Munis quiet ahead of another week of elevated supply

Municipals were steady to start another week of elevated supply, as U.S. Treasury yields fell and equities ended up.

The two-year muni-UST ratio Monday was at 68%, the five-year at 68%, the 10-year at 75% and the 30-year at 92%, according to Municipal Market Data’s 3 p.m. ET read. ICE Data Services had the two-year at 66%, the five-year at 67%, the 10-year at 72% and the 30-year at 91% at 4 p.m.

Municipal issuance is up about 20% year-over-year, helped by the $20 billion in new issuance last week, the most sales in a single week since 2017, according to Jason Wong, vice president of municipals at AmeriVet Securities.

This week’s expected volume is an estimated $13.2 billion, with the biggest planned deals coming from Emory University ($1.03 billion), Philadelphia ($816 million), and Los Angeles County ($700 million) in the negotiated market, and Maryland (with $1.6 billion in four series) in the competitive market.

However, the new-issue calendar may not be “absorbed as easily, given valuations have grown less compelling after this week’s performance,” said Birch Creek strategists.

Supply continues to be elevated because “1) issuers are reportedly front-loading issuance to get ahead of any limitation to municipal tax exemption, 2) issuers are coming off of the sugar high of COVID stimulus monies, thus reducing pay-as-you-go capital project financings, and 3) it’s been reported that capital project costs have increased by as much as 35%,” said Daryl Clements, a portfolio manager at AllianceBernstein.

Last week, despite expectations that munis would underperform, a stronger-than-expected Treasury selloff led to munis’ continued outperformance, Wong said.

“The front end of the MMD curve was bumped 4 bps, outperforming Treasuries by as much as 20 bps, while the long end of the curve kept pace with the Treasury losses,” Birch Creek strategists said.

Muni outperformance could continue in the coming months, Wong suggested, pointing to the recent stronger-than-expected jobs report, which means the Fed “will likely continue to maintain its holding pattern.” This “could give some fuel for munis to outperform Treasuries in the meantime,” he said.

The market is currently not pricing in a Fed rate cut until its October meeting, according to Clements.

And “as the U.S. budget debate drags on, the first cut will continue to be pushed further out into late 2025,” he said.

The muni curve is still steepening, with growing demand for 10-year and shorter maturities greater than demand for bonds out long, he said.

Year-to-date, 89% of fund flows for mutual funds and exchange-traded funds have been “concentrated on the intermediate and short end of the yield curve,” according to Clements.

“With demand running to the belly of the curve, the long end of the curve continues to increase its stored value,” he said. “While timing is always difficult, this stored value will eventually be released, and long bonds will rally and outperform shorter maturities.”

AAA scales
MMD’s scale was unchanged: The one-year was at 2.72% and 2.70% in two years. The five-year was at 2.79%, the 10-year at 3.34% and the 30-year at 4.56% at 3 p.m.

The ICE AAA yield curve was bumped up to one basis point: 2.73% (-1) in 2026 and 2.66% (-1) in 2027. The five-year was at 2.79% (-1), the 10-year was at 3.27% (-1) and the 30-year was at 4.53% (unch) at 4 p.m.

The S&P Global Market Intelligence municipal curve was unchanged: The one-year was at 2.73% in 2025 and 2.71% in 2026. The five-year was at 2.79%, the 10-year was at 3.34% and the 30-year yield was at 4.56% at 4 p.m.

Bloomberg BVAL saw was little changed: 2.71% (unch) in 2025 and 2.73% (unch) in 2026. The five-year at 2.83% (unch), the 10-year at 3.30% (unch) and the 30-year at 4.52% (unch) at 4 p.m.

Treasuries saw small gains.

The two-year UST was yielding 4.007% (-3), the three-year was at 3.987% (-4), the five-year at 4.092% (-3), the 10-year at 4.487% (-2), the 20-year at 4.98% (-2) and the 30-year at 4.957% (-1) near the close.

Primary to come
The Private Colleges and Universities Authority (Aa2/AA//) is set to price Wednesday $1.034 million of Emory University revenue bonds. RBC Capital Markets.

Philadelphia (A1/A+/A+/) is set to price Tuesday $816.495 million of tax-exempt and taxable GOs. BofA Securities.

Los Angeles County is set to price Tuesday $700 million of 2025-2026 tax and revenue anticipation notes. Raymond James.

The Pennsylvania Housing Finance Agency (Aa1///) is set to price Tuesday $578.89 million of non-AMT social and taxable single-family mortgage revenue bonds. BofA Securities.

The North Carolina Medical Care Commission (Aa3/AA-/AA-/) is set to price Wednesday $489.575 million of Duke University Health System health care facilities revenue bonds. J.P. Morgan.

