Municipal bonds held their ground Thursday as the last of the week's large new issues priced while weaker Treasuries and political and COVID jitters were hanging over the markets.
Bond buyers digested a variety of deals coming from Los Angles, New York, North Carolina and Georgia issuers. Trading did show some high-grade names firmer in the belly of the curve, but yields mostly held steady.
Municipals traded little changed on the day, with yields steady to slightly stronger along the AAA scales.
Investors continued to put cash back into tax-exempt mutual funds, with Refinitiv Lipper reporting muni bond funds saw about $582 million of inflows in the latest reporting week.
The day wrapped up with some general weakness as the yield on the 10-year Treasury reached its highest levels since June as the second of two heavy supply weeks neared its close, according to a California manager.
“The big increase in new issuance in recent weeks is starting to show in a little bit of indigestion with measures of secondary market supply elevated,” said Anthony Valeri, executive vice president and director of investment management at Zions Wealth Management.
The dollar amount of bid-wanteds is over $1 billion for the first time since April and although dealer balance sheets also appear heavy, they are well below March levels, according to Valeri.
“Dealers are cautious, prices soft, and valuations relative to Treasuries have weakened this week,” he said.
Tax-exempt yields in five-years and shorter rose slightly on Thursday as buyers continued to balk at low absolute yields, while activity longer in the curve remained mixed and volatile — albeit mostly sideways ahead of next week's pivotal election, according to analysts from Refinitiv/Municipal Market Data.
On the political front, Valeri of Zions said some of the early election indicators could impact investor decisions going forward.
“Biden’s lead remains substantial, but has narrowed in recent days and control of the Senate is close to becoming a toss-up,” Valeri said.
“Investors may be questioning the magnitude of post-election stimulus and tax implications,” he said, noting a potential tailwind from higher tax rates has yet to benefit municipal bonds.
Overall, on a longer-term basis, municipal bond valuations are attractive with average triple-A yields notably above Treasuries, Valeri said.
“However, the ongoing supply overhang, uncertainty around stimulus and potential tax implications, and taxable bond market weakness are all leading to a soft market for now,” he said.
Primary market
BofA Securities priced the Los Angeles Community College District’s (Aaa/AA+/NR/NR) $1.79 billion of taxable general obligation refunding bonds.
The bonds were priced at par to yield from 0.276% in 2021 (12.5 basis points above the comparable U.S. Treasury security) to 1.174% in 2026 (+57 basis points above Treasuries), 1.606% in 2028 (+77 basis points above Treasuries), 1.806% in 2030 (+97 basis points above Treasuries), 2.106% in 2032 (+127 basis points above Treasuries), and from 2.336% in 2033 (+150 basis points above Treasuries) to 2.486% in 2035 (+165 basis points above Treasuries) and 2.825% in 2039 (+120 basis points above Treasuries).
JPMorgan Securities priced and repriced the New York
The Thursday deal had bonds reprice to yield from 3.59% with a 4% coupon in 2026 to 3.89% with a 5% coupon in 2033; a 2045 maturity with an average life of 24.452 years was priced as 4s to yield 4.02%.
The bonds had been tentatively priced to yield from 3.69% with a 4% coupon in 2026 to 4.04% with a 5% coupon in 2033; a 2045 maturity was priced as 4s to yield 4.16%.
“More than four months following the phased reopening of non-essential businesses, transit ridership remains far below pre-pandemic levels,” the Comptroller’s Office said. “Ridership was 70% below 2019 levels on the subway and 57% below on MTA buses as of Wednesday Oct. 21.”
BofA Securities priced North Carolina’s (Aa1/AA+/AA+/NR) $700 million of Series 2020B limited obligation Build NC bonds.
The deal was priced to yield from 0.22% with a 5% coupon in 2021 to 2.06% with a 2% coupon and 1.67% with a 4% coupon in a split n2035 maturity.
BofA priced the Municipal Electric Authority of Georgia’s (A2/A-/BBB+/NR) $253.49 million of Series 2020A bonds.
The $194.89 million of Project One subordinated bonds were priced to yield from 0.47% with a 5% coupon in 2022 to 2.50% with a 4% coupon in 2040. A 2045 maturity was priced as 5s to yield 2.43% and a 2050 maturity was priced as 5s to yield 2.51%.
The $58.6 million of general resolution projects subordinated bonds were priced to yield from 0.47% with a 5% coupon in 2022 to 2.79% with a 3% coupon in 2040; a 2045 maturity was priced as 4s to yield 2.71%.
Milwaukee, Wis. (NR/A/AA-/NR) competitively sold $120 million of Series 2020R9 general obligation refunding promissory notes.
Wells Fargo Securities won the deal with a true interest cost of 1.63%. The notes were priced as 1.75s to yield 1.60 in 2030.
