Market easily absorbs $3B of new issues in primary while yields little changed

Bonds

Municipals were steady as the market digested large deals from California, New York and Washington state in a week heavy on state credits while Treasury yields fell and stocks were mixed.

It was all about the primary Tuesday with the Triborough Bridge and Tunnel Authority MTA deal repricing as much as 17 basis points lower following strong demand, even with Comptroller Thomas DiNapoli saying the MTA capital numbers “don’t add up.” California forward delivery general obligation bonds were repriced to lower yields while Washington State and Rhode Island sold competitively at yields on point with their ratings, but also constructive that investors wouldn’t give in to sub-1% for the credits. Ten-year spots on those competitive deals hovered around 1% while the triple-As are at 0.90%-0.94%.

Municipal to UST ratios closed at 60% in 10-years and 69% in 30-years on Tuesday, according to Refinitiv MMD and ICE Data Services also had the 10-year at 60% and the 30 at 69%.

With a backdrop of steady scales on generic, triple-A general obligation bonds, demand on the buy side of the municipal market on Tuesday continued to be fueled by the presence of large new issues, and potential for rising taxes, according to John Mousseau, president and chief executive officer at Cumberland Advisors.

“Deals are getting great receptions,” he said Tuesday, noting that New York’s $1 billion Triborough Bridge & Tunnel Authority deal was many times oversubscribed and yields bumped eight to 17 basis points.

“In other words, it’s business as usual for the muni market lately,” Mousseau, director of fixed income at the Sarasota, Florida, investment management firm, said. “There is no question in my mind that the market smells a tax increase in the federal marginal tax rate coming,” he added.

Goldman Sachs & Co. repriced $1.079 billion of California (Aa2/AA-/AA) general obligation forward-delivery bonds with bumps; 5s of 2022 at 0.26%, 5s of 2026 at 0.68% (-1bp), 5s of 2031 at 1.27% (-5bps), 5s of 2032 at 1.35% (-3bps) and 5s of 3041 at 1.71% (-5bps).

The Triborough Bridge and Tunnel Authority (/AA+/AA+/AA+) priced $996 million of payroll mobility tax senior lien bonds in two series for MTA bridges and tunnels. The deal was repriced to lower yields by as much as 17 basis points.

The first series, $637.2 million of tax-exempts, 4s of 2046 yield 1.87%, 13 basis points lower than preliminary wires and 5s of 2051 at 1.84%, 16 basis points lower. The second, $358.4 million of tax-exempt mandatory tender bonds, 2s of 2045 with a tender on 5/15/2024, yield 0.32%, eight basis points lower, 2s of 2045 with a tender on 5/15/2026 at 0.60%, 17 basis points lower and 2s of 2045 with a 5/15/2028 tender yield 1.06%, two basis points lower.

In the competitive market, Washington (Aaa/AA+/AA+/) sold three competitive loans including a $166.9 million of various purpose general obligation refunding bonds to BofA Securities. Bonds in 2022 with a 5% coupon yield 0.06%, 5s of 2023 at 0.09%, 5s of 2034 at 0.18%, 5s of 2031 at 1.03%, 4s of 2035 at 1.22% and 4s of 2036 at 1.26%.

The second, $195.3 million of motor vehicle fuel tax general obligation refunding bonds, went to J.P. Morgan Securities LLC. Bonds in 2021 with a 5% coupon yield 0.06%, 5s of 2022 at 0.06%, 5s of 2026 at 0.40%, 5s of 2031 at 1.02%, 4s of 2036 at 1.36%, and 4s of 2041 at 1.56%.

The last, $245.1 million of motor vehicle fuel tax and vehicle related fees general obligation bonds, were also won by J.P. Morgan. Bonds in 2022 with a 5% coupon yield 0.06%, 5s of 2023 at 0.08%, 5s of 2026 at 0.39%, 5s of 2031 at 1.01%, 5s of 2036 at 1.26%, 5s of 2041 at 1.51% and 5s of 2046 at 1.65%.

Alamance County, North Carolina, (Aa2/AA//) sold $154.1 million of general obligation public improvement bonds to Morgan Stanley. Bonds in 2022 with a 5% coupon yield 0.07%, 5s of 2023 at 0.10%, 5s of 2026 at 0.41%, 5s of 2031 at 1.00%, 2s of 2036 at 1.66% and 2s of 2041 at 1.86%.

