Secondary constructive while new deals upsized, see strong demand


Munis continued to show strength Wednesday as several large new issues priced to good demand, with New York City Transitional Finance Authority seeing yields fall as much as of 14 basis points from Tuesday’s retail scales and Salt Lake City upsizing its deal. U.S. Treasuries improved and equities ended in the black.

Triple-A yields were bumped one to five basis points, depending on the scale, while USTs fell up to six out long.

The two-year muni-to-Treasury ratio Wednesday was at 60%, the three-year at 63%, the five-year at 63%, the 10-year at 67% and the 30-year at 90%, according to Refinitiv MMD’s 3 p.m. read. ICE Data Services had the two-year at 60%, the three-year at 62%, the five-year at 61%, the 10-year at 66% and the 30-year at 89% at 4 p.m.

The Investment Company Institute reported investors added $111 million to municipal bond mutual funds in the week ending July 12, after $ 23 million of outflows the previous week.

The tone of the muni market feels constructive this week, said Pat Luby, a CreditSights strategist, adding there is a “nice slate” of deals as issuance rose to an estimated $8.6 billion. These deals, which include some bellwether names, appear to be doing pretty well, he said.

However, munis have gotten richer versus corporates, making it “that much more difficult for banks and insurance companies to add muni credit risk,” he said.

That, he noted, is another reason why this week’s new-issue calendar should get a strong reception as it’s the best taxable new-issue slate the market has seen in a while.

“Banks and insurance companies who can’t justify tax-exempt munis at current relationships to corporate deals, they’re going to have a strong interest in the taxable this week,” Luby said.

Next week will likely see a drop in issuance as the Federal Open Market Committee meets Tuesday and Wednesday.

“To the extent that new-issue supply gets interrupted by another Fed meeting, that’s constructive from a technical perspective, removing that supply from the marketplace,” he said.

Overall, the muni market is experiencing a normal summer at this point, said Greg Gizzi, head of U.S. fixed income and head of municipal bonds at Macquarie Asset Management.

“Volumes are down, people take vacations, things are a little thinner,” he said.

From a liquidity standpoint, Gizzi believes the muni market, and fixed income in general, is at an inflection point.

“Are we at the point in which the Fed says, ‘OK, we think we’ve done enough or been restrictive enough,” he said. “Our general feeling is the way the Fed is determined to make sure that inflation doesn’t get out of control will ultimately result in a recession.”

He believes muni credit will be able to withstand a recession as “so long as it’s not drawn out and deep.”

The muni market is also “playing a game of chicken,” he said.

Investors will want duration and more “yieldier” credit in their portfolios, he said. Those two things did not work last year with the muni curve and credit being penalized.

“While we’ve had a return to normalcy with respect to the outperformance of curve and credit that is historically the pattern,” he said.

However, he said the market is still “seeing the last piece of the equation to make it all clear, which is the shift in fund flows.”

Some of the short-term instruments have lost money, while some of the longer funds have made gains, but there hasn’t been a meaningful shift into inflows yet, he said.

Luby concurred, saying mutual funds remain the wildcard.

As Refinitiv Lipper reported $136 million was pulled from muni mutual funds last week, he said “the lack of net new demand for mutual funds suggests that mutual fund investors are kind of on the sidelines.”

By the end of the year, Gizzi said he believes inflows will return.

In the primary market Wednesday, J.P. Morgan priced and repriced for institutions $950 million of tax-exempt future tax-secured subordinate bonds for the New York City Transitional Finance Authority (Aa1/AAA/AAA/), with yields lowered by five to 14 basis points from Tuesday’s retail offering: 5s of 5/2025 at 2.90% (-7), 5s of 2027 at 2.67% (-5), 5s of 2033 at 2.68% (-8), 5s of 2038 at 3.23% (-14), 5s of 2043 at 3.60% (-10), 5s of 2048 at 3.84% (-5), 5s of 2053 at 3.89% (-7) and 4s of 2053 at 4.10% (-10), callable 5/1/2033.

BofA Securities priced for Salt Lake City, Utah, (A2/A+//AA), and upsized to $600 million from $429 million AMT airport revenue bonds, Series 2023A, on behalf of Salt Lake City International Airport, with 5s of 7/2025 at 3.49%, 5s of 2028 at 3.37%, 5s of 2033 at 3.60%, 5.25s of 2038 at 3.82%, 5.25s of 2043 at 4.07%, 5.25s of 2048 at 4.24%, 5.25s of 2053 at 4.28% and 5.5s of 2053 at 4.22%, callable 7/1/2033. 

Barclays priced for the Trustees of the California State University (Aa2/AA-//) $338.965 million of systemwide revenue bonds, Series 2023A, with 5s of 11/2024 at 2.83%, 5s of 2028 at 2.43%, 5s of 2033 at 2.49%, 5s of 2038 at 3.03%, 5s of 2043 at 3.37%, 5.25s of 2048 at 3.59% and 5s of 2053 at 3.69%, callable 11/1/2033.

