GOs, insured by Colorado State Intercept Program, serials 2029-2044. RBC Capital Markets.

The Capital Trust Authority, Florida, is set to price Wednesday $200.245 million of nonrated Alpha Lifestyle Partners, Inc. Project senior living facilities bonds, consisting of $161.38 million of Series A-1, terms 2044, 2054, 2060; $11.14 million of Series A-2, term 2033; and $27.725 million of Series B, term 2060. Stifel.

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.

The Iowa Finance Authority (//BBB/) is set to price Thursday $148.56 million of Lifespace Communities, Inc. revenue bonds, consisting of $128.905 million of Series 2024A and $19.995 million of Series 2024B. HJ Sims.

The New York State Housing Finance Agency (Aa1///) is set to price Thursday $124.275 million of economic development and housing sustainability state personal income tax revenue bonds, consisting of $9.6 million of Series B1, serials 2027-2036, terms 2039, 2044, 2049, 2054; $90.465 million of Series B2, serial 2054; and $24.66 million of Series C, serials 2028-2036, terms 2039, 2044, 2049, 2054. Siebert Williams Shank.

The San Luis Coastal Unified School District, California, (Aa1///) is set to price Wednesday $115 million of GOs, consisting of $90 million of Series B Election of 2022 bonds and $25 million of 2024 refunding bonds. Raymond James.

Competitive:
Massachusetts (Aa1/AA+/AA+/) is set to sell $800 million of GO consolidated loan of 2024 bonds in three series: $210 million of Series G at 10 a.m. eastern Thursday, $315 million of Series H at 10:30 a.m. Thursday and $275 million of Series I at 10 a.m. Thursday.

Suffolk County, New York, is set to sell $350 million of tax anticipation notes at 11 a.m. Thursday.