Primary takes focus; steady tone for munis

Bonds

Municipal triple-A yield curves were steady Tuesday while the focus was on the primary, which kicked into gear with several large new issues out of New York, Oregon and Wisconsin pricing.

U.S. Treasuries ended a bit better while munis were little changed on the day and the moves pushed muni to UST ratios higher.

Ratios were at 88% in five years, 96% in 10 years and 103% in 30, according to Refinitiv MMD’s 3 p.m. read. ICE Data Services had the five at 86%, the 10 at 94% and the 30 at 103% at a 4 p.m. read.

In the primary Tuesday, Citigroup Global Markets priced for the Dormitory Authority of the State of New York (A3/A-/A-/) $820 million of Northwell Health Obligated Group revenue bonds, Series 2022A. Bonds in 5/2037 with a 5% coupon yield 4.10%, 4s of 2041 at 4.51%, 4s of 2045 at 4.74%, 4.25s of 2052 at 4.81% and 5s of 2052 at 4.51%, callable 5/1/2032.

Roosevelt & Cross priced for the Dormitory Authority of the State of New York $755.460 million of school districts revenue bond financing program revenue bonds, with the first series, $728.98 million (Aa3//AA-/), Series 2022A, insured by Build America Mutual (except for 2023, 2024 maturities). Bonds in 10/2023 with a 5% coupon yield 2.30%, 5s of 2027 at 3.01%, 5s of 2032 at 3.59%, 5s of 2037 at 3.80%, 5s of 2042 at 3.94%, callable in 10/1/2030, and 4.25s of 2051 at 4.40%.

The second, $26.480 million (/AA/AA-/), Series 2022B, saw 5s of 10/2023 at 2.18%, 5s of 2027 at 2.91%, 5s of 2032 at 3.49% and 5s of 2037 at 3.70%, callable 10/1/2030.

J.P. Morgan Securities priced for Energy Northwest, Washington, (Aa2/AA-/AA/) $517.055 million of revenue bonds. The first tranche, $99.435 million of Project 1 electric revenue refunding bonds, Series 2022-A, saw bonds in 7/2026 with a 5% coupon yield 2.66%, 5s of 2028 at 2.86% and 5s of 2035 at 3.44%, callable 7/1/2032.

The second tranche, $396.755 million of Columbia Generating Station electric revenue and refunding bonds, Series 2022-A, saw bonds in 7/2032 with a 5% coupon yield 3.22% and 5s of 2037 at 2.51%, callable 7/1/2032.

The third tranche, $18.560 million of Project 3 electric revenue refunding bonds, Series 2022-A, saw bonds in 7/2035 with a 5% coupon yield 3.44%, callable 7/1/2032.

The fourth tranche, $585,000 of taxable Project 1 electric revenue refunding bonds, Series 2022-B, saw bonds in 7/2025 with a 3.32% coupon price at par, make whole call.

The fifth tranche, $1.720 million of taxable Columbia Generating Station electric revenue refunding bonds, Series 2022-B, saw bonds in 7/2025 with a 3.32% coupon priced at par, make whole call.

Morgan Stanley & Co. LLC priced for Oregon (Aa1/AA+/AA+/) $422.415 million of general obligation bonds, consisting of $175.75 million of general obligation bonds, 2022 Series A, with 5s of 5/2023 at 1.97%, 5s of 2027 at 2.65%, 5s of 2032 at 3.07%, 5s of 2037 at 3.32%, 5s of 2042 at 3.41% and 5s of 2047 at 3.51%, callable 5/1/2032. The third tranche, $67.405 million of seismic grant program general obligation bonds, 2022 Series C, saw 5s of 6/2023 at 2.00%, 5s of 2027 at 2.65%, 5s of 2032 at 3.07%, 5s of 2037 at 3.32% and 5s of 2042 at 3.41%, callable 6/1/2032. Details were not yet available on the second tranche, $175.800 million of taxable sustainability bonds, 2022 Series B.

