Municipal bond buyers saw the last of the week’s large deals come to market on Thursday as bond prices showed little change, with yields on the AAA scales moving up by as much as one basis point on longer maturities on some AAA scales.
Chicago's O'Hare airport deal priced while the U.S. Virgin Islands had to pull it's $1 billion deal due to a lawsuit.
In the latest week, tax-exempt mutual funds got another infusion of cash. Refinitiv Lipper reported muni bonds saw almost $499 million of inflows, the 20th week in a row of positive results.
Meaningful signs of month- and quarter-end activity are being seen in the primary and secondary markets, according to Kim Olsan, senior vice president at FHN Financial.
“Bids-wanteds have joined in with new-issue pricings on posting heavier volumes as the final days wind down. Sell lists run the gamut from high-grade to high-yield blocks as position paring is in play,” Olsan said. “MSRB data show 70% of secondary volume in the last week has been between AAA and AA credits but almost 15% has traded in BBB, BB and nonrated sectors — where risk exposure is being wound down.”
She added that dealer inventories are heading lower with weekly position reporting from the New York Fed showing a reduction in holdings of 11% from the beginning of July to $7 billion from over $20 billion at the end of March.
“Swapping activity is picking up, particularly in the five- to 10-year range where sub-1% yields and tight spreads took hold during the quarter,” she said.
As the market moves into the final quarter of the year, Olsan said the four main metrics likely to drive momentum will be yields, the curve slope, ratios and credit.
Meanwhile, expect a bumpy ride in the markets for the rest of the year, according to Morgan Stanley analysts.
“Another round of federal muni aid in 2020 is no longer our base case. It now requires market weakness or the U.S. election to spur action,” Morgan Stanley said in a Thursday report. “Given the recent rally, this introduces near-term downside risk, though likely far less severe than the spring sell-off, given cheaper valuations and Fed support.”
Without more fiscal support, the outlook becomes murkier with the possibility of economic data disappointment and volatility in rates, historically muni demand dampeners, Morgan Stanley strategists Michael Zezas, Samantha Favis and Barbara Boakye said.
“Additionally, while nascent data suggest states' budget gaps may be smaller than initially feared, they remain substantial and likely require some degree of austerity or borrowing. This risks negative headlines and downward rating actions that could join rates volatility to weaken demand.”
The bright side is that muni underperformance would likely be far less severe than what happened last Spring.
“The market enters this risk period with a better starting point for valuations. Further, Fed support through the municipal liquidity facility (MLF) maintains ample capacity to cover projected state revenue shortfalls, continuing to limit perception of jump-to-default risk in states and local governments,” they said.
Primary market
Jefferies priced Chicago’s (NR/A/A/A+) $1.2 billion of general airport senior lien bonds for
The $755.675 million of tax-exempt general airport senior liens were tentatively priced in four tranches:
- The $497.215 million of Series 2020A revenue refunding bonds not subject to alternative minimum tax were priced to yield from 1.18% with a 5% coupon in 2028 to 2.32% with a 4% coupon in 2040;
- The $136.87 million of Series 2020B refunding private activity non-AMT bonds were priced to yield from 0.43% with a 5% coupon in 2023 to 2.31% with a 4% coupon in 2035;
- The $59.715 million of Series 2020C non-AMT revenue refunding bonds were priced to yield from 2.01% with a 5% coupon to 2.28% with a 4% coupon in 2039; and
- The $61.875 million of Series 2020E non-AMT revenue bonds were priced to yield from 1.36% with a 5% coupon in 2029 to 2.32% with a 4% coupon in 2040.
JPMorgan priced the Los Angeles Unified School District, Calif.’s (Aa3/NR/AA+/AAA) $300 million of Series 2020A dedicated unlimited ad valorem property tax general obligation refunding bonds.
The bonds were priced to yield from 0.12% with a 5% coupon in 2021 to 1.36% with a 5% coupon in 2033.
The Miami-Dade County School District, Fla., (MIG1/NR/NR/NR) competitively sold $475 million of tax anticipation notes. Six groups won the TANs.
- JPMorgan won $200 million with a bid of 2%, a premium of $1,328,000, an effective rate of 0.184234%;
- BofA securities won $100 million with a bid of 1.5%, a premium of $500,100, an effective rate of 0.185869%;
- Morgan Stanley won $50 million with a bid of 2%, a premium of $345,500, an effective rate of 0.184234%;
- RBC Capital markets won $50 million with a bid of 2%, a premium of $345,500, an effective rate of 0.184334%;
- Wells Fargo Securities won $50 million with a bid of 3%, a premium of $536,000, an effective rate of 0.183066%; and
- UBS Financial Services won $25million with a bid of 2%, a premium of $172,625, an effective rate of 0.185547%.
PFM Financial Advisors was the financial advisor; Greenberg Traurig was the bond counsel.
Barclays Capital priced the California Health Facilities Financing Authority’s (NR/A/NR/NR) $279 million of tax-exempt and taxable revenue bonds for PIH Health.
