Municipals were firmer across the curve, but underperformed a U.S. Treasury rally after a lower consumer price index report indicated the Federal Reserve may soon be done hiking rates. Equities also rallied.
“The Fed looks smart for effectively ending its tightening cycle as inflation continues to slow,” said Bryce Doty, senior vice president and senior portfolio manager at Sit Invest. ”Yields are down significantly as the last of investors not convinced the Fed is done are likely throwing in the towel.”
The trend of lower-than-expected inflation with better-than-expected growth continues “as strong growth in the labor force has allowed businesses to resolve supply chain issues and catch up on backlogs,” he said.
Triple-A muni yields fell up to 14 basis points, depending on the curve, while UST saw yields plummet up to 23 on the five-year.
The two-year muni-to-Treasury ratio Tuesday was at 66%, the three-year at 67%, the five-year at 68%, the 10-year at 70% and the 30-year at 89%, according to Refinitiv Municipal Market Data’s 3 p.m., ET, read. ICE Data Services had the two-year at 64%, the three-year at 64%, the five-year at 64%, the 10-year at 67% and the 30-year at 86% at 3:30 p.m.
“While this has been an exceptional rally, we expect continued volatility,” said Anders S. Persson, Nuveen’s chief investment officer for global fixed income, and Daniel J. Close, Nuveen’s head of municipals.
The industry has “billions of dollars of tax losses to exercise, and the new-issue market should be priced to sell,” they noted.
The $13 billion calendar was led by “large and well-bid high-grade issues,” said Matt Fabian, a partner at Municipal Market Analytics.
This included $1.5 billion of gas supply revenue bonds from the Texas Municipal Gas Acquisition and Supply Corp., $650 million of electric system revenue bonds from the Salt River Project Agricultural Improvement, $698 million of refunding GOs in two deals from California and $476 million of refunding GOs in two deals from Washington.
Several large deals are also on tap this week.
In the primary market Tuesday, Citigroup Global Markets held a one-day retail order for the $940.695 million of income tax-secured revenue bonds from the District of Columbia (Aa1/AAA/AA+/). The first tranche, $470.875 million of tax-exempt bonds, Series 2023A, saw 5s of 5/2037 at 3.81%, 5s of 2038 at 3.91%, 5s of 2043 at 4.18% and 5.25s of 2048 at 4.40%, callable 5/1/2033.
The second tranche, $191.315 million of tax-exempt refunding bonds, Series 2023C, saw 5s of 4/2024 at 3.47%, 5s of 10/2031 at 3.31% and 5s of 10/2033 at 3.38%, callable 10/1/2033.
The third tranche, $278.505 million of tax-exempt forward-delivery bonds, Series 2024A, from the District of Columbia (Aa1/AAA/AA+/), with 5s of 10/2029 at 3.34%, 5s of 2034 at 3.56% and 5s of 2037 at 3.91%, callable 10/1/2034.
Loop Capital Markets priced for Ohio (Aa1/AAA/AAA/AAA/) $117.895 million of GO highway capital improvement bonds, Series Y, with 5s of 5/2025 at 3.22%, 5s of 2028 at 3.10%, 5s of 2033 at 3.22%, 5s of 2038 at 3.69% and 5s of 2039 at 3.75%, callable 11/1/2033.
Morgan Stanley priced for Cape Coral, Florida, (A1//A+/) $100 million of water and sewer revenue bonds, Series 2023, with 5s of 10/2024 at 3.62%, 5s of 2028 at 3.41%, 5s of 2033 at 3.53%, 5s of 2038 at 4.01%, 5s of 2043 at 4.40%, 5.25s of 2048 at 4.50% and 5.25s of 2053 at 4.60%, callable 10/1/2033.
In the competitive market, the Missouri Highways and Transportation Commission (Aa1/AA+/AA+/) sold $381.610 million of State Appropriations Mega Projects state road bonds, Series A 2023, to J.P. Morgan, with 5s of 5/2024 at 3.28% and 5s of 2026 at 3.14%, noncall.
This week’s new-issue calendar should be “priced to sell and well received,” Persson and Close said.
“Large, high-profile issues like these present an opportunity for buyers to showcase a firmer bid for bonds, giving confidence to dealers and smaller accounts and boosting positive momentum,” Fabian noted.
And “while overall customer purchase activity remains strongly retail-oriented amid heavy par trading totals average trade sizes are improving, suggesting some return of institutional interest,” he said.
That could be Nov. 1 reinvestment being “put to work,” or simply some firms’ start of the 2024 fiscal year allowing more risk taking, Fabian noted.
However, “with mutual fund flows less negative last week and [exchange-traded flows] staying very positive, demand may be on a near-term upswing,” he said. Also, better fund NAV performance may help, he said.
“Such is overdue: municipal yields — for defensive 4s and 5s, high-grade credits, good sectors, good ratings — are attractive versus historical standards and still active tax-swapping activity has created some abundance in the secondary market,” he said.
However, Fabian noted “the lack of meaningful spread development per sector, rating, or, lately, coupon structure suggests a lack of compensation for relatively riskier purchases.”
