Massive calendar awaits investors; munis improve as jobs data sparks risk-off trade
8 min read
Municipal and U.S. Treasury markets improved Friday after a weak jobs report sent investors fleeing equities in a flight-to-quality trade.
While the employment report
“While stocks are selling off, we are witnessing a sustained de-inversion of the yield curve,” said José Torres, senior economist at Interactive Brokers. “Indeed, a positive spread across the 2- and 10-year Treasury maturities following a long period of a negative difference has historically preceded economic downturns.”
The 2-year UST closed the session at 3.669% while the 10-year closed out 3.723%.
Concerns over the economy and riskier assets led to investors “unloading almost everything, but they are scooping up downside insurance via index put derivatives and volatility call options, as well as fixed-income instruments and homebuilder shares likely to benefit from lighter borrowing costs amidst undersupplied conditions,” Torres added.
With the payrolls number in focus, Barclays PLC strategists noted that a 50-basis-point rate cut in September “remains a distinct possibility, with a probability of about 40% implied by fed fund futures.”
A lot will depend on the upcoming inflation prints, they said.
Municipal supply continues to grow as Bond Buyer 30-day visible supply sits at $20.02 billion and the municipal market will see one of the largest weeks of new-issuance at an estimated $13.35 billion, led by three billion-plus deals from Washington, D.C. ($1.6 billion), the New York City Transitional Finance Authority ($1.5 billion) and
“When we consider the expected municipal market cheapening in the fall, coupled with the view that absolute rates will drop over the Fed easing cycle, we conclude that the next two months could offer the best opportunity to buy bonds of the year and possibly the rate cycle,” J.P. Morgan strategists led by Peter DeGroot wrote. “As we approach what promises to be an eventful fall, we brace for a volatile rates backdrop with outsized market reactions to the release of non-consensus economic data, a particularly loud election season, an expected Fed easing cycle, and including a higher and volatile municipal issuance calendar with market reception governed by the pace of fund flows and changeable nature of ETF flows in particular.”
While munis have been underperforming USTs and corporates for some time, Barclays strategists said they “underestimated the muni market’s strength going into the second half of August.”
“At that time, tax-exempt supply seemed unstoppable,
The two-year muni-to-Treasury ratio Friday was at 66%, the three-year at 68%, the five-year at 68%, the 10-year at 72% and the 30-year at 88%, according to Refinitiv Municipal Market Data’s 3 p.m. EST read. ICE Data Services had the two-year at 64%, the three-year at 65%, the five-year at 66%, the 10-year at 70% and the 30-year at 88% at 3:30 p.m.
“Looking ahead, things will not get much easier, as we have moved into the historically challenging September-October time frame,” they said.
With the expectation of continued heavy supply, “and with the absence of redemptions,” tax-exempts typically underperform Treasuries in September.
“Even if we do not take into account the post-COVID market sell-off of 2020, long-dated MMD-UST ratios increased 1-2pp on average in the last decade,” Foux and Pickering said. “We see history repeating itself this year because of poor market technicals, and munis will likely continue to underperform Treasuries.”
“We are definitely not in a rush, but if munis continue to get cheaper in the next several weeks, we would consider adding at some point next month, but we are definitely in no hurry for now,” they added.
AAA scales
Refinitiv MMD’s scale was bumped three basis points: The one-year was at 2.44% (-3) and 2.37% (-3) in two years. The five-year was at 2.34% (-3), the 10-year at 2.63% (-3) and the 30-year at 3.52% (-3) at 3 p.m.
The ICE AAA yield curve was bumped two to three basis points: 2.47% (-2) in 2025 and 2.41% (-2) in 2026. The five-year was at 2.37% (-2), the 10-year was at 2.60% (-3) and the 30-year was at 3.53% (-2) at 3:30 p.m.
The S&P Global Market Intelligence municipal curve was bumped three basis points: The one-year was at 2.44% (-3) in 2025 and 2.38% (-3) in 2026. The five-year was at 2.35% (-3), the 10-year was at 2.59% (-3) and the 30-year yield was at 3.51% (-3) at 4 p.m.