The $171.445 million of Series 2020A exempts were priced to yield from 0.33% with a 5% coupon in 2022 to 2.27% with a 4% coupon in 2040; a 2047 maturity was priced as 3s to yield 2.75% and a 2050 maturity was priced as 4s to yield 2.48%. The $107.435 million of Series 2020B taxables were priced to yield from 237 basis points above the comparable Treasury security in 2033 to 250 basis points above Treasuries in 2036 and 230 basis points above Treasuries in 2047.
Oppenheimer & Co priced the California Municipal Finance Authority’s (A1/NR/NR/NR) $205.5 million of taxable Series 2020 federal lease revenue bonds for the FBI San Diego project. The bonds were priced at par 2.519% in 2035.
JPMorgan received the written award on the Port of Portland, Ore.’s (NR/A+/NR/NR) $312.46 million of Portland International Airport revenue bonds consisting of Series 27A subject to alternative minimum tax and the Series 27B taxables.
Money market muni funds fall $1.2B
Tax-exempt municipal money market fund assets fell $1.22 billion, bringing total net assets to $115.26 billion in the week ended Sept. 21, according to the Money Fund Report, a publication of Informa Financial Intelligence.
The average seven-day simple yield for the 184 tax-free and municipal money-market funds rose to 0.02% from 0.01% in the previous week.
Taxable money-fund assets decreased $953.5 billion in the week ended Sept. 22, bringing total net assets to $4.242 trillion.
The average, seven-day simple yield for the 775 taxable reporting funds remained at 0.02% from the prior week.
Overall, the combined total net assets of the 960 reporting money funds fell $2.17 billion in the week ended Sept. 22.
Refinitiv Lipper reports $499M inflow
In the week ended Sept. 23, weekly reporting tax-exempt mutual funds saw $498.876 million of inflows. It was the 20th week in a row of positive results and followed a gain of $611.960 million in the previous week.
Exchange-traded muni funds reported inflows of $123.617 million, after inflows of $110.173 million in the previous week. Ex-ETFs, muni funds saw inflows of $375.259 million after inflows of $501.787 million in the prior week.
The four-week moving average remained positive at $563.837 million, after being in the green at $693.105 billion in the previous week.
Long-term muni bond funds had outflows of $33.146 million in the latest week after inflows of $64.307 million in the previous week. Intermediate-term funds had outflows of $14.928 million after inflows of $116.210 million in the prior week.
National funds had inflows of $434.978 million after inflows of $545.570 million while high-yield muni funds reported inflows of $57.127 million in the latest week, after inflows of $60.885 million the previous week.
Secondary market
Some notable trades Thursday:
NYC TFAs, 5s of 2022, traded at 0.13%-0.10%. Texas highways, 5s of 2022, at 0.15%. Georgia GOs, 4s of 2022, at 0.20%-0.15%. Washington GOs, 5s of 2024, at 0.24%. Utah GOs, 5s of 2026 at 0.35% (Wednesday at 0.35%-0.34%). Maryland GOs, 5s of 2027 at 0.54%-0.53%. Georgia GOs 5s of 2027 at 0.50%-0.48%. Maryland GOs, 5s of 2028, at 0.67%. Georgia GOs, 5s of 2028 at 0.61%-0.60%, the same as Wednesday.
Harvard 5s of 2029 traded at 0.75%-0.74%. Hennepin County, Minnesota 5s of 2030 traded at 0.92% while last week at 0.93%
NYC TFA 3s of 2037 traded at 2.15%. Texas waters 3s of 2038 traded at 1.71%-1.68% versus 1.77% original. Charlotte, North Carolina 2s of 2042 traded at 2.06%-2.00% after originally pricing at 2.10%.
NYC TFAs, 3s of 2048, traded at 2.49%-2.46% after originally pricing at 2.57%.
High-grade municipals were unchanged Thursday, according to final readings on Refinitiv MMD’s AAA benchmark scale. Yields were flat in 2021 and 2022 at 0.12% and 0.13%, respectively. The yield on the 10-year muni was flat at 0.83% while the 30-year yield remained at 1.58%.
The 10-year muni-to-Treasury ratio was calculated at 123.9% while the 30-year muni-to-Treasury ratio stood at 112.6%, according to MMD.
The ICE AAA municipal yield curve showed the 2021 maturity at 0.12%, the 2022 maturity at 0.13%, the 10-year maturity up one basis point to 0.80% and the 30-year up one basis point to 1.60%.
The 10-year muni-to-Treasury ratio was calculated at 125% while the 30-year muni-to-Treasury ratio stood at 112%, according to ICE.
The IHS Markit municipal analytics AAA curve showed the 2021 maturity yielding 0.13%, the 2022 maturity at 0.14%, the 10-year muni at 0.85% and the 30-year at 1.59%.
The BVAL AAA curve showed the yield on the 2021 maturity unchanged at 0.11%, the 2022 maturity unchanged at 0.13%, the 10-year steady at 0.80% and the 30-year rose one basis point to 1.59%.
Treasuries were stronger as stock prices traded down.
The three-month Treasury note was yielding 0.09%, the 10-year Treasury was yielding 0.69% and the 30-year Treasury was yielding 1.40%.
The Dow fell 0.23%, the S&P 500 decreased 0.69% and the Nasdaq lost 0.12%.
