Slight pressure on munis while large new issues take spotlight

Bonds

Municipals faced some pressure Tuesday on another day of a weaker U.S. Treasury market while equities made gains. A large new-issue calendar began pricing, with a few deals bumped off the day-to-day calendar.

Triple-A benchmarks saw cuts of one to two basis points. Ratios held in a range Tuesday. Municipal-to-Treasury ratios were at 49% in five years, at 68% in 10 years and 77% in 30 years, according to Refinitiv MMD’s 3 p.m. read. ICE Data Services had the five-year at 49%, the 10 at 71% and the 30 at 78%.

Both intermediate and long slopes have flattened in recent weeks, noted Kim Olsan, senior vice president at FHN Financial.

The 10-year/5-year curve sits below a 50 basis point spread after trading above 65 basis points in early October, she said. July brought a low spread of 42 basis points when the 10-year AAA traded through 0.85%.

“Real yields that now offer buyers 1.25% or higher in the 10-year range have offset an otherwise flatter slope,” she said. “Further out the curve, the 20-year/10-year slope has moved to its flattest of the year, currently at 25 basis points. When the year began, the slope was a 49 basis points corresponding to 20-year yields below 1.25%.”

The post-payroll market has taken on an unclear focus, she said, as munis have largely held onto a slightly steady tone while USTs have been erratic. Supply is just one component the market will weigh where rates are concerned. Thirty-day visible supply sits at $9.62 billion. Another factor with relevance to rate direction is the demand component, including fund flows and scheduled redemptions, Olsan said.

“A turnaround in waning muni flows (Lipper reported $1.9 billion in the first week of November, more than triple the previous week) and heavier December reinvestment needs (projected calls and maturities are $30 billion) could provide enough support to hold yields in a narrower range,” she said. “Add in the back-and-forth dialogue with the second round of infrastructure and tax consequences, and it doesn’t take much to explain bidders’ lack of conviction in either direction.”

It was a larger new-issue day with a variety of credits coming in both the negotiated and competitive markets.

RBC Capital Markets brought the Main Street Natural Gas (Aa2//AA-/) deal off the day-to-day calendar, pricing $821.62 million of gas supply revenue bonds, with 4s of 9/2024 at 0.62%, 5s of 3/2026 at 1.02%, 4s of 9/2026 at 1.09%, 4s of 3/2027 at 1.25% and 4s of 9/2027 at 1.34%, callable June 1, 2027. The bulk of the deal, $815.235 million, saw 4s of 9/2027 yield 1.38%, mandatory tender on 9/1/2027, callable June 1, 2027.

Goldman Sachs & Co. LLC priced for the California Community Choice Financing Authority (A2///) $602.655 million of clean energy project revenue climate bond certified green bonds, Kestrel Verifiers, with 4s of 12/2023 at 0.54%, 5s of 2026 at 1.12%, and 4s of 2052 at 1.48%, mandatory tender Dec. 1, 2027.

Siebert Williams Shank & Co., LLC priced for the Port of Houston Authority, Harris County, Texas, (Aa3/AA+//) $320.82 million of first lien revenue bonds, with 5s of 10/2022 at 0.17%, 5s of 2026 at 0.72%, 5s of 2031 at 1.30%, 4s of 2036 at 1.60%, 5s of 2041 at 1.62%, 4s of 2046 at 1.93% and 5s of 2051 at 1.82%, callable April 1, 2032.

Citigroup Global Markets Inc. priced for the Michigan Finance Authority (Aaa//AAA/) $119.77 million of drinking water revolving fund revenue bonds with 5s of 10/2024 at 0.40%, 5s of 2026 at 0.70%, 5s of 2031 at 1.22%, 1.875s of 2036 at 1.94%, 2.225s of 2041 at 2.17% and 2.125s of 2043 at 2.25%, callable Oct. 1, 2031.

J.P. Morgan Securities LLC priced for Farmington, New Mexico, (A3/A-/BBB+/) $103.46 million of pollution control refunding revenue bonds, Southern California Edison Company Four Corners Project, with bonds in 4/2029 priced at 1.80% par, noncall.

Barclays Capital Inc. priced for Farmington $100 million of pollution control refunding revenue bonds Southern California Edison Company Four Corners Project, with bonds in 4/2029 at 1.80% par, noncall.

J.P. Morgan Securities LLC priced for the California Statewide Communities Development Authority $100 million of Southern California Edison Company pollution control refunding revenue bonds, with bonds in 9/2029 at 1.75% par, callable Nov. 19, 2026.

PNC Capital Markets LLC priced for the Public Finance Authority, Wisconsin, (/AA-/AA/) $92.82 million of Bayhealth Medical Center Project tax-exempt bonds with 3s of 7/2022 at 0.27%, 5s of 2026 at 0.80%, 5s of 2031 at 1.39%, 4s of 2036 at 1.74%, 4s of 2044 at 2.01% and 3s of 2050 at 2.63%, callable Nov. 1, 2032.