Bloomberg BVAL was bumped two to three basis points: 2.45% (-3) in 2025 and 2.40% (-2) in 2026. The five-year at 2.38% (-3), the 10-year at 2.61% (-2) and the 30-year at 3.50% (-3) at 4 p.m.
Treasuries were better.
The two-year UST was yielding 3.669% (-8), the three-year was at 3.544% (-7), the five-year at 3.504% (-4), the 10-year at 3.723% (-1), the 20-year at 4.104% (-1) and the 30-year at 4.031% (+1) at the close.
Primary to come:
The District of Columbia (Aaa/AA+/AA+/) is set to price Tuesday $1.6 billion of GOs, consisting of $690.745 million of new-issue bonds, Series 2024A, serials 2025-2045, term 2049; $319.155 million of refunding bonds, Series 2024B, serials 2025, 2027-2041; and $590.31 million of refunding bonds, Series 2024C, serials 2025-2035. Siebert Williams Shank.
The New York City Transitional Finance Authority (Aa1/AAA/AAA/) is set to price Wednesday $1.5 billion of tax-exempt future tax secured subordinate bonds, Fiscal 2025 Series C, Subseries C-1. J.P. Morgan.
Illinois (A3/A-/A-/) is set to price Tuesday $1.090 million of GO refunding bonds, Series of October 2024, serials 2025-2039. RBC Capital Markets.
The Texas Transportation Commission (Aaa/AAA//) is set to price Tuesday $878.275 million of GO Mobility Fund refunding bonds, Series 2024, serials 2025-2035, 2039, 2041-2044. BofA Securities.
The City and County of Honolulu is set to price Wednesday $628.355 million of wastewater system revenue bonds, consisting of $292.95 million of First Bond Resolution senior green bonds, Series 2024A, (/AA+/AA/), serials 2041-2044, terms 2049, 2054; $46.395 million of First Bond Resolution senior refunding bonds, Series 2024B, (/AA+/AA/), serial 2040; $164.94 million of First Bond Resolution forward refunding bonds, Series 2025A, (/AA+/AA/), serials 2034-2038; $57.92 million of Second Bond Resolution junior refunding bonds, Series 2024A, (/AA+/AA-/) serial 2039; and $66.15 million of Second Bond Resolution junior forward refunding bonds, Series 2025A, (/AA+/AA-/), serials 2032-2034. BofA Securities.
The Tampa Bay Water (Aa1/AA+//) is set to price Tuesday $557.29 million of utility system revenue bonds, consisting of $409.085 million of Series 2024A bonds, serials 2039-2044, terms 2049, 2054; $93.94 million of refunding Series 2024B bonds, serials 2033-2044; and $54.715 million of taxable refunding Series 2024C bonds, serials 2028-2033. Raymond James.
Philadelphia (A3/A/A-/) is set to price Thursday $446.875 million of gas works revenue bonds Seventeenth Series, consisting of $336.74 million of new-issue bonds, Series 2024A, and $110.135 million of refunding bonds, Series 2024B. J.P. Morgan.
The North Carolina Housing Finance Agency (Aa1/AA+//) is set to price Tuesday $420 million of non-AMT home ownership revenue bonds, consisting of $220 million of Series 55-A, serials 2026-2036, terms 2039, 2044, 2055, and $200 million of Series 55-C, term 2056. BofA Securities.
The Public Finance Authority is set to price Wednesday $400 million of taxable TEP Government Holdings LLC Portfolio federal lease revenue bonds, term 2029. Huntington Securities.
The Harris County Cultural Education Facilities Finance Corp. (Aa2/AA-/AA-/) is set to price Thursday $224.88 million of Texas Children’s Hospital hospital revenue refunding bonds, Series 2024A, serials 2029, 2031, 2034. RBC Capital Markets.
The Los Angeles Harbor Department (Aa2/AA+/AA/) is set to price Wednesday $217.785 million of refunding revenue bonds, consisting of $104.275 million of AMT bonds, 2024 Series A-1; $27.09 million of green AMT bonds, 2024 Series A-2; $34.705 million of non-AMT exempt facility bonds, 2024 Series B-1; $23.065 million of green non-AMT exempt facility bonds, 2024 Series B-2; and $28.65 million of non-AMT governmental bonds, 2024 Series C. Jefferies.