BofA Securities priced for the Las Vegas Convention and Visitors Authority (Aa3/AA-//) $150 million of convention center expansion and renovation revenue bonds. The first tranche, $137.060 of Series 2023A, saw 5s of 7/2027 at 2.85%, 5s of 2028 at 2.82%, 5s of 2033 at 2.94%, 5s of 2038 at 3.55%, 5s of 2043 at 3.82%, and 5s of 2049 at 4.03%, callable 7/1/2033. 

The second tranche, $12.940 million of Series 2023B, saw all bonds price at par: 5.46s of 7/2024 and 4.85s of 2027, noncall.

Siebert Williams Shank & Co,. priced for the Arlington Independent School District, Texas (Aaa/AAA//), $141.095 million of unlimited tax school building and refunding bonds, Series 2023, with 5s of 2/2024 at 3.09%, 5s of 2028 at 2.66%, 5s of 2033 at 2.76%, 5s of 2038 at 3.18%, 5s of 2043 at 3.93% and 4s of 2048 at 4.13%, callable 2/15/2033.

In the competitive market, the New York City Transitional Finance Authority (Aa1/AAA/AAA/) sold $130 million of taxable future tax-secured subordinate bonds, Fiscal 2024A Series A, Subseries A-2 to Wells Fargo, all priced at par, with 4.6s of 5/2028 and 4.7s of 2033, noncall.

Rochester, New York, sold $105.250 million of bond anticipation notes, Series 2023 II, to BofA Securities, with 4.5s of 8/2024 at 3.40%, noncall.

Secondary trading
DC 5s of 2024 at 2.95%. Ohio 5s of 2025 at 2.93%. Wisconsin 5s of 2025 at 2.84%.

California 5s of 2028 at 2.49%. Georgia 5s of 2028 at 2.51% versus 2.56% Friday. NYC TFA 5s of 2030 at 2.61%.

Maryland 5s of 2031 at 2.45% versus 2.53% on 7/3. NYC TFA 5s of 2032 at 2.61%. Triborough Bridge and Tunnel Authority 5s of 2033 at 2.71%-2.69% versus 2.79%-2.80% Monday and 2.90% on 7/12.

Massachusetts 5s of 2048 at 3.70%-3.67% versus 3.85% on 7/13 and 3.88% on 7/11. Battery Park City Authority 5s of 2053 at 3.70% versus 3.78% on 7/13 and 3.86% on 7/11.

AAA scales
Refinitiv MMD’s scale was bumped up two to three basis points: The one-year was at 2.97% (-2) and 2.84% (-2) in two years. The five-year was at 2.52% (-2), the 10-year at 2.50% (-3) and the 30-year at 3.46% (-3) at 3 p.m.

The ICE AAA yield curve was bumped one to five basis points: 2.99% (-1) in 2024 and 2.88% (-2) in 2025. The five-year was at 2.49% (-4), the 10-year was at 2.48% (-4) and the 30-year was at 3.47% (-4) at 4 p.m.

The IHS Markit municipal curve was bumped two basis points: 2.98% (-2) in 2024 and 2.86% (-2) in 2025. The five-year was at 2.52% (-2), the 10-year was at 2.51% (-2) and the 30-year yield was at 3.47% (-2), according to a 3 p.m. read.

Bloomberg BVAL was bumped two to three basis points: 2.92% (-3) in 2024 and 2.82% (-2) in 2025. The five-year at 2.50% (-3), the 10-year at 2.45% (-3) and the 30-year at 3.45% (-2) at 4 p.m.

Treasuries were firmer.

The two-year UST was yielding 4.767% (flat), the three-year was at 4.341% (-1), the five-year at 3.981% (-2), the 10-year at 3.749% (-4), the 20-year at 4.027% (-5) and the 30-year Treasury was yielding 3.842% (-6) near the close.

Primary to come:
The Lamar Consolidated Independent School District, Texas (Aaa/AAA//), is set to price Thursday $516.925 million of PSF-insured unlimited tax schoolhouse bonds, Series 2023A. Jefferies.

The Arkansas Development Finance Authority is set to price this week $330 million of Hybar Steel Project industrial development revenue bonds, consisting of $110 million of tax-exempts, Series 2023A, and $220 million taxable, convertible to tax-exempt, green bonds, Series 2023B. Goldman Sachs.

The Board of Regents of Texas Tech University System (Aa1//AA+/AA+/) is set to price Thursday $253.700 million of revenue financing system bonds, consisting of Series 2023A refunding and improvement bonds and Series 2023B taxable improvement bonds. J.P. Morgan Securities.

The St. Lucie County School Board, Florida (A1/AA//), is set to price Thursday $185 million of Assured Guaranty Municipal-insured certificates of participation, Series 2023A and 2023B. RBC Capital Markets. 

Christina Baker contributed to this story.

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