Competitive
King County, Washington, (Aaa/AAA/AAA/) sold $494.9 million of taxable limited tax general obligation bonds to BofA Securities. Bonds priced at par: 0.35% in 12/2022, 1.40% in 2026, 2.06% in 2031, 2.41% in 2036, and 2.73% in 2041, callable Dec. 1, 2031.

King County also sold $30.14 million of limited tax general obligation bonds to TD Securities. Bonds in 6/2022 with a 5% coupon yield 0.13%, 5s of 2026 at 0.61% and 5s of 2029 at 1%, noncall.

The San Francisco Public Utilities Commission (Aa2/AA//) sold $266.265 million of wastewater revenue SSIP green bonds to BofA Securities. Bonds in 10/2043 with a 5% coupon yield 1.50%, 5s of 2046 at 1.59%, and 4s of 2051 at 1.78%, callable Oct. 1, 2031.

The issuer also sold $38.735 million of wastewater revenue bonds non-SSIP to Citigroup Global Markets with 5s of 10/2043 at 1.42%, 5s of 2046 at 1.54% and 5s of 2051 at 1.59%, callable Oct. 1, 2031.

Nevada (Aa1/AA+/AA+/) sold $118.03 million of limited tax general obligation bonds to BofA Securities with 5s of 2022 at 0.16%, 5s of 2026 at 0.66%, 5s of 2031 at 1.22%, 3s of 2036 at 1.73% and 2s of 2014 at 2.15%, callable May 1, 2031. The state also sold $12.465 million of limited tax GO natural resources bonds to RBC Capital Markets. Bonds in 5/2022 with a 5% coupon yield 0.16% and 5s of 2024 at 0.35%, noncall.

Secondary trading
California 5s of 2022 at 0.18% and 0.13%. Georgia 5s of 2023 at 0.26%. Prince George’s County 5s of 2023 at 0.27%. Maryland 5s of 2023 at 0.27%.

Ohio 5s of 2024 at 0.37%. Montgomery County, Maryland, 5s of 2024 at 0.39%. Maryland 5s of 2024 at 0.35%. North Carolina 5s of 2022 at 0.33%. Connecticut 5s of 2025 at 0.56%. Michigan Trunkline 5s of 2025 at 0.61%. Delaware 5s of 2026 at 0.51%.

New York EFC 5s of 2030 at 1.07%. Texas water 5s of 2030 at 1.15%. Washington 5s of 2030 at 1.13%-1.10%. Georgia 5s of 2032 at 1.14%.

Georgia 4s of 2036 at 1.33%. New York City TFA 4s of 2038 at 1.74%. Fairfax County, Virginia, 4s of 2040 at 1.53%. New York City TFA 4s of 2048 at 1.96%-1.95%.

AAA scales
According to Refinitiv MMD, the one-year was steady at 0.15% in 2022 and at 0.25% in 2023. The 10-year rose two to 1.11% and up two to 1.56% in 30.

The ICE municipal yield curve showed yields rise one basis point to 0.19% in 2022 and to 0.28% in 2023. The 10-year maturity sat at 1.11% and the 30-year yield was up one to 1.59%.

The IHS Markit municipal analytics curve showed short yields rise two basis points to 0.17% in 2022 and three to 0.25% in 2023. The 10-year yield rose two to 1.08% and the 30-year yield rose two to 1.56%.

The Bloomberg BVAL curve showed short yields rise one to 0.17% in 2022 and 0.23% in 2023. The 10-year yield rose one basis point to 1.11% and the 30-year yield was up one to 1.58%.

Treasuries were weaker and equities also saw losses.

The five-year UST was yielding 1.265%, the 10-year at yielding 1.634%, the 20-year at 2.069% and the 30-year Treasury was yielding 2.030% near the close. The Dow Jones Industrial Average gained 88 points or 0.24%, the S&P was up 0.43% while the Nasdaq rose 0.77% near the close.

Powell or Brainard?
A decision about who will lead the Federal Reserve for the next four years is expected before Thanksgiving and could come sooner, with no hints as to whether President Biden will retain Jerome Powell or promote Gov. Lael Brainard.

Late Tuesday when asked the president said, “you’re gonna hear that in about four days.”

“Based on how markets reacted when they learned Brainard was in the running, it’s clear who’s viewed as the more dovish between the two,” said Craig Erlam, senior market analyst, UK & EMEA, at OANDA. “Ordinarily, that would make her the stock market’s pick, but that may not necessarily be the case if investors view inflation as a greater risk than the central bank perceives, making inaction the less desirable approach longer term.”