N.J. plans $4.5B COVID-19 bond sale
The state of New Jersey said it expects to issue up to $4.5 billion of tax-exempt and taxable municipal bonds later in November.
The bonds were authorized under the state’s COVID-19 Emergency Bond Act and are direct general obligations of the state, backed by its full faith and credit.
Proceeds will be used to address the state’s financial problems caused by the coronavirus pandemic and fix a revenue shortfall in fiscal 2021
BofA Securities has been named as book-running senior manager for the deal. The size, timing and structure of the potential transaction are subject to market conditions, the state said.
Informa: Money market muni funds fell $544M
Tax-exempt municipal money market fund assets fell $554.4 million, bringing total net assets to $111.74 billion in the week ended Oct. 26, according to the Money Fund Report, a publication of Informa Financial Intelligence.
The average seven-day simple yield for the 186 tax-free and municipal money-market funds remained at 0.02% from the previous week.
Taxable money-fund assets dropped $7.5 billion in the week ended Oct. 27, bringing total net assets to $4.18 trillion.
The average, seven-day simple yield for the 779 taxable reporting funds remained at 0.01% from the prior week.
Overall, the combined total net assets of the 965 reporting money funds fell $8.06 billion in the week ended Oct. 27.
Refinitiv Lipper reports $582M inflow
In the week ended Oct. 28, weekly reporting tax-exempt mutual funds saw $582.366 million of inflows. It followed a gain of $607.029 million in the previous week.
Exchange-traded muni funds reported inflows of $40.771 million, after outflows of $116.503 million in the previous week. Ex-ETFs, muni funds saw inflows of $541.595 million after inflows of $723.532 million in the prior week.
The four-week moving average remained positive at $883.120 million, after being in the green at $543.841 billion in the previous week.
Long-term muni bond funds had outflows of $205.727 million in the latest week after outflows of $97.084 million in the previous week. Intermediate-term funds had inflows of $87.597 million after inflows of $61.102 million in the prior week.
National funds had inflows of $593.114 million after inflows of $584.010 million while high-yield muni funds reported inflows of $100.092 million in the latest week, after inflows of $21.399 million the previous week.
Secondary market
Some notable trades on Thursday:
North Carolina GO 5s of 2022 traded at 0.23% while 5s of 2023 traded at 0.24%-0.23%. Tennessee GOs, 5s of 2026 at 0.49%. Delaware GOs 5s of 2027 at 0.53% while Friday at 0.55%. Texas waters, 5s of 2029, traded at 0.96%-0.95%. Wednesday at 1.02%-1.01%. Fairfax Virginia GO 5s of 2029 at 0.84%-0.83% and Wednesday at 0.91%-0.92%. NYC TFA subs 5s of 2029 traded at 1.20% same as Wednesday.
Baltimore County, Maryland 5s of 2030 traded at 0.94%. Wednesday 0.98%. North Carolina 5s of 2030 at 0.89%-0.88% and 0.92%-0.91% Tuesday. Loudon County, Virginia 5s of 2030 at 0.95%-0.94%. Washington GOs, 5s of 2033 at 1.37%-1.33%. Dallas waters 5s of 2045 traded at 1.78%. Leander Texas ISD 4s of 2045 traded at 1.79%-1.73%. NYC TFA subs 4s of 2046 at 2.52%-2.54%. NYC TFA subs 4s of 2047 at 2.55%-2.54%.
High-grade municipals were mixed, according to final readings on Refinitiv MMD’s AAA benchmark scale. Short yields in 2021 and 2022 rose one basis point to 0.20% and 0.21%, respectively. The yield on the 10-year muni was steady at 0.93% while the yield on the 30-year was flat at 1.71`%.
The 10-year muni-to-Treasury ratio was calculated at 111.2% while the 30-year muni-to-Treasury ratio stood at 105.1%, according to MMD
The ICE AAA municipal yield curve showed short maturities rising one basis point in 2021 and 2022 to 0.21% and 0.23%, respectively. The 10-year maturity was unchanged at 0.92% and the 30-year was unchanged at 1.73%.
The 10-year muni-to-Treasury ratio was calculated at 110% while the 30-year muni-to-Treasury ratio stood at 106%, according to ICE.
The IHS Markit municipal analytics AAA curve showed short yields flat at 0.16% and 0.17% in 2021 and 2022, respectively, with the 10-year yielding 0.95% and the 30-year at 1.71%.
The BVAL AAA curve showed the yield on the 2021 maturity unchanged at 0.15% and the 2022 maturity flat at 0.16% while the 10-year was steady at 0.92% and the 30-year unchanged at 1.72%.
Treasuries were weaker as stock prices traded higher.
The three-month Treasury note was yielding 0.09%, the 10-year Treasury was yielding 0.84% and the 30-year Treasury was yielding 1.63%.
The Dow rose 1.12%, the S&P 500 increased 1.88% and the Nasdaq gained 2.34%.
