A smaller calendar awaits investors after another rough week

Bonds

Municipals were weaker in spots Friday after another challenging week and the worst-performing first quarter since 1980.

Triple-A yields rose one to three basis points amid lighter trading ahead of a smaller new-issue calendar. U.S. Treasuries saw more pronounced losses to close out the week.

Muni to UST ratios were at 77% in five years, 89% in 10 years and 98% in 30, according to Refinitiv MMD’s 3 p.m. read. ICE Data Services had the five at 76%, the 10 at 88% and the 30 at 100% at 4 p.m.

Supply for the holiday-shortened week is $4.769 billion — about half of the issuance from the week prior — with $3.633 billion of negotiated deals and $1.347 billion of competitive loans. Thirty-day visible supply sits at $12.8 billion.

The primary calendar is led by $500 million of taxable general obligation bonds from the Regents of the University of Minnesota, which is weighing a mix of maturity options as it confronts a volatile market for a $500 million sale originally planned as a century bond.

Another large taxable deal, $500 million, from the President and Fellows of Harvard College, Massachusetts, is on the docket as well $383 million of revenue bonds and revenue refunding bonds from the Anaheim Housing and Public Improvements Authority, California.

The California Public Works Board is expected to come with $293 million and the Fremont United School District, California with $126 million in the competitive calendar.

Due to a combination of rich valuations at the start of the year, a 100-plus basis point rise in Treasury rates and some of the heaviest fund outflows in recent history, the first quarter of 2022 was extraordinarily awful for munis — it was the worst first quarter for high grades since 1980. Indeed, rising rates have a negative impact on all fixed-income products, but municipals, which generally outperform, did not do so this time, according to Barclays PLC.

However, Barclays strategists Mikhail Foux, Clare Pickering and Mayur Patel are more positive on the market in the medium term.

“However, we are getting more positive on the market … At current levels, a lot of bad news has already been priced in, and if Treasury rates stabilize at current or even somewhat higher levels, we should see outflows subsiding.”

The outflows have put additional pressure on the market, and muni valuations are cheap enough to outperform Treasuries for the remainder of the year, they said.

In the past, quarters with the worst municipal returns were followed by considerably stronger ones, and Barclays strategists expect this trend will continue in the second quarter.

However, they said that the municipal market lags behind other fixed-income asset classes in some areas, pointing out that as global investor focus has shifted toward ESG investment in recent years, munis have been late to catch on.

They cited a supply-demand imbalance in the muni ESG sector as one factor. Municipal issuance has lagged well behind corporate issuance, but it continues to outpace money allocated to municipal ESG investments.

This year’s issuance has lagged behind their expectations due to market volatility, which has kept many issuers at away while also lowering demand for the product, and the $1.2 trillion infrastructure package passed last year included some environmental stipulations.

“These funds may have been used instead of muni bond financing, and a substantial portion of those bonds could have been green,” they said. “Muni ESG-labeled bond issuance is also lagging the corporate market significantly.”

Secondary trading
Maryland Department of Transportation 5s of 2024 at 2.06%. Virginia 4s of 2025 at 2.08%.

Maryland 5s of 2028 at 2.23%. Maryland 4s of 2028 at 2.29%-2.28%. New York City 5s of 2029 at 2.54% versus 2.42% on 3/30 and 2.45% on 3/29. Boston, Massachusetts 5s of 2029 at 2.24% versus 1.99%-1.96% on 4/1 and 2.11% original. Boston, Massachusetts 5s of 2030 at 2.29% versus 2.11%-2.15% original.

LA DPW 5s of 2031 at 248%-2.49% versus 2.46% original. NYC TFA 4s of 2031 at 2.72%-2.71% versus 262% on 3/30.

Massachusetts Bay Transportation Authority 5s of 2037 at 2.75%-2.73% versus 2.65% original. Ohio 5s of 2040 at 2.77%. San Antonio, Texas 5s of 2040 at 3.00%.

AAA scales
Refinitiv MMD’s scale was cut up to two basis points at the 3 p.m. read: the one-year at 1.69% (unch) and 1.91% in two years (+2). The five-year at 2.12% (+2), the 10-year at 2.34% (+2) and the 30-year at 2.69% (+2).