The Lower Colorado River Authority (A2/A/AA-/) is set to price Tuesday $482.115 million of refunding revenue bonds. J.P. Morgan.

The Metropolitan Government of Nashville and Davidson County (Aa2/AA//AA/) is set to price Thursday $451.895 million of water and sewer revenue refunding and improvement bonds. BofA Securities.

The West Virginia Hospital Finance Authority (A2/A//) is set to price Tuesday $419.18 million of fixed-rate and long-term rate West Virginia University Health System Obligated Group hospital revenue improvement bonds. RBC Capital Markets.

The Providence St. Joseph Health Obligated Group (/A/A/) is set to price Tuesday $400 million of taxable refunding bonds. J.P. Morgan.

The New York City Housing Development Corp. (Aa2/AA+//) is set to price Tuesday $385.915 million of sustainable development multi-family housing revenue bonds. Morgan Stanley.

The California Health Facilities Financing Authority (/A/A/) is set to price Tuesday $365 million of fixed-rate and term-rate Providence St. Joseph Health revenue bonds. BofA Securities.

The Sacramento Municipal Utility District, California, (Aa3//AA/) is set to price Tuesday $300,000 of subordinated electric revenue refunding bonds and electric revenue bonds. Barclays.

The Massachusetts Educational Financing Authority is set to price Tuesday $282.415 million of senior and subordinate education loan revenue bonds. RBC Capital Markets.

Rhode Island (Aa2/AA/AA+/) is set to price Tuesday $273.38 million of GOs. J.P. Morgan.

The Clifton Higher Education Finance Corp. (/AAA//) is set to price Wednesday $240 million of PSF-insured education revenue bonds and refunding bonds. Baird.

The School Facilities Improvement District No. 1 of the Santa Monica-Malibu Unified School District, California, (Aa1/AA+//) is set to price Tuesday $200 million of Election of 2024 GOs. Baird.

The Shelby County Health, Educational and Housing Facility Board, Tennessee, (A1/AA//) is set to price Wednesday $195.44 million of fixed-rate and long-term-rate Methodist Le Bonheur Healthcare revenue bonds, insured by Assured Guaranty. J.P. Morgan.

The Denton Independent School District, Texas, (/AAA/AAA/) is set to price Tuesday $181.86 million of PSF-insured unlimited tax school building bonds. Raymond James.

The Massachusetts Development Finance Agency (/A//) is set to price Thursday $179.03 million of Tufts University student housing project revenue bonds. Barclays.

Tampa Bay Water (Aa1/AA+//) is set to price Tuesday $158.985 million of utility system refunding revenue bonds. Wells Fargo.

The Frisco Independent School District, Texas, (Aaa/AAA//) is set to price Tuesday $147.82 million of PSF-insured unlimited tax refunding bonds. RBC Capital Markets, Chicago

The Fontana Unified School District, California, (Aa2///) is set to price $136 million of Election of 2024 GOs. Loop Capital Markets.

The Santa Rosa High School District (Aa3///) is set to price Wednesday $100 million of Election of 2022 GOs. Raymond James.

Competitive
Maryland (Aa1/AAA/AAA/) is set to sell $485.195 million of GOs, State and Local Facilities Loan of 2025, First Series A, Bidding Group 1, at 10:30 a.m. Wednesday; $414.805 million of GOs, State and Local Facilities Loan of 2025, First Series A, Bidding Group 2, at 11 a.m. Wednesday; $366.915 million of GO refunding bonds, State and Local Facilities Loan of 2025, First Series B, Bidding Group 1, at 11:30 a.m. Wednesday; and $294.735 million of GO refunding bonds, State and Local Facilities Loan of 2025, First Series B, Bidding Group 2, at noon Wednesday.

Massachusetts (Aa1/AA+/AA+/) is set to sell $385 million of GO Consolidated Loan of 2025 bonds, Series C, at 10:30 a.m. Tuesday; $215 million of GO Consolidated Loan of 2025 bonds, Series B, at 10 a.m. Tuesday; and $100 million of taxable GO Consolidated Loan of 2025 bonds, Series D, at 11 a.m. Tuesday.

The Anaheim Union High School District, California, (Aa1///) is set to sell $180 million of tax-exempt Election of 2024 GOs, Series A, at 12:30 p.m. Tuesday.

The Iowa State Board of Regents (Aa2/AA-//) is set to sell $138.845 million of parking system revenue refunding bonds at 11 a.m. Tuesday.

The Horseheads Central School District, New York, is set to sell $102 million of GO bond anticipation notes at 10:30 a.m. Wednesday.

The Newburgh Enlarged City School District, New York, is set to sell $100 million of GO bond anticipation notes at 11 a.m. Wednesday.

Alex Walters contributed to this report.