Diversity of new deals should offer benchmarks direction

Bonds

Municipals were quietly traded with some strength outside 10 years as investors await the larger new-issue calendar that begins with a retail order period Tuesday from Connecticut and competitive loans from West Virginia and high-grade Prince George’s County, Maryland.

Municipal benchmarks were little changed, with a basis point bump on Refinitiv MMD’s scale outside 2031 while municipal to UST ratios closed at 62% in 10 years and 68% in 30 years on Monday. ICE Data Services saw ratios on the 10-year at 61% and the 30-year at 68%.

Strong technicals continued to fuel the market and “cash flow from investors is still strong even with the threat of inflation hovering over the market, due to the overwhelming factor that this administration is driven to raise taxes,” Roberto Roffo, managing director and portfolio manager at SWBC Investment Company, said Monday.

Price indexes in the latest New York manufacturing survey came in higher than expected, furthering inflation concerns.

The primary should provide benchmarks guidance. This week’s $9 billion primary market calendar is an uptick from recent weeks.

“Most of the large deals this week are high grades and should clear the market easily due the strong demand from investors,” Roffo said.

Market participants were well-poised to greet the slate of new-issue product, according to Jeff Lipton, managing director and head of municipal credit and market strategy and municipal capital markets at Oppenheimer & Co.

Lipton said the primary market reception has been strong with demand working overtime to tighten spreads and push relative value ratios down to new lows.

“Until further notice, the muni performance trajectory can be expected to outpace that of UST, especially as reinvestment needs rise through the summer months and new-issue supply finds it challenging to fill the void left by maturing securities and bond redemptions,” he said. “We suspect that new-money issuance through the balance of the year will be guided by the state of muni credit and levels of capital needs just as refunding activity will likely remain influenced by interest rate shifts.”

Fund flows are to remain active with exchange-traded funds and high-yield allocations staying strong, Lipton said, adding he anticipates intermittent slowing in the pace of advancing deposits.

Looking ahead this week, Lipton said, the bond market will focus on the minutes of the April FOMC meeting.

“Although that gathering did not include a revised summary of economic projections, the document will be parsed — not only for any clues on when the Central Bank will initiate a policy pivot, but also for any evidence of a break in the consensus ranks,” he added.

Municipal CUSIP request volumes rise in April
The aggregate total of all municipal securities, including municipal bonds, long-term and short-term notes, and commercial paper, rose 4.3% in April versus March totals, according to CUSIP Global Services. On an annualized basis, municipal CUSIP identifier request volumes were up 17.2% through April. For muni bonds specifically, there was a 4.1% month-over-month increase in request volumes and a 20% increase on a year-over-year basis.

“Now into our third straight month of steadily increasing CUSIP request volume, we’re seeing a trend toward increased debt and capital markets activity in U.S. markets,” Gerard Faulkner, Direct of Operations for CUSIP Global Services, said. “Issuers of corporate and municipal debt continue to take advantage of a combination of low interest rates and an improving economic outlook.”

Secondary trades and scales
Trading showed a firmer tone in spots. New Mexico 5s of 2022 traded at 0.13%. Georgia 5s of 2022 at 0.11%. North Carolina 5s of 2023 at 0.15%. Georgia 5s of 2023 at 0.16%. Delaware 5s of 2024 at 0.23%.

Hennepin County, Minnesota 5s of 2026 at 0.56%. Maryland 5s of 2026 at 0.50%. New York City TFA 5s of 2026 at 0.63%. Energy Northwest 5s of 2027 at 0.72%.

New York Dorm PITs 5s of 2034 at 1.41%. Delaware 5s of 2034 at 1.39%. Columbus, Ohio 5s of 2035 at 1.27%-1.26%. Washington 5s of 2042 at 1.57%. Los Angeles DWPs 5s of 2050 at 1.63% versus 1.65% Friday.

On Refinitiv MMD’s AAA benchmark scale, yields were steady at 0.10% in 2022 and 0.14% in 2023. The yield on the 10-year sat at 1.02% and the 30-year fell one basis point to 1.59%.

The ICE AAA municipal yield curve showed yields at 0.10% in 2022 and 0.16% in 2023, the 10-year stayed at 1.01% while the 30-year sat at 1.60%.

The IHS Markit municipal analytics AAA curve showed yields at 0.10% in 2022 and 0.13% in 2023, both down one basis point, the 10-year at 0.98% down one and the 30-year at 1.58%, also down one.

The Bloomberg BVAL AAA curve showed yields steady at 0.08% in 2022 and 0.10% in 2023, at 0.98% in the 10-year and the 30-year at 1.59%.