Expectations are Powell will be renominated, but Megan Horneman, director of portfolio strategy at Verdence Capital Advisors, said Biden has three objectives: keep the Fed dovish and interest rates low, which helps his spending agenda; address inflation concerns; and “satisfy progressive Democrats over getting tough on banking regulation.”

Despite the annual rotation of voters on the Federal Open Market Committee, she said, “the members rotating are an even mix of doves and hawks. Therefore, who President Biden picks for the vacant/replacement seats and Fed Chair can move the FOMC in the way he prefers.”

And inflation remains an issue, despite a 1.7% surge in retail sales in October. “Inflation is getting in consumers’ heads,” said Wells Fargo Securities Senior Economist Tim Quinlan and Economist Shannon Seery. “This was already evident in the recent deterioration in consumer sentiment, but if you look carefully, you can now see it in the hard data as well. If price gains outstrip spending increases, that implies a volume decline.”

While fuel prices soared 6.1%, gasoline sales (not adjusted for inflation) grew 3.9%, which “suggests that consumers may be starting to combine trips or otherwise limit their driving,” they said. Similarly, restaurant spending was steady despite a 0.8% climb in consumer prices for food away from home.

“Consumers are still going out to eat, but perhaps some diners are moving down the price curve from upscale full-service dining experiences toward more humble fast-casual options,” Quinlan and Seery said.

Inflation and supply chain issues could be moving forward holiday spending, with several warnings about empty shelves if consumers wait too long and the threat of delivery delays prompting earlier gift buying.

“The concern is that rising inflation and souring sentiment could hamper consumer activity later in the year,” said Grant Thornton Economist Yelena Maleyev. “We expect supply chain concerns to remain elevated into 2022. The Federal Reserve could move up its first rate hike to the first half of next year.”

Separately, industrial production grew 1.6% in October, with capacity utilization rising to 76.4%.

Also, the National Association of Home Builders housing index rose to 83 in November from 80 in October.

The service sector in the New York region saw modest growth, according to the Federal Reserve Bank of New York’s Business Leaders Survey. The business activity index gained to 15.9 on November from 15.2 in October, with the business climate index remaining negative.

The number of employees index slipped and wages grew.

Prices paid and prices received both rose.

Primary to come
Mississippi (Aa2/AA/AA/) is set to price $1.225 billion of general obligation bonds, consisting of $198.85 million of tax-exempt GOs, $126.89 million of taxable GOs, and $900 million of taxable refunding GOs. Wells Fargo Corporate & Investment Banking.

Grand Canyon University (Ba1///) is set to price on Thursday $1.2 billion of taxable corporate CUSIP bonds. Barclays Capital Inc.

The California Health Facilities Financing Authority (Aa3/AA-/AA-/) is set to price on Wednesday $1.05 billion of Cedars-Sinai Health System revenue bonds, serials 2037-2041. Barclays Capital Inc.

The Cedars-Sinai Health System (Aa3/AA-AA-/) is also set to price on Wednesday $300 million of taxable corporate CUSIP bonds. Barclays Capital Inc.

Cook County, Illinois, (A2/A+/AA-/) is set to price on Wednesday $193.19 million of general obligation refunding bonds, serials 2022-2028. Loop Capital Markets.

The CSCDA Community Improvement Authority (nonrated) is set to price on Wednesday $177.825 million of Millennium South Bay-Hawthorne revenue bonds. Stifel, Nicolaus & Company, Inc.

Clark University, Massachusetts, (A2///) is set to price $156 million of taxable refunding bonds on Wednesday. Goldman Sachs & Co. LLC.

Colorado (Aa2/AA-//) is set to price on Wednesday $149.56 million of Building Excellent Schools Today certificates of participation, serials 2022-2046. RBC Capital Markets.

Katy Independent School District, Texas, (Aaa/AAA//) is set to price $133.495 million of unlimited tax school building bonds, PSF guarantee, serials 2022-2051. Huntington Securities, Inc.

Georgia Tech Foundation is set to price on Thursday $100 million of taxable corporate CUSIP bonds, term 2051, indications of interest on Wednesday. Barclays Capital Inc.

Day-to-day calendar
The Arizona Industrial Development Authority is on the day-to-day calendar with $177.97 million of revenue bonds (NewLife Forest Restoration Project), consisting of $110.045 million of senior federally taxable series 2021A (sustainability-linked bonds), term 2041 and $67.925 million of subordinate federally taxable series 2021B (sustainability-linked bonds), term 2046. Goldman Sachs & Co.

The Successor Agency to the Redevelopment Agency of the City and County of San Francisco (/AA///) is on the day-to-day calendar with $107.34 million of taxable third-lien tax allocation social bonds, 2021 Series A (affordable housing projects), serials 2023-2031, insured by Assured Guaranty Municipal Corp. Citigroup Global Markets.

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