Municipals were lightly traded and mostly steady Monday while U.S. Treasuries were slightly firmer from Friday’s levels and equities closed in the black.
With muni returns in positive territory to end the month and supply down 8% for the month and 16% for the year, the calendar flips to the final month of the muni summer reinvestment season and one of the larger new-issue calendars of the year at around $10 billion.
August’s redemption flows will be the heaviest of the year, with 95% of the principal getting paid out in the first half of the month — $29 billion on Aug. 1 and $9 billion on Aug. 15, according to CreditSights. In addition to $44.1 billion of principal to be paid out in August, issuers will also be paying $13.3 billion of interest, CreditSights data shows. Bond Buyer 30-day visible supply sits at $13.68 billion.
August redemptions will be the heaviest of the year for issuers in California, Washington, Maryland, Virginia, Connecticut and Hawaii.
“The surge in redemptions comes as investors already have to contend with negative net supply for California, New York, airport, higher education, hospital and taxable bonds,” CreditSights noted. ”After the redemption flows peak in the first two weeks in August, reinvestment demand will begin to taper, potentially making it easier to find replacement bonds but also reducing the technical support for the market.”
Municipals have performed well in June and July, noted Jason Wong, vice president of municipals at AmeriVet Securities, with July closing in the black, the second month in a row and fourth time this year.
The Bloomberg Municipal Index returned 0.41% in July and 3.09% year-to-date, while high-yield returned 0.61% this month and 5.07% in 2023. Taxable munis are in the red this month at -0.52% but returning positive 4.21% year to date.
And with over two weeks straight of daily inflows, and Refinitiv Lipper reporting $552 million of inflows last week, it “bodes well” for the larger calendar this week, noted Birch Creek Capital in a weekly report.
“As funds have ample liquidity from inflows and August redemptions, it will probably take an aggressive Treasury rally to see valuations shift towards more normal historical levels,” they said. “If rates remain relatively range-bound or shift higher, we expect munis will continue their strong performance as tax-exempt [separately managed accounts] and mutual funds have little choice but to put cash to work.”
That said, they expect investors will shift their attention from the very rich two- to 10-year portion of the curve and ultra-high grades into longer maturities and “spreadier names for incremental yield and more favorable after-tax comps relative to taxable alternatives.”
Wong agrees with Birch Creek’s sentiment on the front end, noting it is “continuing to be extremely expensive, investors are looking further out on the curve as 10-year munis continue to yield well-below historical averages, which are around 83%.”
The two-year muni-to-Treasury ratio Monday was at 62%, the three-year at 63%, the five-year at 64%, the 10-year at 65% and the 30-year at 87%, according to Refinitiv MMD’s 3 p.m. read. ICE Data Services had the two-year at 61%, the three-year at 63%, the five-year at 62%, the 10-year at 65% and the 30-year at 88% at 4 p.m.
“With the summer being a time where new bond sales are light, valuations should continue to stay expensive on the short end,” Wong said.
In the primary market Monday, Frost Bank priced for the Carrollton-Farmers Branch Independent School District, Texas, (Aaa/AAA//) $384.290 million of PSF-insured unlimited tax school building bonds, Series 2023, with 5s of 2/2024 at 3.34%, 5s of 2028 at 2.93%, 5s of 2033 at 2.92%, 5s of 2038 at 3.29%, 5s of 2043 at 3.73%, 5s of 2048 at 3.91% and 4s of 2053 at 4.29%, callable 2/15/2033.
California 5s of 2024 at 3.00% versus 2.98% Thursday. D.C. 5s of 2025 at 3.14% versus 2.97% on 7/24. West Virginia 5s of 2025 at 3.05% versus 2.92% on 7/24 and 2.99% on 7/20.
California 5s of 2028 at 2.70%-2.68%. NYC TFA 5s of 2029 at 2.62%. Wisconsin 5s of 2030 at 2.64%.
Illinois Finance Authority 5s of 2033 at 2.82%-2.81%. New Hampshire Municipal Bond Bank 5s of 2034 at 2.76%-2.75%. Santa Clara Valley Transportation Authority 5s of 2035 at 2.62%-2.61% versus 2.53% Wednesday and 2.57% on 7/25.
Massachusetts 5s of 2048 at 3.78%-3.79% versus 3.76% Friday and 3.79% Thursday. NYC TFA 5s of 2053 at 4.01% versus 3.95% Friday and 3.91%-3.93% Thursday.
Refinitiv MMD’s scale was unchanged: The one-year was at 3.17% and 3.00% in two years. The five-year was at 2.66%, the 10-year at 2.57% and the 30-year at 3.51% at 3 p.m.
The ICE AAA yield curve was cut one basis point: 3.14% (+1) in 2024 and 3.01% (+1) in 2025. The five-year was at 2.63% (+1), the 10-year was at 2.57% (+1) and the 30-year was at 3.55% (+1) at 4 p.m.
The S&P Global Market Intelligence (formerly IHS Markit) municipal curve was unchanged: 3.16% in 2024 and 2.99% in 2025. The five-year was at 2.66%, the 10-year was at 2.57% and the 30-year yield was at 3.50%, according to a 3 p.m. read.
Bloomberg BVAL was cut up to one basis point: 3.02% (+1) in 2024 and 2.91% (+1) in 2025. The five-year at 2.57% (+1), the 10-year at 2.51% (unch) and the 30-year at 3.51% (+1) at 4 p.m.
Treasuries were little changed.
The two-year UST was yielding 4.877% (-1), the three-year was at 4.521% (-1), the five-year at 4.182% (flat), the 10-year at 3.963% (flat), the 20-year at 4.221% (flat) and the 30-year Treasury was yielding 4.021% (flat) near the close.