The 10-year Treasury was yielding 1.64% and the 30-year Treasury was yielding 2.35% near the close. Equities fell with the Dow losing 65 points, the S&P 500 fell 0.65% and the Nasdaq lost 0.62%.

Pricing pressures
Price indexes in the latest New York manufacturing survey came in higher than expected, furthering inflation concerns.

Business activity in the New York regions continued to “grow at a solid clip,” according to the latest results released by the Federal Reserve Bank of New York on Monday morning.

General business conditions slipped to 24.6 in May from 26.3 in April, but came in above estimates, as economists polled by IFR Markets expected a reading of 23.9.

Prices paid climbed to 83.5 from 74.7 and prices received dipped to 13.6 from 13.9.

“Empire State manufacturing survey solidified the inflationary theme that is running wild on Wall Street,” according to Ed Moya, senior market analyst for the Americas at OANDA. “Wall Street still remains focused on inflation.”

The survey noted further price increases and strong employment growth are expected, Moya said.

“The trend from all these Fed regional surveys continue to be strong improvements with rapidly growing pricing pressures,” Moya said.

New orders gained to 28.9 from 26.9, shipments increased to 29.7 from 25.0 and unfilled orders nudged to 21.4 from 21.2.

Delivery time decreased to 23.6 from 28.1 and inventories fell to 7.1 from 11.6.

The number of employees index slipped to 13.6 from 13.9, while the average employee workweek index increased to 18.7 from 12.7.

Looking ahead six months into the future, business conditions dipped to 36.6 from 39.8.

New orders fell to 35.3 from 41.1, shipments dropped to 38.0 from 43.5 and unfilled orders decreased to 7.1 from 10.3.

Delivery time rose to 17.1 from 11.6 and inventories were lower to 16.4 from 17.8.

Prices paid slipped to 67.1 from 71.2 and prices received dipped to 43.6 from 45.2.

Number of employees decreased to 37.3 from 40.1 and the average employee workweek index slipped to 11.4 from 11.6.

Also, the National Association of Home Builders housing market index came in at 83.0 in May, unchanged from its April reading.

Economists anticipated a reading of 83.0.

“Builder confidence in the market remains strong due to a lack of resale inventory, low mortgage interest rates and a growing demographic of prospective home buyers,” said Chuck Fowke, chairman, NAHB. “However, first-time and first-generation home buyers are particularly at risk for losing a purchase due to cost hikes associated with increasingly scarce material availability. Policymakers must take note and find ways to increase production of domestic building materials, including lumber and steel, and suspend tariffs on imports of construction materials.”

NAHB Chief Economist Robert Dietz noted that homebuyers should anticipate rising prices throughout 2021.

“Low interest rates are supporting housing affordability in a market where the cost of most materials is rising,” Dietz said. “In recent months, aggregate residential construction material costs were up 12% year-over-year, and our surveys suggest those costs are rising further. Some builders are slowing sales to manage their own supply-chains, which means growing affordability challenges for a market in critical need of more inventory.”

Muni primary deals to come
In the competitive market, Prince George’s County, Maryland, (/AAA//) is set to sell $271.6 million of general obligation consolidated public improvement bonds, Series 2021A on Tuesday at 10:45 a.m.

West Virginia (/AA//) is set to sell $200 million of general obligation state road bonds at 10:15 a.m. and $14.265 million of GO state road refunding bonds at 10:45 a.m. Tuesday.

On Wednesday, the Virginia College Building Authority (Aa1/AA+//) is set to sell $535.2 million of educational facilities revenue bonds, Series 2021A (21st Century Collage and Equipment Programs) at 10:30 a.m.

Seattle (Aa1/AA+//) is set to sell $112.9 million of drainage and wastewater system improvement and refunding revenue bonds 2021 at 10:45 a.m. Wednesday.

Fulton County, Georgia, is set to sell $175 million of general fund tax anticipation notes, series 2021, at 10 a.m. Wednesday.

Ladue School District, Missouri, (/AAA//) is set to sell $126 million of unlimited tax general obligation bonds at noon Wednesday.

In the negotiated space, Connecticut (Aa3/A+/AA-/) will sell $700 million of general obligation bonds in three series on Wednesday, $300 million 2021 Series B social bonds, $175 million 2021 Series C refunding GOs, and $225 million 2021 Series D forward delivery social refunding bonds. BofA Securities is bookrunner.

Connecticut (Aa3/A+/AA-/) is also set to price $300 million of taxable refunding GOs, serials 2022-2031, on Wednesday. UBS Financial Services Inc. is head underwriter.