Rhode Island (Aa2/AA/AA/) sold $131 million of tax-exempt consolidated capital development GOs to J.P. Morgan. Bonds in 2023 with a 5% coupon yield 0.10%, 5s of 2026 at 0.39%, 5s of 2031 at 1.00%, 2s of 2036 at 1.71% and 2s of 2041 at 1.91%. Rhode Island also sold $67 million of taxable GOs to Raymond James & Associates. Bonds in 2022 with a 2% coupon yield 0.15%, 2026 with 1.01% coupon at par, 1.80% in 2031 at par and 2.05% in 2034 at par.

The Virginia Public School Authority (Aa1/AA+/AA+/) sold $78 million of tax-exempt school financing bonds to Wells Fargo Securities. Bonds in 2022 with a 5% coupon yield 0.07%, 5s of 2026 at 0.42%, 5s of 2031 at 1.04%, 2s of 2036 at 1.80%, 2s of 2041 at 2.00%, 2.125s of 2050 at 2.40%.

J.P. Morgan priced $108.1 million of certificates of participation for the School Board of Orange County, Florida (//AA/). Bonds in 2028 with a 5% coupon yield 0.78%, 5s of 2031 at 1.18% and 5s of 2032 at 1.32%.

Secondary market
Trading was steady. Fairfax County, Virginia, traded at 0.29%. Maryland 5s of 2026 at 0.42%, Watertown, Massachusetts, 5s of 2029 at 0.81%-0.80%, the same as Friday. New York DORM PIT 5s of 2031 at 1.19%. New York City TFA 5s of 2033 at 1.33%. New York DORM PIT 5s of 2035 at 1.42%.

Washington GO 5s of 2037 at 1.27%-1.28% versus 1.34%-1.33% Wednesday. The maturity in Tuesday’s deal was won today at 1.31% with a 5 and 1.40% with a 4. Princeton 5s of 2038 at 1.25%-1.21% versus 1.29% a week ago. Oklahoma water 4s of 2049 at 1.69%-1.60%.

On Refinitiv MMD’s AAA benchmark scale, the one-year sat at 0.05% in 2022 and 0.08% in 2023. The yield on the 10-year was at 0.93% and the 30-year at 1.56%.

The ICE AAA municipal yield curve showed yields at 0.05% in 2022 and 0.07% in 2023. The 10-year maturity at 0.94% while the 30-year remained at 1.56%.

The IHS Markit municipal analytics AAA curve showed yields at 0.05% in 2022 and two lower to 0.08% in 2023, the 10-year at 0.92% and the 30-year at 1.56%.

The Bloomberg BVAL AAA curve showed yields at 0.04% in 2022 and 0.06% in 2023, while the 10-year at 0.91%, and the 30-year yield fell one basis point to 1.55%.

The three-month Treasury note was yielding 0.02%, the 10-year Treasury was yielding 1.56% and the 30-year Treasury was yielding 2.26% near the close. Equities were mixed with the Dow down 288 points, the S&P 500 fell 0.77% and the Nasdaq gained 0.84% near the close.

Economy
The services sector in the Philadelphia region expanded in April, with employment steady and price pressures still in play, as respondents see better times six months ahead.

The regional general business conditions index jumped to 36.3 in April from a downwardly revised 27.4 in March, while at the firm level, the index fell to 21.5 from a downwardly revised 26.6, the Federal Reserve Bank of Philadelphia reported.

With this month’s report, the annual revision was released. March’s regional general business conditions index was first reported as 38.6 and the firm level was at 33.5.

“The Philly Fed nonmanufacturing index showed that the economic recovery continues,” according to Ed Moya, senior market analyst, at OANDA.

Although remaining positive, some indexes were lower than last month’s revised numbers.

New orders slid to 7.6 from 14.5, while sales or revenues declined to 16.5 from 23.2 and unfilled orders dipped to 1.2 from 1.9.

Inventories fell to negative 0.7 from positive 3.7, the prices paid index climbed to 32.9 from 27.9, while prices received fell to 14.5 from 24.3.

