The municipal market was steady Monday as participants await the last full week of 2020 and issuers price the final large new deals of the year into a very issuer-friendly market.
Even with COVID-19-related shutdowns — a New York City lockdown may be imminent — issuers are pricing bonds into an extremely low-rate environment and seeing extraordinary demand.
Triple-A benchmarks didn’t move again Monday with the curves all being mostly static since Nov. 20.
The 10-year muni is at 0.69%-0.70% while the 30-year is at 1.39%-1.41%. Relative value ratios have been more volatile than absolute yields because of a more volatile U.S. Treasury market.
The 10-year muni/UST ratio is at 0.82% and the 30-year is at 0.85%, higher than the first two weeks of December when it dipped to just over 0.70%.
But just as tax-exempt municipals were heading toward nosebleed prices, based on steadily richening muni-to-U.S. Treasury ratios, the past week provided a slight reprieve from the march higher in valuations, said Eric Kazatsky, at Bloomberg Intelligence. “While both AAA tax-exempt and Treasury yields fell week-over-week, the move in munis paled in comparison to their taxable counterparts. Mixed sentiment surrounding actions from the upcoming Federal Reserve meeting and a return of the flight-to-quality trade contributed to the move lower in Treasuries.”
Looking at the new-issue market, a wider variety of structures outside of 10 years has moved trade volume from 49% in November to 52% so far in December.
More issuers are structuring deals with lower coupons, with 2s and 3s in the 15- to 20 year range being tighter by 10 to 15 basis points or more from comparable deals in November. The Gwinnett County Water and Sewerage Authority, Georgia, (Aaa/AAA/AAA/) sold $176.8 million of revenue bonds to Morgan Stanley & Co. LLC Monday.
The issuer sold shorter coupon bonds 2031 and out, with 1.65% coupons on 2035 to yield 1.61%, 1.85% coupon on bonds in 2040 to yield 1.81%, a 2% coupon in 2045 to yield 1.96% and a 2.15% coupon on bonds in 2050 to yield 2.11%, all priced to the call.
New deals are also trading up. A typically quiet Monday with a slightly weaker bid side started the week off as deals from last week have been actively trading as 2020 nears its a close.
Municipal underperformance last week hasn’t meaningfully cheapened valuations heading into this week, but that shouldn’t curb investor appetite, according to Peter Block, managing director of credit research at Ramirez & Co. in a weekly report released on Monday.
He said gross supply this week is estimated at $10 billion, led by New York State Urban Development Corp., New York City general obligation bonds, the Texas Surface Transportation Corp. private activity bonds, as well as Connecticut GOs.
The 30-day visible net supply is negative $10.1 billion, reflecting $10.4 billion of announced supply against $20.5 billion of maturities and calls.
Gross supply year to date is $457.5 billion — a 13.4% increase year over year — and includes $319.3 billion of tax-exempt bonds, which is down 5.2% year over year, and $138.2 billion of taxable, a 107% increase year over year, according to Block.
“We expect 2020 total gross supply to be a record at $465 billion,” a 9.1% increase year over year, with about $13 billion net supply, Block said.
Primary market
The Gwinnett County Water and Sewerage Authority $176.8 million of revenue bonds in 2031-2042, 2040 and 2027 were all put away pre-sale while balances remained on bonds in 2021-2026 and 2028-2030.
Yields ranged from 0.15% on 5s of 2021, 0.22% on 5s of 2025, 0.71% on 5s of 2030.
The Empire State Development Corp. (AA+/AA+)
New York City is set to price $1.5 billion of taxable general obligation bonds, serials in 2022-2036 and 2021-2028. Jefferies LLC is bookrunner on the deal. New York City GO 5s of 2042 traded at 1.77% Monday.
The Texas PAB Surface Transportation Corp. is set to price $1.18 billion of taxable LBJ Infrastructure Group LLC I-635 managed lane project senior lien revenue refunding bonds with a Baa3 rating from Moody's Investors Service. The 2020C senior lien bond proceeds will be used to voluntarily repay about $1.1 billion of subordinate lien TIFIA loans. BofA Securities is lead manager.
The State of Connecticut (A1/A/A+/AA-) is set to price $800 million of general obligation bonds on Tuesday. The serials mature from 2022-2041, led by Jefferies.
Harris County, Texas, (Aa2//AA/) plans $437 million of toll road first lien revenue and refunding bonds led by Goldman, Sachs & Co. LLC.
The Illinois Finance Authority (NR/AAA/AAA/NR) plans to issue $435 million of Illinois Clean Water Initiative revolving fund revenue green bonds, 2021-2032, with terms in 2033, 2034, 2035, 2036, 2037, 2038, 2039, 2040, and 2041. Citigroup Global Markets will run the books.
The New York City Health and Hospitals Corp. (Aa3/A+/A+/NR) will price $330 million of health system revenue bonds. Morgan Stanley & Co. LLC is head underwriter.
The Dutchess County Local Development Corp. (/BB+//) is set to price $250 million of Bard College project revenue bonds in two series, 2038-2051 and 2022-2038. KeyBanc Capital Markets is bookrunner.
The Frisco Independent School District (Aaa/AAA//) will price $200 million of Collin and Denton County unlimited tax school building and refunding bonds, insured by the Permanent School Fund Guarantee program, serials 2021-2040; terms 2045,2051.
The Frisco Independent School District is also set to price $109 million of taxable refunding bonds Tuesday. RBC Capital Markets is bookrunner.
The City and County of Honolulu, Hawaii, (Aa2///AA/) plans to price $183 million of taxable wastewater system revenue refunding bonds on Tuesday. BofA Securities is lead underwriter.
The Maryland Economic Development Corp. (NR/NR/NR/NR) is set to price $133 million Port Covington Project special obligation bonds with terms in 2030, 2040 and 2050. Citigroup Global Markets Inc. is head underwriter.
The CSCDA Community Improvement Authority, California, (NR/NR/NR/NR) is set to price $116 million of essential housing revenue bonds, terms in 2054. RBC Capital Markets Inc. is head underwriter.
Secondary market
High-grade municipals were little changed, according to final readings on Refinitiv MMD’s AAA benchmark scale. Short yields were at 0.13% in 2021 and 0.14% in 2022. The yield on the 10-year was at 0.70% while the yield on the 30-year was at 1.39%.
The 10-year muni-to-Treasury ratio was calculated at 82% while the 30-year muni-to-Treasury ratio stood at 85%, according to MMD.
The ICE AAA municipal yield curve showed short maturities at 0.13% in 2021 and 0.14% in 2022. The 10-year maturity was at 0.70% while the 30-year yield was little changed at 1.41%.
The 10-year muni-to-Treasury ratio was calculated at 77% while the 30-year muni-to-Treasury ratio stood at 87%, according to ICE.
The IHS Markit municipal analytics AAA curve showed short yields at 0.11% and 0.12% in 2021 and 2022, respectively, and the 10-year steady at 0.69% as the 30-year yield was at 1.39%.
Treasuries improved as equities were weaker. The 10-year Treasury was yielding 0.90% and the 30-year Treasury was yielding 1.64%. The Dow fell 166 points, the S&P 500 fell 0.41%, while the Nasdaq gained 0.45%.
Christine Albano contributed to this report.
