East, West Coast deals top $8.2B slate after muni bond market correction

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Municipal bond buyers will get their choice of deals in a calendar topped by two big issuers from the East and West Coasts.

Offerings from New York City and a California issuer headline the upcoming slate, which IHS Ipreo estimates at $8.2 billion. The supply is composed of $7.1 billion of negotiated deals and $1.1 billion of competitive sales.

Municipals were mostly steady on Friday, with yields finishing out a volatile week little changed.

“Municipal bonds are ending the week unchanged,” ICE Data Services said. “On the week, yields on the ICE muni curve rose seven to 10 basis points from 10-years and out while front end yield climbed slightly.”

Since Aug. 12 when yields first began their move higher, the yield on the 10-year munis is up 12 basis points and the 30-year yield is up 15 basis points, according to Refinitiv MMD.

Primary market
The week’s headliner is the New York City, (Aa1/AA/AA/NR) which is coming to market with $1.38 billion of general obligation bonds.

The deals are composed of tax-exempt fixed-rate bonds and taxable fixed-rate bonds. Proceeds will be used to refund certain outstanding issues.

Citigroup is expected to price $1.08 billion of tax-exempt GOs on Wednesday after a one-day retail order period. And the city will competitively sell $304.15 million of taxables in two offerings, consisting of $159.935 million and $144.215 million, also on Wednesday.

Coming in close behind is the Trustees of California State University, which is issuing $1.35 billion of systemwide revenue bonds.

Goldman Sachs and RBC Capital Markets as senior managers are set to price the deal on Wednesday after a one-day retail order period.

The issue is composed of $528.77 million of Series 2020D taxables, $526.14 million of Series 2020E taxables and $294.265 million of Series 2020C tax-exempts.

Proceeds will be used to finance construction, renovation and improvement of some university facilities and to refund certain outstanding bonds.

This pair of billion-dollar deals will continue to add much-needed supply to the under-served municipal market — but one New York underwriter said investors will have their guard up as the deals arrived into the current market.

The New York and California deals will appeal based on their size and arrival in the summer doldrums, however price will be a factor.

“It’s going to get demand, but like every deal in the market right now some price discovery needs to go on,” said a New York underwriter at a major Wall Street firm.

“We’ve had a big calendar run, rates are low and there’s nervousness around credit and the overall health of the economy,” he said Friday. “There’s definitely an audience and definitely market accessibility for the deals, but the market is just a little challenging.”

While both the New York and California deals will likely set benchmarks for their size and structure, the underwriter said price will be the ultimate selling point.

“New York City always has an audience, but how it’s received in the current market remains to be seen,” he said.

He noted that the New York Transitional Finance Authority’s deal that just priced was repriced. Overall, however, the deal boasted strong retail demand — with $550 million in presale during the retail order period, he noted.

“I think retail is still engaged, but a little more cautious” given the current rate and credit environment, he said. “The market has been shaken up a little with all the supply we have seen.”

In the Midwest, the state of Michigan (Aa2/AA+/NR/NR) is coming to market with an $800 million deal.

JPMorgan Securities is expected to price the state trunk line fund bonds being issued under the Rebuilding Michigan program on Wednesday.

JPMorgan is also set to price the University of Chicago’s (Aa2/AA-/AA+/NR) $300 million of taxable corporate CUSIP fixed-rate bonds on Wednesday.

Siebert Williams Shank is expected to price the Chicago Transit Authority’s (/A+//AA-) $345 million of second lien sales tax receipts revenue refunding bonds on Thursday.

BofA: Moving past the peak
Minutes from the Federal Reserve’s July policy meeting showed a shifting stance, according to a Friday report from BofA Security, which said it appeared less likely the FOMC would use additional stimulus at its September meeting. The Fed also backed away from the talk of yield curve control, the minutes showed.

“The Treasury curve bear steepened,” wrote BofA municipal research strategists Yingchen Li and Ian Rogow. “In munis, with the rejection of the 10-year AAA rates pivot around 50 basis points, yields have been on the rise as well, although not as much as Treasuries.”