Colorado (Aa2/AA-//) is set to price on Wednesday $500 million of Rural Colorado certificates of participation Series 2021A. J.P. Morgan Securities LLC is head underwriter.

The City of Phoenix Civic Improvement Corp. (Aa2/AAA//) is set to price on Tuesday $317.3 million of junior lien water system revenue bonds Series 2021A, $250 million, series 2026-2041, term 2045 and $67.3 million of refunding bonds, serials 2022-2026. Siebert Williams Shank & Co., LLC is lead underwriter.

The Charlotte-Mecklenburg Hospital Authority, North Carolina, (Aa3/AA-//) is set to price on Thursday $300 million of taxable healthcare revenue bonds Series 2021A, serial 2051. Citigroup Global Markets Inc. is bookrunner.

The authority is also set to price on Thursday $300 million of variable rate healthcare revenue bonds, three-, seven- and 10-year Series 2021B, C and D. Citigroup Global Markets Inc. is bookrunner.

The California Municipal Finance Authority (/AA//) is set to price on Tuesday $275.6 million of student housing revenue bonds (CHF-Davis II, L.L.C. – Orchard Park Student Housing Project) Series 2021, insured by Build America Mutual. J.P. Morgan Securities LLC is head underwriter. Underlying ratings: (Baa3///).

The Metropolitan Water District of Southern California (/AA+/AA+/) is set to price on Tuesday $271.2 million of subordinate water revenue bonds, 2017 Series C (SIFMA Index Mode), subordinate water revenue refunding bonds, 2017 Series D (SIFMA Index Mode), subordinate water revenue refunding bonds, 2017 Series E (SIFMA Index Mode). J.P. Morgan Securities LLC is bookrunner.

The Government of Guam (Ba1///) is set to price on Tuesday $258.5 million of business privilege tax refunding bonds Series 2021F tax-exempt forward delivery, serials, 2026-2031, terms 2036, 2042. Citigroup Global Markets Inc. is head underwriter.

The Maricopa County Special Health Care District, Arizona, (Aa3//AA-/) is set to price on Thursday $243 million of general obligation bonds, Series 2021 D. J.P. Morgan Securities LLC is head underwriter.

The Alamo Community College District (Aaa/AAA//) is set to price $188 million of limited tax bonds, Series 2021 on Tuesday. J.P. Morgan Securities LLC is set to run the books.

The Minnesota Housing Finance Agency (Aa1/AA+//) is set to price $178.1 million of AMT and non-AMT residential housing finance bonds on Wednesday. $24 million Series 2021C, serials, 2022-2028 and $154.1 million Series 2021D, serials 2022, 2027-2032, terms 2036, 2041, 2046, 2052, 2052. RBC Capital Markets is head underwriter.

The Pennsylvania Housing Finance Agency (Aa2/AA+//) is set to price on Wednesday $175.2 million of single family mortgage revenue bonds, Series 2021-135A (non-AMT social bonds), Series 2021-135B AMT social bonds. Barclays Capital Inc. is head underwriter. Retail order period on Tuesday.

The Sioux Falls School District No. 49-5, Minnehaha and Lincoln Counties, South Dakota, (/AA+//) is set to price on Thursday $159 million of general obligation refunding bonds, taxable Series 2021. D.A. Davidson & Co. is bookrunner.

The State of Louisiana (/AA//) Is set to price $155.3 million of grant anticipation revenue bonds, Series 2021, on Wednesday. J.P. Morgan Securities LLC is lead underwriter.

The City of Phoenix Civic Improvement Corp. (Aa2/AA//) is set to price $151.4 million of taxable Series 2021C refunding junior lien water system revenue refunding bonds, serials 2026-2041 and term 2044. Siebert Williams Shank & Co., LLC is head underwriter.

Carroll County, Kentucky, (A1/A//) is set to price on Tuesday $131.9 million of environmental facilities revenue bonds, $54 million of Series 2006B, remarketing refunding and $77.9 million of Series 2008A remarketing bonds. BofA Securities is bookrunner.

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.

The City of Aurora, Colorado, (/AA+/AA+/) is set to price on Tuesday $111.7 million of first-lien water revenue bonds (SEAM Facility & Other System Improvements Project) Series 2021. Morgan Stanley & Co. LLC is head underwriter.

The Town of Hempstead Local Development Corp., New York, (A1/A//) is set to price on Thursday $100 million of tax-exempt and taxable revenue bonds, Series 2021 (Hofstra University Project). Barclays Capital Inc.

Lynne Funk contributed to this report.

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