A weaker tone, retail pricing for $1.3B MTA deal, kick off FOMC week


Municipals were slightly weaker by a few basis points Monday as the New York Metropolitan Transportation Authority offered $1.3 billion of revenue refunding green bonds to retail investors. U.S. Treasury yields rose ahead of the Federal Open Market Committee meeting and equities ended the session up.

In the primary market Monday, Jefferies held a one-day retail order of $1.275 billion of climate bond certified transportation revenue refunding green bonds for the MTA (A3/A-/AA/AA/), with 5s of 11/2028 at 2.79%, 5s of 2029 at 2.82%, 5s of 2034 at 2.99%, 5s of 2039 at 3.42%, 5s of 2044 at 3.92% and 5.25s of 11/2049 at 4.17%, callable 5/15/2034.

Proceeds from the sale will refund transportation revenue bonds and Triborough Bridge and Tunnel Authority payroll mobility tax senior lien refunding bonds Subseries 2021A-2, said CreditSights strategists Pat Luby and Sam Berzok.

They are watching litigation against the “MTA’s forthcoming congestion pricing plan, which is forecast to provide the MTA with a new revenue source of $1 billion annually.”

Luby and Berzok noted the litigation might “delay the originally scheduled May implementation or end in a settlement dedicating a portion of the congestion toll’s revenues to external entities.”

The MTA has not sold fixed-rate transportation revenue bonds since February 2021. The first maturity of that deal (4% 11/15/44) priced at +81 and was evaluated at +78 as of Wednesday by BVAL, according to CreditSights strategists. The retail offering of the 2044 maturity was priced to yield 3.92% (+59 to BVAL) but with a higher 5% coupon.

The MTA will also be selling $80 million of variable rate taxable revenue bonds next week in addition to $256 million of remarketing variable rate taxable revenue bonds at the end of the month.

Several other transit and transportation refunding deals are on tap this week, including the New Jersey Turnpike Authority, Wisconsin and the Los Angeles County Metropolitan Transportation Authority. High-yield gets a larger-sized deal from the Suffolk Regional Off-Track Betting Corp. with $349.020 million of tax-exempt revenue bonds.

Monday’s secondary trading showed some weaker prints but munis outperformed UST in a continuation from last week.

The muni market “largely shrugged off” the larger UST volatility last week, noted Birch Creek Capital strategists, with AAA yield curves cut five to seven basis points while UST saw losses of 18 to 28 basis points.

Trading activity was quiet to start last week as “all eyes were focused on a heavy new-issue calendar,” they said, noting trading activity picked up as bid lists surged throughout the week.

Investors put up around $5.48 billion up for the bid last week with Wednesday seeing the largest amount of bids-wanted at $1.25 billion, according to Bloomberg data.

J.P. Morgan reported bid wanteds rose 19% following three consecutive trading sessions of more than $2 billion for sale, customer buying was 15% below average, Birch Creek strategists noted.

Valuations have been pushed to a three-year high as the 10-year ratio has fallen to 56%, which is the lowest since June 2021, said Jason Wong, vice president of municipals at AmeriVet Securities.

The two-year muni-to-Treasury ratio Monday was at 59%, the three-year at 58%, the five-year at 56%, the 10-year at 56% and the 30-year at 81%, according to Refinitiv Municipal Market Data’s 3 p.m. EST read. ICE Data Services had the two-year at 60%, the three-year at 59%, the five-year at 57%, the 10-year at 58% and the 30-year at 81% at 3:30 p.m.

Birch Creek strategists said “with muni valuations looking worse and worse, accounts focused on any additional spread they could find in the primary.”

New issues coming to market are “well oversubscribed to as much as five times as yields are still attractive from five years ago,” Wong said.

For example, the largest deal of last week, $2.9 billion of general-purpose state personal income tax revenue bonds from the Dormitory Authority of the State of New York, saw a total of around $12 billion in demand, Birch Creek strategists said.

The longest maturity and largest bonds were five to seven times oversubscribed, they noted.

“This part of the curve has garnered very little interest in the secondary market, but it seemed a concession of ~5-10bps was enough to bring out the buyer base in droves,” they said.

Despite this, last week’s heavier supply was well absorbed, said Chris Brigati, senior vice president and director of Strategic Planning and Fixed Income Research at SWBC.

Issuance is expected to be “more normalized this week” at the estimated $5.7 billion, he said.

 ”The lack of secondary interest has caused dealer balance sheets to begin to swell,” according to Birch Creek strategists.