The National Finance Authority is set to price Thursday $194 million of non-rated Bridgeland Water and Utility Districts 490, 491, AND 158 special revenue bonds, Series 2024, term 2035. Wells Fargo.
Westminster, Colorado, (/AAA/AA+/) is set to price Tuesday $188.715 million of water and wastewater utility enterprise water and wastewater revenue bonds, Series 2024. Piper Sandler.
The Connecticut Housing Finance Authority (Aaa/AAA//) is set to price Tuesday $188.415 mllion of Housing Mortgage Finance Program bonds, 2024 Series E, consisting of $173.155 million of taxable social bonds, Subseries E-1; $3.25 million of sustainability bonds, Subseries E-2; and $12.01 million term rate sustainability bonds, Subseries E-3. J.P. Morgan.
The Village Community Development District No. 15, Florida, is set to price Tuesday $163 million of non-rated special assessment revenue bonds, Series 2024, terms 2029, 2034, 2039, 2044, 2055. Jefferies.
The IPS Multi-School Building Corp., Indiana, (Aa2/AA+//) is set to price Tuesday $158.795 million of social unlimited ad valorem property tax first mortgage bonds, Series 2024, serials : 2025, 2030-2044, insured by the Indiana State Aid Intercept Program. Stifel.
The Massachusetts Housing Finance Agency (Aa1/AA+//) is set to price Tuesday $124.06 million of taxable social single family housing revenue bonds, Series 238. Morgan Stanley.
North Thurston Public Schools, Washington, (Aaa/AA+//) is set to price Tuesday $110.82 million of unlimited tax GO and refunding bonds, Series 2024, insured by the Washington School District Credit Enhancement Program. Piper Sandler.
The Arizona Water Infrastructure Finance Authority (/AAA/AAA/) is set to price Tuesday $110.265 million of water quality revenue refunding bonds, Series 2024, serials 2025-2027. BofA Securities.
The Clark County Public Utility District No. 1, Washington, (Aa3/A+/AA/) is set to price Wednesday $109.375 million of electric system revenue and refunding bonds, Series 2024, serials 2026-2045. BofA Securities.
The Ohio Air Quality Development Authority (Baa2/BBB//) is set to price Tuesday $100.9 million of AMT American Electric Power Company Project air quality development revenue refunding bonds, consisting of $50.45 million of Series 2005B, serial 2028, and $50.45 million of Series 2005C, serial 2028. Barclays.
Competitive:
The Santa Clara Valley Water District, California, (Aa1//AA+/) is set to sell $201.63 million of water system refunding revenue bonds at 10:30 a.m. Tuesday and $115.385 million of water system refunding revenue bonds at 11:15 a.m. Tuesday.
Wakefield, Massachusetts, (/AAA//) is set to sell $102.275 million of GO Municipal Purpose Loan of 2024 bonds at 11 a.m. Tuesday.
Hennepin County, Minnesota, (/AAA/AAA/) is set to sell $200 million of GOs, Series 2024A, at 10:45 a.m. Tuesday.
The South Carolina Transportation Infrastructure Bank (Aa2//AA-/) is set to sell $151.87 million of revenue refunding bonds, Series 2024A, at 10 a.m. Tuesday.
Wisconsin is set to sell $269.99 million of GOs, Series C, at 10:45 a.m. Tuesday.
The New York City Transitional Finance Authority is set to sell $300 million of taxable future tax secured subordinate bonds, Fiscal 2025 Series C, Subseries C-2, at 10:45 a.m. Wednesday.
Tulsa, Oklahoma, is set to sell $108.64 million of GOs, 2024 Series C, at 11:30 a.m. Wednesday and $53.74 million of GOs, 2024 Series D, at noon Wednesday.
The Board of Trustees of the University of Alabama is set to sell $210.82 million of general revenue bonds, Series 2024-B, at 11 a.m. Thursday.
Jessica Lerner contributed to this report.