“Both price and wage pressures are percolating,” said Moya. “Complicating the outlook for the three-state area was a rise in COVID cases across Philadelphia and some of the lost momentum with prices received and firm activity should be temporary.”

A special question about wages showed almost 39% saw wages and compensation grow in the past three months, with about one-third having adjusted budgets for wages since January, and 13% expecting to give higher raises than expected and 19% moving up plans for wage hikes.

The wage growth, along with higher prices could “excite” investors who are pricing in an eventual bond market selloff later this summer, Moya said.

The number of full-time employees index declined to 7.0 from 8.0, while the average workweek fell to 11.1 from 11.9, and wage and benefit costs dipped to 26.2 from 26.3.

The capital expenditures at the physical plant index gained to 15.8 from 9.6, while the expenditures from equipment and software index rose to 18.4 from 12.6.

Primary market to come
Connecticut (Aa3/A+/A+/AA+) is set to price $1.032 billion of special tax obligation transportation infrastructure bonds, with $875 million of exempts, $12 million of refunding bonds and $145 million of forward delivery exempts. Goldman, Sachs & Co. LLC is head underwriter. The deal is set for Thursday.

The Illinois Finance Authority is set to price $501.98 million of Carle Foundation fixed period revenue bonds on Thursday. Barclays Capital Inc. is lead underwriter.

Charlotte, North Carolina, (Aa3//AA-/) is set to price on Wednesday $378 million of Charlotte Douglas International Airport Revenue bonds, Series 2021A, non-AMT, $270.5 million, and Series 2021B, $107.5 million of AMT bonds. BofA Securities is bookrunner.

The California Health Facilities Financing Agency (Aa3/AA-/AA/) is set to price $365 million of Stanford Health Care taxable bonds on Wednesday. Goldman Sachs & Co. LLC is underwriter.

The California Health Facilities Financing Agency (Aa3/AA-/AA/) is also set to price $157.2 million of Stanford Health Care tax-exempt bonds on Wednesday. Goldman Sachs & Co. LLC is bookrunner.

Pima County, Arizona, (/AA+/AA+/) is set to price $300 million of taxable pledged revenue obligations on Wednesday. J.P. Morgan Securities LLC is lead underwriter.

The Arizona Board of Regents of the University of Arizona (Aa2/AA-//) is set to price $228.4 million of tax-exempt and taxable revenue and revenue refunding bonds on Thursday. J.P. Morgan Securities LLC will run the books.

The New York City Housing Development Corp. (Aa2/AA+//) is set to price $212.5 million of multi-family housing sustainable development revenue bonds on Wednesday. BofA Securities is lead underwriter.

The Connecticut Housing Finance Authority (Aaa/AAA//) is set to price $150.3 million of exempt housing mortgage finance program bonds in several series on Tuesday.

The authority will also price $47.45 million of taxable refunding housing mortgage finance program revenue bonds. RBC Capital Markets will run the books.

Grand Forks, North Dakota, is set to price $118 million of Solid Waste Disposal Facility Revenue Bonds (Red River Biorefinery, LLC Project), Series 2021A (Green Bonds) Series 2021B (Green Bonds) (Turbo Bonds). Jefferies LLC is lead underwriter.

On Wednesday, the Metropolitan Council, Minnesota, (Aaa/AAA//) is back in the competitive space with $109 million of taxable general obligation bonds in three deals at 10:30 (GOs), 11 (Park bonds) and 11:30 a.m. (wastewater revenue refunding bonds)

Clark County, Nevada, (/AA-//) is set to sell $100 million of indexed fuel tax and subordinate motor vehicle tax highway revenue bonds at 11:30 a.m.

Beaufort County School District, South Carolina, is set to sell $130 million of general obligation bonds at 11 a.m.

On Thursday, New Jersey (A3/BBB+/A-/) is set to sell $400 million of tax-exempt various purpose general obligation bonds at 11 a.m.

The Los Angeles Unified School District (Aa3//AA+/AAA) is set to sell $200.9 million of dedicated unlimited ad valorem property tax general obligation refunding bonds at 11 a.m.

Christine Albano contributed to this report.

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Yields fall, new deals well received as positive muni performance continues