BofA Securities priced for Queen Creek, Arizona, (/AA+/AA+/) $126.960 million of excise tax and state shared revenue obligations, Series 2022. Bonds in 8/2023 with a 5% coupon yield 2.15%, 5s of 2027 at 2.76%, 5s of 2032 at 3.25%, 5s of 2037 at 3.45%, 3.875s of 2042 at 4.11%, 5s of 2047 at 3.78% and 3s of 2051 at 4.30%, callable 8/1/2032

In the competitive market, Wisconsin sold $184.910 million of general obligation bonds of 2022, Series A, to Wells Fargo Bank. Bonds in 5/2032 with a 5% coupon yield 3.00%, 5s of 2037 at 3.32% and 4s of 2042 at 3.71%, callable 5/1/2031.

Orange United School District, California, (/AA//) sold $100 million of Election of 2016 general obligation bonds, Series 2022, to J.P. Morgan Securities. Bonds in 8/2023 with a 5% coupon yield 2.05%, 5s of 2027 at 2.66%, 5s of 2032 at 3.06%, 5s of 2037 at 3.30%, 5s of 2042 at 3.58%, 4.125s of 2047 at 4.18% and 4.125s of 2049 at 4.20%, callable 8/1/2032.

The Fed’s 50-basis point hike “facilitated another round of capitulation by the offered side of the muni market,” said Matt Fabian, a partner at Municipal Market Analytics.

“More importantly, most of the municipal pricing curves now read as well oversold, in particular at intermediate and longer maturities, creating an opportunity for buyers,” he said.

He said this is being realized by the exchange-traded funds, which saw $1.1 billion of inflows last week, according to the Investment Company Institute.

Fabian said traditional mutual funds lost another estimated $5 billion to outflows for the week ending May 4, and have now lost around $57.8 billion in the last 16 weeks: equal to 6% of the funds’ muni assets as of Dec. 31.

Additionally, he said that “NAV losses are accelerating with continued price cuts in the primary and secondary and related impact on fund holding evaluations. Some high-yield funds are down nearly 15% year-to-date, while investment grade are down around 10%.”

“Amid relatively heavy primary market calendars for tax-exempt paper,” he said, “net has been at or above $10 billion for nine-straight weeks: a sizeable excess.”

“It’s thus unremarkable that liquidity remains inconstant and that weekly customer bids wanted activity is still above $8 billion,” he said.

However, “for investors with cash and long-term income and return aspirations, the current market is providing an excellent opportunity,” Fabian said. “High grade, defensive structures, such as double-A-rated 5s priced to sell quickly, while lower-rated 5s at or near par.

“Assuming that the funds are selling their best 5s, etc., to access secondary market cash, their worst 3s and 4s may be harboring still unevaluated losses,” he said. “The most reliable buying opportunities for now are thus in bonds not shares.”

He noted that “dealer inventories are a bit higher but, versus their own history, still fairly unresponsive to market conditions.”

At present, he said, a large majority of state and local credit vectors (i.e. economic growth, revenue performance and federal assistance) and performance metrics (i.e. ratings, defaults, and spreads) are positive, “creating a constructive context in which municipal investors can (and should be) buying bonds, in particular tax-exempt securities that are likely to be revisited with supply scarcity once mutual fund outflows stabilize or reverse.”

However, Fabian said, “there is also an accumulation of risks for the medium term that could threaten positive rating trajectories and headlines and lead to, at a minimum, spread widening and credit underperformance.”

“Leading among these are stock market volatility, inflation, rising costs for labor and electricity, and increasingly volatile political outcomes,” he said.

Secondary trading
New York Dorm PITs 5s of 2023 at 1.89%-1.88%. Wake County, North Carolina, 5s of 2023 at 1.70%-1.69%. North Carolina 4s of 2023 at 2.01%-2.00%. Maryland 5s of 2024 at 2.31% versus 2.34%-2.31% Monday.

Washington 5s of 2026 at 2.62%. Maryland 5s of 2026 at 2.59%. Loudoun County, Virginia, 5s of 2027 at 2.66%.

