Muni yields fall further as recession fears grow

Bonds

Municipal yields fell for the third session in a row following the flight-to-safety bid in U.S. Treasuries as recession concerns continue to grow. Equities were mixed.

Triple-A benchmark yields were bumped three to six basis points Tuesday with the strongest moves out long. Falling yields over the past two weeks have been “a welcome sigh of relief as we have seen yields as low as 0.67% back in February to as high as 2.97% back in April on 10-year notes,” said Jason Wong, vice president of municipals at AmeriVet Securities.

“As we shift our focus from high inflation to a possible recession, we could see investors jump back into the fixed income markets” as recessions tend to be favorable to them “which will limit some of the losses we’ve had in the first half of the year,” Wong said in a Monday report.

The moves in munis and UST saw ratios hold mostly steady at recent levels. Muni-UST ratios were at 75% in five years, 93% in 10 years and 101% in 30, according to Refinitiv MMD’s 3 p.m. read. ICE Data Services had the five at 75%, the 10 at 93% and the 30 at 101% at a 4 p.m. read.

Yields on 10-year triple-A munis fell by 18 basis points for the past week to 2.61% and have fallen 30 basis points in the last two weeks.

“Although we’ve had two weeks of rallies, we still need to be cautious in the next few weeks as we have the July Fed meeting as well as the end of the bond-buying program in which we could see yields rise slightly this month,” he said.

“Even though we had a rally, muni bonds underperformed compared to Treasuries as 10-year notes are now yielding 93.68% of Treasuries compared to 89.50% a week ago while the 10-year ratios were at 84.53% a month ago,” Wong added.

Wong also noted that the muni curve has flattened slightly for the week as the gap between yields on short-term and long-term bonds flatten by three basis points to 130 basis points.

Due to the holiday-shortened week, the municipal bond negotiated calendar will be very light “with an expected size of $2.5 billion for the week with two deals covering over half of the issuance,” Wong said.

Bond Buyer 30-day visible supply is at $9.94 billion while net negative supply sits at $14.577 billion.

The largest deals of the week will be the $1.5 billion of airport system revenue bonds from the city and county of Denver, Colorado, and the $700 million of sales tax revenue bonds from the Triborough Bridge and Tunnel.

Due to the “early close on Friday, secondary trading only totaled to around $37.4 billion [last] week with the bulk of the trading happening on Wednesday and Thursday,” Wong said.

With last week’s rally, around 57% of all secondary trading was clients purchasing bonds from dealers, Wong said. Bids-wanted totaled around $5.43 billion last week, four of the days having over a billion listed up for the bid, per Wong.

Additionally, the average daily MSRB par traded dropped 22% from the week ended June 24, said CreditSights strategist Pat Luby. It’s still 11% higher than the one-year daily average. “Customer ‘buy’ trades exceeded ‘sell’ trades by an average of $2 billion per day, which was down from the previous week’s average of $3.4 billion,” he said.

Spread changes for the muni credit indices were mixed, Luby said.

The double- and single-A indices both tightened by one basis point. The triple-B Index widened by six basis points for the week but the month-end rebalancing was responsible for eight basis points of widening, he said.

The High-Yield muni index ended the week tighter by eight basis points, with one basis point of tightening attributable to the rebalancing, he said.

Secondary trading
Wisconsin 5s of 2023 at 1.33%-1.32%. Maryland 5s of 2024 at 1.87%-1.81%. New York City TFA 5s of 2024 at 1.95%-1.91%.

Delaware 5s of 2025 at 1.97% versus 1.99% Friday. North Carolina Build NC 5s of 2026 at 2.13%. New York City 5s of 2029 at 2.58%.

California 5s of 2030 at 2.55%. Georgia 5s of 2032 at 2.63% versus 2.73% Thursday. California 5s of 2032 at 2.70%.

Maryland 5s of 2034 at 2.82%-2.76% versus 2.95%-2.88% Thursday. New York City TFA 5s of 2035 at 3.29% versus 3.51% original. Montgomery County, Pennsylvania, 5s of 2035 at 2.84% versus 3.07% Thursday and 3.10% original.

New York City TFA 5s of 2041 at 3.52% versus 3.80% original. NYC TFA 5s of 2044 at 3.63%-3.56%. California 5s of 2047 at 3.26% versus 3.31% Friday.

AAA scales
Refinitiv MMD’s scale was bumped five points at the 3 p.m. read: the one-year at 1.55% (-5) and 1.88% (-5) in two years. The five-year at 2.13% (-5), the 10-year at 2.61% (-5) and the 30-year at 3.06% (-5).

The ICE municipal yield curve was bumped two to five basis points: 1.56% (-3) in 2023 and 1.87% (-3) in 2024. The five-year at 2.15% (-4), the 10-year was at 2.58% (-5) and the 30-year yield was at 3.09% (-5) at the close.

The IHS Markit municipal curve was bumped five basis points five years and out: 1.57% (unch) in 2023 and 1.91% (unch) in 2024. The five-year at 2.13% (-5), the 10-year was at 2.61% (-5) and the 30-year yield was at 3.06% (-5) at the close.

Bloomberg BVAL was bumped three to six basis points: 1.56% (-3) in 2023 and 1.84% (-3) in 2024. The five-year at 2.14% (-4), the 10-year at 2.62% (-6) and the 30-year at 3.08% (-6) at the close.

Treasuries strengthened.

The two-year UST was yielding 2.824% (-2), the three-year was at 2.829% (-3), the five-year at 2.824% (-6), the seven-year 2.872% (-5), the 10-year yielding 2.829% (-5), the 20-year at 3.337% (-1) and the 30-year Treasury was yielding 3.064% (-5) at the close.

Primary to come:
The City and County of Denver, Colorado, (Aa3/A+/AA-/) is set to price Thursday on behalf of its Department of Aviation $1.5 billion of airport system revenue bonds, consisting of $1.375 billion of AMT senior lien bonds, Series 2022A, serials 2024-2042, terms 2047 and 2053 and $125 million of AMT bonds, Series 2022B, serials 2024-2042, terms 2047 and 2053. BofA Securities.

The Triborough Bridge and Tunnel Authority, New York, (/AA+/AAA/) is set to price Thursday $700 million of TBTA Capital Lockbox — City Sales Tax sales tax revenue bonds, Series 2022A. Goldman Sachs & Co.

The Oklahoma City Water Utilities Trust (Aaa/AAA//) is set to price Wednesday $270.170 million of taxable utility system revenue refunding bonds, Series 2022. J.P. Morgan Securities.

The City of Temple, Texas, (/AA//) is set to price Thursday $104.280 million of combination tax and revenue certificates of obligation and limited tax notes, consisting of $45.270 million of certificates of obligation, Series 2022A serials 2023-2042; $40.735 million of certificates of obligation, Series 2022B, serials 2025-2047, $12.180 of taxable certificates of obligation, Series 2022C, serials 2025-2047; and $6.095 million of limited tax notes, Series 2022 serials 2023-2029. Raymond James & Associates.

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