Primary to come
The Dormitory Authority of the State of New York (Aa1/AA+//) is set to price Wednesday $1.635 billion of state sales tax revenue bonds, consisting of $1.156 billion of tax-exempts, Series 2023A-1; $406.353 million of tax-exempts, Series 2023A-2; and $72.860 million of taxables, Series 2023B. J.P. Morgan Securities.
The Long Island Power Authority, New York, (A2/A/A/) is set to price Tuesday $579.800 million of electric system general revenue bonds, consisting of $400 million of green bonds, Series 2023E, serials 2024-2043, term 2049, and $179.800 million of bonds, Series 2023F, serials 2027-2029, 2033. Wells Fargo Bank.
The Crowley Independent School District, Texas, (Aaa//AAA/) is set to price Thursday $425.775 million of PSF-insured unlimited tax school building bonds, Series 2023, serials 2024-2043, terms 2048, 2053. Siebert Williams Shank & Co.
The Port of Houston Authority, Texas, (Aa3/AA+//) is set to price Wednesday $414.375 million of non-AMT first lien revenue bonds, Series 2023. Morgan Stanley.
The Texas Private Activity Bond Surface Transportation Corp. is set to price Thursday on behalf of the North Tarrant Express Mobility Partners’ North Tarrant Express project $406.540 million of senior lien revenue bonds, Series 2023. J.P. Morgan Securities.
The Northwest Independent School District, Texas, (Aaa//AAA/) is set to price Tuesday $377.520 million of PSF-insured unlimited tax school building bonds, Series 2023, serials 2024, 2029-2048. RBC Capital Markets.
The Hays Consolidated Independent School District, Texas, (Aaa//AAA/) is set to price Tuesday $315.650 million of PSF-insured unlimited tax school building bonds, Series 2023. FHN Financial Capital Markets.
San Antonio, Texas, (Aa2/AA+/AA/) is set to price Wednesday $287.780 million of water system junior lien revenue and refunding bonds, Series 2023A, serials 2024-2033, 2035-2043, terms 2048, 2053. Barclays.
The Grand Parkway Transportation Corp., Texas, (Aa1//AA/) is set to price Tuesday $277.440 million of Grand Parkway system subordinate tier toll revenue refunding put bonds, Series 2023, serial 2052. Barclays.
The Leander Independent School District, Texas, (/AAA/AAA/) is set to price Tuesday $273.590 million of PSF-insured unlimited tax school building bonds, Series 2023. FHN Financial Capital Markets.
Harris County, Texas, (Aaa///AAA) is set to price Tuesday $215.415 million, consisting of $121.205 million of permanent improvement refunding bonds, Series 2023A, serials 2025-2043, term 2048; and $94.210 million of unlimited tax road refunding bonds, Series 2023A, serials 2024-2043, term 2048. Siebert Williams Shank & Co.
The Austin Community College District, Texas, (Aa1/AA+//) is set to price Wednesday $187.730 million of limited tax bonds, Series 2023, serial 2024-2053. RBC Capital Markets.
The Oklahoma Water Resources Board (/AAA//) is set to price Tuesday $176.805 million of state loan program revenue bonds, Series 2023B, serials 2024-2038, terms 2043, 2048, 2053. BOK Financial Securities.
The Spring Branch Independent School District, Texas, (Aaa/AAA//) is set to price Wednesday $165.970 million of PSF-insured unlimited tax schoolhouse bonds, Series 2023, serials 2025-2048. Wells Fargo.
The Birdville Independent School District, Texas, (/AAA/AAA/) is set to price Thursday $145.985 million of PSF-insured unlimited tax school building bonds, Series 2023-A. FHN Financial Capital Markets.
The Pennsylvania Economic Development Financing Authority (//BBB+/) is set to price Thursday $128.850 million of Presbyterian senior living refunding revenue bonds, consisting of $35.180 million of Series 2023B-1 and $93.670 million of Series 2023B-2. Piper Sandler & Co.
The Colorado Housing and Finance Authority is set to sell Tuesday $112.500 million of single-family mortgage bonds, consisting of $50 million of Series L (AA3/AA//), serial 2053, and $62.500 million of Series M1 (Aaa/AAA//) serials 2026-2033, terms 2038, 2043, 2048. BofA Securities.
The Nebraska Investment Finance Authority (/AAA//) is set to price $109.630 million of single-family housing revenue bonds, consisting of non-AMT social bonds, Series 2023E, and taxables, Series 2023F. J.P. Morgan Securities.
The Rhode Island Health and Educational Building Corp. (Aa3/AA-//) is set to price Tuesday $100 million of Central Falls Public School Projects state appropriation-backed revenue bonds, Series 2023, serials 2024-2043. Raymond James & Associates.
Minnesota (Aaa/AAA/AAA) is set to sell $158.885 million of GO state various purpose bonds, Series 2023A, at 10:45 a.m. eastern Tuesday; $264 million of GO state trunk highway bonds, Series 2023B at 10:15 a.m. Tuesday; $15.015 million of taxable GO state various purpose bonds, Series 2023C, at 12:15 p.m. Tuesday; $327.020 million of GO state various purpose refunding GOs, Series 2023D, at 11:15 a.m. Tuesday; and $255.290 million of GO state trunk highway refunding bonds, Series 2023E, at 11:45 a.m. Tuesday.
The Miami-Dade County School District, Florida, is set to price $445.050 million of tax anticipation notes, Series 2023, at 11 a.m. Tuesday.