Municipals were steady to firmer in spots in lighter secondary trading amid an active primary while U.S. Treasuries were range-bound and equities were in the black.
Muni to UST ratios were at 62% in five years, 80% in 10 years and 95% in 30 years, according to Refinitiv MMD's 3 p.m. read. ICE Data Services had the five at 62%, the 10 at 82% and the 30 at 95% at a 3:30 p.m. read.
“Steady new-issue distribution and responsive secondary bid-sides have held generic curves nearly intact" for seven straight sessions, said Kim Olsan, senior vice president of municipal bond trading at FHN Financial.
“The back-and-forth in taxable and equity markets has been more or less of little consequence to tax-exempt rates during an active reinvestment cycle," she said.
In the primary market, Siebert Williams Shank & Co. priced for the Metropolitan Water District of Southern California (Aa1/AAA//) $254.735 million of water revenue refunding bonds, 2022 Series B, with 3s of 7/2026 at 2%, 3s of 2027 at 2.11%, 5s of 2032 at 2.44%, 5s of 2037 at 2.84% and 5s of 2040 at 2.96%, callable 7/1/2032.
Goldman Sachs & Co. priced for the Metropolitan Water District of Southern California (/AAA/AA+/) $135.420 million of taxable special variable rate water revenue refunding bonds, 2022 Series C, with 1.60s of 7/2046 at par.
Morgan Stanley & Co. priced for the Indiana Finance Authority (/A-/A/) $100 million of Reid Health hospital revenue bonds, Series 2022, with 5s of 2040 at 3.86%, 5s of 2042 at 3.93%, 4.25s of 2047 at 4.36% and 5s of 2052 at 4.15%, callable 1/1/2032.
Jefferies priced for the Humble Independent School District, Texas, $190 million of unlimited tax school building bonds, Series 2022, Permanent School Fund Guarantee Program: 5s of 2/2025 at 1.85%, 5s of 2032 at 2.68%, 5s of 2037 at 3.16%, 4s of 2/2042 at 3.83%, and 4s of 2052 at 4.10%.
In the competitive market, the Metropolitan Government of Nashville and Davidson County (Aa2/AA//) sold $282.565 million of general obligation improvement bonds, Series 2022B, to Barclays Capital Inc., with 4s of 1/2023 at 1.25%, 4s of 2027 at 2.02%, 4s of 2032 at 2.73%, 5s of 2037 at 3% and 4s of 2042 at 100%, callable 1/1/2032.
The county also sold $328.545 million of general obligation utility bonds, Series 2022A, to Citigroup Global Markets, with 4s of 1/2023 at 1.21%, 5s of 2027 at 2.04%, 4s of 2032 at 2.58%, 4s of 2037 at 3.51% and 4s of 2042 at 3.86%, callable 1/1/2032.
Olsan noted the nearly $700 million exempt portion of Washington GOs on Tuesday “closely mirrored the maturity preferences of secondary flows."
“The issue’s 2029 through 2033 maturities drew spreads in line with recent trading, with the 10-year was bought as 5s to yield 2.54% (+5/AAA BVAL),” Olsan said.
“That spread is line with the state’s February sale which priced +8/AAA,” she noted. “There was a wider disparity in longer maturities: the new 5% due 2042 yielded 3.25% for a spread of +41/AAA BVAL, 18 basis points wider than the same structure from the February sale (to yield 1.93%) when the curve slope was about 30 basis points flatter.
The Investment Company Institute, meanwhile, reported investors added $543 million to muni bond mutual funds in the week ending July 13 compared to the $1.061 billion of outflows in the previous week.
Where's the value?
“Secondary selling has increased in recent days, a product of more active portfolio adjustments being transacted,” according to Olsan.
Heavier concentrated selling in short-dated calls and longer 4s is happening as yields have rallied from the mid-May and mid-June weakness, she said.
“An absence of float in generic, noncallable high grades feeding into laddered program demand is holding spreads to nominal levels to implied benchmarks,” she said.
The longer portion of the muni yield curve offers better value, said Cooper Howard, fixed income strategist focused on munis at Charles Schwab.