They wrote that supply and demand technicals remain good and that mutual fund inflows are still strong.

“However, we sense that the momentum of the market recovery may have moved past its peak, as there remains very little in redemptions over the last 10 days of August,” they said. “In September, redemption numbers are much smaller when compared to the previous three months. We estimate that there will be about $19 billion in principal redemptions and $6 billion in coupon payments, for a total of $25 billion. This is about half of August's. Issuance in September is poised to exceed redemptions by a large margin; our estimated issuance for the month is $33 billion.”

Li and Rogow noted the partisan divide between Democrats and Republicans over a new stimulus package.

“Uncertainty surrounding the new stimulus negotiation is another recent factor of concern. The two parties' positions are still too far from each other's,” they wrote. “Although we continue to expect $200 billion-$400 billion in direct aid for state and local governments from the new stimulus package, political risks clearly have risen.”

Secondary market
Some trades of note Friday:

Alief Texas ISD 5s of 2022 traded at 0.32%-0.20%. Maryland GOs 5s of 2025 traded at 0.24%-0.23%. New York City TFAs, 5s of 2026, traded at 0.63%, originally priced in May at 1.22%.

University of Texas revs, 5s of 2029, traded at 0.98%-0.89%. Forsyth County Georgia schools, 5s of 2033, traded at 1.03%-0.95%. In early April, they traded at 1.67%.

Georgia GOs, 3s of 2036, traded at 1.40% after originally pricing at 1.39%.

Miracosta California community college district 2s of 2040 traded at 2.03%-2.01% after originally pricing at 2.07%.

Out longer, Lamar, Texas ID 4s of 2047, traded at 1.55%. Lubbock Texas ISD 4s of 2050 traded at 1.67%-1.63%.

Municipals were steady, according to the final readings on Refinitiv MMD’s AAA benchmark scale.

Yields were unchanged at 0.13% in 2021 and 0.14% in 2022. The yield on the 10-year muni was flat at 0.73% while the 30-year yield was unchanged at 1.46%.

The 10-year muni-to-Treasury ratio was calculated at 114.1% while the 30-year muni-to-Treasury ratio stood at 107.4%, according to MMD.

The ICE AAA municipal yield curve showed the 2021 maturity unchanged at 0.120% and the 2022 maturity steady at 0.129%. The 10-year maturity was flat at 0.709% and the 30-year was steady at 1.468%.

ICE reported the 10-year muni-to-Treasury ratio stood at 118% while the 30-year ratio was at 106%.

The IHS Markit municipal analytics AAA curve showed the 2021 maturity yielding 0.14% and the 2022 maturity at 0.15% while the 10-year muni was at 0.75% and the 30-year stood at 1.47%.

The BVAL AAA curve showed the curve mostly unchanged with the 2021 maturity yielding 0.11% and the 2022 maturity at 0.12%, while the 10-year muni was at 0.70%, and the 30-year at 1.46%, plus one.

Munis were little changed on the MBIS benchmark and AAA scales.

Treasuries were stronger as stock prices traded higher.

The three-month Treasury note was yielding 0.096%, the 10-year Treasury was yielding 0.633% and the 30-year Treasury was yielding 1.352%.

The Dow rose 0.76%, the S&P 500 increased 0.42% and the Nasdaq gained 0.54%.

Bond Buyer indexes moved higher
The weekly average yield to maturity of the Bond Buyer Municipal Bond Index, which is based on 40 long-term bond prices, rose two basis points to 3.51% from 3.49% the week before.

The Bond Buyer's 20-bond GO Index of 20-year general obligation yields rose 10 basis points to 2.15% from 2.05% in the previous week.

The 11-bond GO Index of higher-grade 11-year GOs increased 10 basis points to 1.68% from 1.58%.

The Bond Buyer's Revenue Bond Index gained 10 basis points to 2.57% from 2.47%.

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Primary bond market Secondary bond market California State University Trustees City of New York, NY University of Chicago Chicago Transit Authority State of Michigan