As valuations test three-year tights, they said “new-issue volumes pick back up, and tax-related selling pressure hits in April, we would not be surprised to see the market loosen up a bit and for ratios get back to more compelling levels,” they said.

“Typically, we hope to see some signs of cheapening municipal yields compared to Treasuries as we approach the April 15 tax deadline,” Brigati said. “It’s unclear if this pattern will repeat in 2024.”

AAA scales
Refinitiv MMD’s scale was cut one basis point out long: The one-year was at 3.00% (unch) and 2.78% (unch) in two years. The five-year was at 2.45% (unch), the 10-year at 2.45% (unch) and the 30-year at 3.63% (+1) at 3 p.m.

The ICE AAA yield curve was cut one to three basis points: 3.05% (+3) in 2025 and 2.83% (+2) in 2026. The five-year was at 2.50% (+2), the 10-year was at 2.49% (+1) and the 30-year was at 3.57% (+1) at 3:30 p.m.

The S&P Global Market Intelligence municipal curve was cut one to two basis points: The one-year was at 3.00% (+1) in 2025 and 2.78% (+1) in 2026. The five-year was at 2.47% (+1), the 10-year was at 2.47% (+2) and the 30-year yield was at 3.60% (+1), according to a 3 p.m. read.

Bloomberg BVAL was cut up to two basis points: 2.95% (+1) in 2025 and 2.80% (+1) in 2026. The five-year at 2.43% (+1), the 10-year at 2.44% (+1) and the 30-year at 3.61% (+2) at 3:30 p.m.

Treasuries were weaker.

The two-year UST was yielding 4.735% (flat), the three-year was at 4.525% (+2), the five-year at 4.351% (+2), the 10-year at 4.333% (+3), the 20-year at 4.573% (+2) and the 30-year at 4.459% (+3) at the close.

Negotiated calendar

The New York State Environmental Facilities Corp. (Aaa/AAA/AAA/) is set to price Thursday $722.505 million of New York City Municipal Water Finance Authority Projects – Second Resolution State Clean Water and Drinking Water Revolving Funds revenue bonds, Series 2024 A, serials 2025-2044, terms 2049, 2053. Jefferies.

The New Jersey Turnpike Authority (A1///) is set to price Tuesday $500 million of turnpike revenue bonds, Series 2024 B. J.P. Morgan.

The Suffolk Regional Off-Track Betting Corp. is set to price Tuesday $349.020 million of tax-exempt revenue bonds, Series 2024, terms 2034, 2044, 2053. KeyBanc Capital Markets.

The Northampton County General Purpose Authority (A3/A-//) is set to price Tuesday $323.270 million of St. Luke’s University Health Network Project hospital revenue bonds, consisting of $290.865 million of Series 2024A-1, serials 2025-2044, terms 2049, 2053; and $32.405 million of Series 2024A-2, serial 2044. BofA Securities.

The National Finance Authority (A2///) is set to price Wednesday $235.843 million of social municipal certificates, Series 2024-1 Class A, serial 2041, and Series 2024-1 Class X, serial 2041.

The Board of Trustees of the Colorado School of Mines (Aa2/AA//) is set to price Tuesday $196.740 million of institutional enterprise revenue bonds. Morgan Stanley.

Wisconsin (/AAA/AA+/AAA/) is set to price Tuesday $175 million of transportation revenue refunding bonds, 2024 Series 2. Wells Fargo.

The New Jersey Educational Facilities Authority (A1/AA//) is set to price Thursday $160.065 million of Assured Guaranty-insured Montclair State University Issue revenue refunding bonds, Series 2024 A. Goldman Sachs.

The Los Angeles County Metropolitan Transportation Authority (Aa1/AAA//) is set to price Tuesday $157.415 million of Proposition A first-tier senior sales tax revenue refunding bonds, consisting of $114.735 million of tax-exempts, Series 2024A, serials 2025, 2028-2042; and $42.680 million of taxables, Series 2024B, serials 2026-2035. Wells Fargo.

The Colorado Housing and Finance Authority (Aaa/AAA//) is set to price Tuesday $127.255 million of taxable Class I single-family mortgage bonds, 2024 Series B, serials 2026-2034, terms 2039, 2043, 2054. RBC Capital Markets.

Seguin, Texas, (/AA//) is set to price Wednesday $105.495 million of combination tax and limited pledge revenue certificates of obligation, Series 2024, serials 2025-2058. RBC Capital Markets.

The Dormitory Authority of the State of New York (/AA/AA/) is set to sell $242.195 million of City University System Consolidated Fifth General Resolution revenue bonds, Series 2024A, at 10:45 a.m. eastern Tuesday.