This, he said, “reasonably reflects a related lack of selling pressure to reset market prices for lower quality risks in recent months, and Moody’s stable outlook for healthcare will not help matters there.”
Ohio 5s of 2024 at 3.32%. Washington 5s of 2024 at 3.37% versus 3.44% on Thursday and 3.46% on Wednesday. California 5s of 2025 at 3.15% versus 3.33% Friday.
Plano, Texas, 5s of 2028 at 3.14%-3.13% versus 3.52% on 11/2. Maryland 5s of 2029 at 3.10%. NYC TFA 5s of 2030 at 3.27%-3.21% versus 3.37% Friday.
California 5s of 2032 at 3.17% versus 3.20% Thursday and 3.28%-3.25% original on Wednesday. Delaware 5s of 2033 at 3.20% versus 3.19% Friday and 3.48% on 11/2. NYC 5s of 2033 at 3.31%-3.32%.
NYC 5s of 2051 at 4.45%-4.40% versus 4.60%-4.55% Thursday and 4.65% on 11/7. Massachusetts 5s of 2053 at 4.40%-4.35% versus 4.49% Monday and 4.46%-4.42% Friday.
Refinitiv MMD’s scale were bumped 10 to 12 basis points: The one-year was at 3.30% (-12) and 3.17% (-12) in two years. The five-year was at 3.00% (-12), the 10-year at 3.10% (-10) and the 30-year at 4.12% (-10) at 3 p.m.
The ICE AAA yield curve was bumped nine to 11 basis points: 3.28% (-9) in 2024 and 3.22% (-10) in 2025. The five-year was at 3.02% (-10), the 10-year was at 3.11% (-10) and the 30-year was at 4.10% (-11) at 3:30 p.m.
The S&P Global Market Intelligence municipal curve was bumped 10 to 12 basis points: The one-year was at 3.31% (-12) in 2024 and 3.18% (-12) in 2025. The five-year was at 3.04% (-11), the 10-year was at 3.11% (-10) and the 30-year yield was at 4.11% (-10), according to a 3 p.m. read.
Bloomberg BVAL was bumped 11 to 14 basis points: 3.32% (-14) in 2024 and 3.26% (-14) in 2025. The five-year at 3.04% (-13), the 10-year at 3.13% (-12) and the 30-year at 4.12% (-11) at 3:30 p.m.
The two-year UST was yielding 4.816% (-21), the three-year was at 4.570% (-23), the five-year at 4.420% (-23), the 10-year at 4.440% (-19), the 20-year at 4.810% (-14) and the 30-year Treasury was yielding 4.614% (-13) at 3:30 p.m.
Primary to come
The New Jersey Transportation Trust Fund Authority (A2/A-/A/A/) is set to price Thursday $1.25 billion of transportation program bonds, Series BB, serials 2032-2050. Wells Fargo Bank.
The Indianapolis Local Public Improvement Bond Bank is set to price Wednesday $436.83 million of Convention Center Hotel revenue bonds, consisting of $184.625 million of Series 2023E senior bonds (/BBB-//); $52.205 million of Series 2023F-1 subordinate bonds (nonrated); and $200 million of BAM-insured Series 2023F-2 subordinate bonds. Piper Sandler & Co.
The Indianapolis Local Public Improvement Bond Bank (Aaa//AAA/) is also set to price Thursday $155 million of ad valorem property tax-funded project revenue bonds. BofA Securities.
The Municipal Improvement Corp. of Los Angeles (Aa3//AA-/) is set to price Thursday $193.92 million of lease revenue bonds, Series 2023-A, serials 2024-2043. RBC Capital Markets.
The Massachusetts Housing Finance Agency (Aa2/AA+//) is set to price Thursday $177.46 million of non-AMT sustainability bonds, consisting of $50.505 million of Series C-1 bonds, serials 2026-2035, terms 2038, 2043, 2048, 2053, 2058, 2063 and 2066; $124.755 million of Series C-2 bonds, serials 2027-2028; and $2.2 million of Series D bonds, serial 2024. BofA Securities.
The South Dakota Housing Development Authority (Aaa/AAA//) is set to price Wednesday $145 million of homeownership mortgage bonds, consisting of $105 million of non-AMT Series 2023G bonds, serials 2024-2035, terms 2038, 2043, 2049, 2055; and $40 million of taxable Series 2023H bonds, serials 2024-2033, terms 2038, 2040, 2054. Wells Fargo Bank.
The Maine Health & Higher Educational Facilities Authority (/AA//) is set to price Wednesday $124.72 million of revenue refunding bonds, Series 2023B, insured by Assured Guaranty Municipal Corp. Morgan Stanley.
The Missouri Housing Development Commission (/AA+//) is set to price Wednesday $120 million of non-AMT single-family mortgage revenue bonds (First Place Homeownership Loan Program), Series 2023 E, serials 2024-2035, terms 2038, 2043, 2048, 2053, 2054. Stifel, Nicolaus & Co.