Muni-UST ratios for seven- and 10-year maturities are near their five-year averages.
“However, relative yields for short-term yields are reading very rich as a result of Treasury yields surging in anticipation the Fed will have to raise rates more than expected to squash inflation,” he said, expecting short-term muni-UST ratios to move higher in the near term.
And while fears of a recession still abound, Nancy Tengler, CEO & CIO of Laffer Tengler Investments, said it's not here yet.
The 2s/10s UST yield curve remains inverted at 22 basis points, the deepest inversion in decades, but the 3-month/10-year UST curve hasn’t inverted, she said.
A recession is still on the horizon, Tengler said, and the question becomes “when and how deep” and whether the market has priced in a recession.
“If not fully priced in, we think the market is closer to a bottom, retesting the spring lows,” she said.
Secondary trading
Prince George's County, Maryland, 5s of 2023 at 1.35%-1.34%. Maryland 5s of 2023 at 1.38%-1.37%. District of Columbia 5s of 2023 at 1.54% versus 1.56%-1.54% Tuesday.
NYC 5s of 2026 at 2.05%. North Carolina 5s of 2027 at 1.97%. Maryland 4s of 2028 at 2.28%.
Harris County, Texas, 5s of 2032 at 2.60%-2.59% versus 2.66%-2.64% Monday and 2.70% on 7/14. Indiana Finance Authority 5s of 2032 at 2.67%-2.64% versus 2.73%-2.72% Tuesday. District of Columbia 5s of 2034 at 2.76% versus 2.80%-2.77% Monday and 2.87% on 7/13.
NYC TFA 5s of 2035 at 3.15%. California 5s of 2037 at 2.91% versus 2.93%-2.91% Monday. District of Columbia 5s of 2041 at 3.19% versus 3.22% Tuesday and 3.31% on 7/13.
AAA scales
Refinitiv MMD’s scale was little changed at the 3 p.m. read: the one-year at 1.40% (unch) and 1.70% (unch) in two years. The five-year at 1.98% (-2), the 10-year at 2.44% (unch) and the 30-year at 3.00% (unch).
The ICE municipal yield curve was bumped one basis points: 1.43% (-1) in 2023 and 1.73% (-1) in 2024. The five-year at 1.98% (-1), the 10-year was at 2.47% (-1) and the 30-year yield was at 3.03% (-1) near the close.
The IHS Markit municipal curve was little changed: 1.40% (unch) in 2023 and 1.72% (unch) in 2024. The five-year was at 1.98% (-2), the 10-year was at 2.44% (unch) and the 30-year yield was at 3.00% (unch) at a 4 p.m. read.
Bloomberg BVAL was bumped up to two basis points: 1.44% (-1) in 2023 and 1.71% (-1) in 2024. The five-year at 2.00% (-2), the 10-year at 2.47% (-1) and the 30-year at 3.00% (unch) at 3:30 p.m.
Treasuries were mixed.
The two-year UST was yielding 3.250% (+1), the three-year was at 3.250% (+1), the five-year at 3.175% (+2), the seven-year 3.148% (+2), the 10-year yielding 3.032% (+1), the 20-year at 3.427% (-1) and the 30-year Treasury was yielding 3.167% (-1) at 3:15 p.m.
Primary to come:
The New York City Housing Development Corporation (Aa2/AA+//) is set to price Thursday $181.670 million of sustainable development multi-family housing revenue bonds, 2022 Series E. Barclays Capital.
The McKinney Independent School District, Texas, (Aaa/AAA//) is set to price Thursday $108.030 million of unlimited tax school building and refunding bonds, Series 2022, insured by the Permanent School Fund Guarantee Program. Piper Sandler & Co.
Competitive:
The New York State Thruway Authority is set to sell $436.450 million of tax-exempt climate bond certified state personal income tax revenue green bonds Series 2022C, Bidding Group 1, at 10:30 a.m. eastern Thursday.
The New York State Thruway Authority is set to sell $296.495 million of tax-exempt climate bond certified state personal income tax revenue green bonds Series 2022C, Bidding Group 2, at 11 a.m. Thursday.