Anne Arundel, Maryland, 5s of 2030 at 2.89%. Maryland 5s of 2030 at 2.89%.

New York City water 5s of 2035 at 3.44%-3.43% versus 3.29% on 5/3. Washington 5s of 2040 at 3.44%. Washington 5s of 2046 at 3.52% versus 3.59%-3.56% Monday.

Triborough Bridge and Tunnel MTA Bridges and Tunnel 5s of 2047 at 3.99%-3.98% (original 3.99%). New York City GOs 5s of 2047 at 4.01%-4.00% versus 3.75% Wednesday.

AAA scales
Refinitiv MMD’s scale was unchanged at the 3 p.m. read: the one-year at 1.97% and 2.29% in two years. The five-year at 2.56%, the 10-year at 2.88% and the 30-year at 3.21%.

The ICE municipal yield curve was unchanged: 2.03% in 2023 and 2.36% in 2024. The five-year at 2.54%, the 10-year was at 2.84% and the 30-year yield was at 3.28% at a 4 p.m. read.

The IHS Markit municipal curve was flat: 1.99% in 2023 and 2.29% in 2024. The five-year at 2.60%, the 10-year was at 2.87% and the 30-year yield was at 3.21% at 4 p.m.

Bloomberg BVAL was also little changed: 2.00% in 2023 and 2.28% in 2024. The five-year at 2.60% (+1), the 10-year at 2.85% and the 30-year at 3.16% at a 4 p.m. read.

Treasuries were mixed having pared back earlier larger gains.

The two-year UST was yielding 2.609% (+1), the three-year was at 2.805% (flat), five-year at 2.911% (-4), the seven-year 2.996% (-4), the 10-year yielding 2.995% (-4), the 20-year at 3.345% (-3) and the 30-year Treasury was yielding 3.131% (-2) at the close.

Primary to come:
The San Francisco Bay Area Rapid Transit District (Aaa//AAA/) is set to price Wednesday $700 million of Election of 2016 general obligation bonds, consisting of $604.270 million of Series D-1, serials 2024-2042, terms 2047 and 2052 and $95.730 million of Series D-2, serials 2022. Stifel, Nicolaus & Co.

The Harris County Cultural Education Facilities Finance Corp., Texas, is set to price Thursday $277 million Memorial Hermann Health System hospital revenue bonds, consisting of $170 million of fixed rate bonds, Series 2022A; $55 million of fixed-rate puttable bond, Series 2022B; and $52 million of fixed-rate notes, Series 2022C. J.P. Morgan Securities.

Georgetown, Texas, (/A+//) is set to price Thursday $223.330 million of utility system revenue bonds, Series 2022. Morgan Stanley & Co.

The Industrial Development Authority of the City of Phoenix, Arizona, is set to price Thursday $199.926 million of All Sports Village Project economic development revenue bonds, consisting of $180.660 million of tax-exempt bonds, Series 2022A, $6 million of taxable bonds, Series 2022B and $13.266 million of tax-exempt, Series 2022C. D.A. Davidson & Co.

The Minnesota Higher Education Facilities Authority (A2///) is set to price Wednesday $128.125 million of University of St. Thomas revenue bonds, consisting of $59.775 million of green bonds, Series 2022A, serials 2025-2042, terms 2047 and 2052 $68.350 million of Series 2022B, serials 2025-2042, terms 2047 and 2052. RBC Capital Markets.

The Bay Laurel Center Community Development District, Florida, (/AA//) is set to price Thursday $126.770 million of taxable water and sewer revenue bonds series 2022B, serials 2024-2032, terms 2042 and 2052, insured by Assured Guaranty Municipal Corp. Jefferies.

The Indiana Housing and Community Development Authority (Aaa//AAA/) is set to price Wednesday $115.840 million of social single-family mortgage revenue bonds, 2022 Series B, serials 2023-2034, terms 2037, 2042, 2047 and 2052. RBC Capital Markets.

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