The ICE municipal yield curve was cut up to one basis point: 1.64% (unch) in 2023 and 1.94% (+1) in 2024. The five-year at 2.11% (+1), the 10-year was at 2.37% (+1) and the 30-year yield was at 2.74% (+1) in a 4 p.m. read.

The IHS Markit municipal curve was cut up to one basis point: 1.67% (unch) in 2023 and 1.89% (unch) in 2024. The five-year at 2.14% (unch), the 10-year at 2.33% (+1) and the 30-year at 2.71% (+1) at a 4 p.m. read.

Bloomberg BVAL was cut up to three basis points: 1.68% (+2) in 2023 and 1.92% (+2) in 2024. The five-year at 2.16% (+2), the 10-year at 2.38% (+2) and the 30-year at 2.71% (+3) at a 4 p.m. read.

Treasury yields rose.

The two-year UST was yielding 2.514% (+5), the three-year was at 2.724% (+6), five-year at 2.747% (+4), the seven-year 2.772% (+3), the 10-year yielding 2.702% (+4), and the 30-year Treasury was yielding 2.725% (+5) at a 4 p.m. read.

Primary to come:
The Regents of the University of Minnesota (Aa1/AA//) is set to price $500 million of taxable general obligation bonds, Series 2022. Barclays Capital.

The President and Fellows of Harvard College, Massachusetts (Aaa/AAA//) is set to price Tuesday $500 million of taxable bonds, Series 2022A. Goldman Sachs.

Anaheim Housing and Public Improvements Authority, California (/AA-/AA-/) is set to price Wednesday $383.410 million of bonds, consisting of $45.285 million of Electric Utility Distribution System Improvements revenue bonds, Series 2022-A, serials 2023-2042, terms 2047 and 2052; $67.685 million of Electric Utility Generation System Improvements revenue bonds, Series 2022-B, serials 2023-2032; $223.285 million of taxable Electric Utility Distribution System Refunding revenue refunding bonds, Series 2022-D, serials 2022-2035; and $47.155 million of forward-delivery Electric Utility Distribution System Refunding revenue refunding bonds, serials 2022 and 2028-2031. Wells Fargo Bank.

Memphis, Tennessee (Aa2/AA/) is set to price Wednesday $229.605 million of taxable general improvement refunding bonds, Series 2022B. J.P. Morgan Securities.

Kansas City, Missouri (A2/AA-//) is set to price Wednesday $220.440 million of special obligation bonds, consisting of $2.875 million of Series A, serials 2023-2042; $34.445 million of Series B, serials 2023-2042; and $183.120 million of Series C, serials 2022-2049. Stifel, Nicolaus & Co.

The District of Columbia (A3/) is set to price Tuesday $154.535 million of green DC Smart Street Lighting Project bonds consisting of $140.185 million of tax-exempt, alternative minimum tax private activity revenue bonds, Series 2022A, serials 2025-2037 and $14.350 million of taxable revenue bonds, Series 2022B, serial 2025. Wells Fargo Bank.

Jersey City Municipal Utilities Authority, New Jersey is set to price Wednesday $130 million of municipal notes, consisting of $80 million of Series A, serial 2023 and $50 million of Series B, serial 2023. Stifel, Nicolaus & Co.

Oregon Department of Administrative Services (Aa2/AAA//) is set to price Tuesday $123.005 million of taxable Oregon State lottery revenue bonds, 2022 Series B. Goldman Sachs.

The Georgia Housing and Finance Authority (/AAA//) is set to price Monday $112.110 million of non-alternative minimum tax single family mortgage bonds, 2022 Series A, serials 2022-2034, terms 2037, 2042, 2044 and 2049. Raymond James & Associates.

Mississippi Business Finance Corporation is set to price Monday $100 million of Mississippi Power Company solid waste disposal facility and wastewater revenue bonds, First Series 2022. PNC Capital Markets.

Minnesota Housing Finance Agency (Aa1/AA+//) is set to price Tuesday $100 million of taxable social residential housing finance bonds, 2022 Series E, serials 2023-2033, terms 2037 and 2041. RBC Capital Markets.

Competitive:
Fremont United School District, California (Aa2/) is set to sell $126.500 million of Election of 2014 general obligation bonds, Series E, at noon eastern Tuesday.

California Public Works Board (Aa3/A+/AA-/) is set to sell $293.345 million of green/climate-certified California Air Resources Board lease revenue bonds, 2022 Series D, at 11:45 a.m. eastern Wednesday.

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