Munis steady to firmer as NYC TFA prices

Bonds

Municipals were steady to firmer in spots in secondary trading as a large revenue bond offering from the New York City Transitional Finance Authority took the focus and saw yields lowered in a repricing. U.S. Treasuries improved on rising recession concerns while equities ended nearly flat.

Municipals underperformed the moves to lower yields in UST, moving ratios higher. Muni-UST ratios were at 71% in five years, 89% in 10 years and 101% in 30, according to Refinitiv MMD’s 3 p.m. read. ICE Data Services had the five at 72%, the 10 at 90% and the 30 at 101% at a 4 p.m. read.

The Investment Company Institute reported investors pulled $4.590 billion from muni bond mutual funds in the week ending June 22, down from $6.243 billion of outflows in the previous week. This brings the total to $86.4 billion of outflows year-to-date versus Refinitiv Lipper’s $45.7 billion figure.

Exchange-traded funds saw inflows at $1.219 billion versus $633 million of outflows the week prior, per ICI data.

In the primary, Siebert Williams Shank & Co. priced and repriced for the New York City Transitional Finance Authority (Aa1/AAA/AAA/) $950 million of future tax secured tax-exempt subordinate bonds, Fiscal 2023 Series A, with 5s of 08/2024 at 2.04%, 5s of 2027 at 2.50%, 5s of 2032 at 3.18%, 5s of 2037 at 3.63% (-2), 5.25s of 2042 at 3.76% (-2) and 4s of 2048 at 4.36% (-5), callable 8/1/2032.

“This year, the spread for the 10-year NYC TFA BVAL benchmark yield got as wide as +56,” on May 19, “but has since tightened to +31, as of June 22, said CreditSights senior municipal strategists Pat Luby and John Ceffalio said in a new-issue report previewing the deal.

“With the spread for the 10-year NYC GO benchmark yield widening by five basis points this week,” they think some of this week’s 13 basis points tightening of the TFA spread “as anomalous.”

On Wednesday, NYC TFA 5s of 2029 traded at 2.85% (+27 BVAL) versus 2.90% Tuesday.

They said when mutual fund outflows slow down and market conditions improve, they expect the spreads for TFAs to tighten, along with the other major New York issuers.

Elsewhere in the primary, Goldman Sachs & Co. priced for the Dormitory of the State of New York (/BBB-//) $153.755 million of Yeshiva University revenue bonds, Series 2022A, with 5s of 07/2028 at 3.72%, 5s of 2032 at 4.29%, 5s of 2037 at 4.85%, 5s of 2042 at 4.95% and 5s of 2050 at 5.07%, callable 7/15/2032.

Piper Sandler & Co. priced for the Barbers Hill Independent School District, Texas, (Aaa/AAA//) $104.605 million of unlimited tax school building bonds, Series 2022, with 5s of 2/2027 at 2.42%, 5s of 2032 at 3.06%, 5s of 2037 at 3.48% and 5s of 2042 at 3.59%, callable 2/15/2032.

In the competitive market,t Clark County School District, Nevada, (A1/A+//) sold 200 million of general obligation limited tax building bonds, Series 2022A, to JP Morgan Securities, with 5s of 6/2024 at 2.10%, 5s of 2027 at 2.54%, 5s of 2032 at 3.19%, 5s of 2037 at 3.72% and 4.25s of 2042 at 4.450%, callable in 6/15/2032.

Montgomery County, Pennsylvania, (Aaa///) sold $153.155 million of general obligation bonds, Series of 2022, to Morgan Stanley & Co., with 5s of 7/2023 at 1.70%, 5s of 2027 at 2.31%, 5s of 2032 at 2.90%, 5s of 2037 at 3.20% and 5s of 2042 at 3.45%, callable in 7/1/2032.

The Scott County School District Finance Corp., Kentucky, (Aa3/AA//) sold $105.445 million of school building revenue bonds, Series of 2022, to Wells Fargo Bank, with 5s of 09/2023 at 2.12%, 5s of 2027 at 2.89%, 5s of 2032 at 3.65%, 4.5s of 2038 at 4.00%, 4s of 2042 at 4.40%, and 4s of 2045 at 4.50%, callable in 09/1/2032.

On Wednesday, Stephens priced for the Alabama Corrections Institution Finance Authority (Aa2/AA-/AA/) $509.015 million of revenue bonds. The deal was downsized from its original $725 million after facing difficulty finding buyers. The deal saw 5s of 09/2022 at 1.50%, 5s of 07/2027 at 2.77%, 5s of 7/2032 at 3.49%, 5s of 7/2037 at 3.95%, 5s of 7/2042 at 4.11%, 5.25s of 7/2047 at 4.20% and 5.25s of 7/2052 at 4.30%, noncall.

Munis turning a corner?
Munis have been unfairly beaten up in the first half of the year, according to a Nuveen report.

The selloff stemmed from broad macroeconomic issues, mainly from rising rates, rather than fundamental factors, which remain strong, said John Miller, head of municipals at Nuveen.

“State and local tax revenues look healthy, reserve funds and pension balances are solid and most sectors are seeing positive rating upgrades,” he said.

Both investment-grade and high-yield munis offer compelling value. If interest rates stabilize, he thinks munis “could be poised for a jump in the second half of 2022.”

Over the second half of the year, Cooper Howard, fixed income strategist focused on municipals at Charles Schwab, also believes the muni market will be an area of opportunity.

Returns are likely to improve during the second half of the year. 

“The bulk of the move up is likely behind us so rising Treasury rates should pose less of a headwind,” Howard said. “In addition, coupon returns should be better since yields have increased.”

And by most measures, credit risk in the broad muni market is stable to strong.

“The ongoing economic recovery combined with multiple rounds of fiscal aid following the onset of the COVID-19 pandemic have strengthened state and local governments’ finances,” Howard said.

“Although credit quality is stable to strong, we believe it’s appropriate to move up in credit quality and focus the bulk of a muni portfolio on higher-rated (AA/Aa and AAA/Aaa) issuers because the risks of a recession are rising,” he said. “In addition, the risks of a recession are rising.”

Informa: Money market muni assets rise again
Tax-exempt municipal money market funds continued a 10-week inflow streak as $697.5 million was added the week ending June 28, bringing the total assets to $102.29 billion, according to the Money Fund Report, a publication of Informa Financial Intelligence.

The average seven-day simple yield for all tax-free and municipal money-market funds rose to 0.56%.

Taxable money-fund assets added $2.81 billion to end the reporting week at $4.377 trillion of total net assets. The average seven-day simple yield for all taxable reporting funds rose to 1.01%.

Secondary trading
New York City 5s of 2023 at 1.52%. Washington 5s of 2026 at 2.28%. Montgomery County, Maryland, 5s of 2026 at 2.27%.

New York City 5s of 2027 at 2.48%-2.47%. Minnesota 5s of 2027 at 2.30%. Georgia 5s of 2028 at 2.46%-2.44%.

New York City TFA 5s of 2029 at 2.85% versus 2.90% Tuesday. Prince George’s County, Maryland, 5s of 2030 at 2.71%. Georgia 5s of 2031 at 2.75% versus 2.75% Tuesday.

Maryland 5s of 2034 at 2.99%. Maryland 5s of 2036 at 3.06%.

Los Angeles DWP 5s of 2043 at 3.66%-3.60%, the same as Friday. (Original 3.77%). New York City waters 5s of 2045 at 3.80%. Charleston, South Carolina, 5s of 2051 at 3.57%-3.52%.

AAA scales
Refinitiv MMD’s scale was bumped two basis points 10 years and out at the 3 p.m. read: the one-year at 1.62% (unch) and 1.97% (unch) in two years. The five-year at 2.26% (unch), the 10-year at 2.77% (-2) and the 30-year at 3.25% (-2).

The ICE municipal yield curve was bumped a basis point or two: 1.65% (-1) in 2023 and 1.96% (-1) in 2024. The five-year at 2.30% (-1), the 10-year was at 2.75% (-2) and the 30-year yield was at 3.27% (-1) at a 4 p.m. read.

The IHS Markit municipal curve saw three basis point bumps 10 years and out: 1.63% (unch) in 2023 and 1.97% (unch) in 2024. The five-year at 2.24% (unch), the 10-year was at 2.79% (-3) and the 30-year yield was at 3.25% (-3) at 4 p.m.

Bloomberg BVAL was bumped one basis point: 1.65% (-1) in 2023 and 1.94% (-1) in 2024. The five-year at 2.27% (-1), the 10-year at 2.78% (-1) and the 30-year at 3.25% (-1) at a 4 p.m. read.

Treasuries were better.

The two-year UST was yielding 3.056% (-5), the three-year was at 3.124% (-8), the five-year at 3.152% (-8), the seven-year 3.171% (-8), the 10-year yielding 3.098% (-7), the 20-year at 3.469% (-7) and the 30-year Treasury was yielding 3.217% (-7) at 4 p.m.

Primary to come:
The Alameda Corridor Transportation Authority, California, is set to price Thursday $273.500 million of lien revenue refunding bonds, consisting of tax-exempt senior capital appreciation bonds, Series 2022A (A3/A-/A/); taxable senior current interest bonds, Series 2022B (A3/A-/A/); and tax-exempt second convertible capital appreciation bonds, Series 2022C (Baa2/BBB+/BBB/). J.P. Morgan Securities.

The Sumter County Industrial Development Authority, Florida, (B1/B+/BB-/) is set to price Thursday $250 million of green exempt Enviva Inc. Project facilities revenue bonds, Series 2022, serial 2052. Citigroup Global Markets. 

The San Diego Unified School District, California, is set to price Thursday $235 million of 2022-2023 tax and revenue anticipation notes, Series A, serial 2023. Citigroup Global Markets.

Competitive:
Pueblo County, Colorado, is set to sell $126.355 million of Jail Project certificates of participation, Series 2022A, at 12 p.m. eastern Thursday. 

The North Dakota Public Finance Authority is set to sell $320.800 million of taxable legacy fund infrastructure program bonds, Series 2022, at 10 a.m. Thursday.

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