Municipal market players saw a bevy of notes and bonds price into a strong environment where issuers took advantage of low rates and buyers with reinvestment cash snapped up the new deals.
The post-holiday climate in the municipal market reflected strength as yields fell slightly amid an ongoing hearty appetite for new paper.
“For the first time in about a week municipal bonds are firmer today, with yields falling a basis point or two,” said Robert Roffo, managing director at R&C Investment Advisors.
The tone was very quiet going into and coming out of the July 4 holiday weekend, he noted, pointing to the much-needed arrival of this week’s new deals.
The calendar should be well received, he said, as it is evenly split between taxable and tax-exempt — with about $2 billion in short-term issuance.
“With the effects of the COVID virus still working their way through state and local finances, I believe the municipal calendar for the second half of the year could grow substantially in order for issuers to close budget shortfalls,” Roffo said.
“With cash flows into the municipal market turning positive and a higher-than-average amount of bonds being called or maturing, there will be plenty of cash on the sidelines to absorb any new issues,” Roffo added.
Primary market
JPMorgan Securities priced and repriced the city of Los Angeles' (MIG1/SP1+/NR/NR) $1.76 billion of tax and revenue anticipation notes.
The TRANs, due June 24, 2021, were repriced at 103.494 to yield 0.30% with a 4% coupon. The TRANs had been tentatively priced at 103.475 to yield 0.32% with a 4% coupon.
Since 2010, the city has sold nearly $14 billion notes, with the most issuance prior to this year occurring in 2019, when it offered $1.66 billion.
JPMorgan also priced and repriced the Asante Health System Obligated Group’s (NR/AA&A+/NR&A+/NR) $434 million of taxable revenue and refunding bonds for the Medford Hospital Facilities Authority, Ore.
The $414.365 million Series 2020A tax-exempts were repriced to yield from 0.88% with a 5% coupon in 2025 to 2.20% with a 4% coupon in 2040. A split 2045 maturity was priced to yield 2.31% with a 5% coupon and 2.36% with a 4% coupon and a triple-split 2050 maturity was priced to yield 2.36% with a 5% coupon, 2.58% with a 4% coupon and 2.73% with a 3% coupon.
The Series 2020A exempts had been tentatively priced to yield from 0.98% with a 5% coupon in 2025 to 2.28% with a 4% coupon in 2040. A split 2045 maturity was priced to yield 2.43% with 5% and 4% coupons and a triple-split 2050 maturity was priced to yield 2.48% with a 5% coupon and 2.73% with 4% and 3% coupons.
Assured Guaranty Municipal insured the 2035, 2040, 2045 (4%) and 2050 (3%) maturities.
The $20 million of Series 2020B taxables were priced at par to yield from 1.65% in 2022 to 1.88% in 2025.
BofA Securities priced the Trustees of the University of Pennsylvania’s (Aa1/AA+/NR/NR) $300 million of taxable corporate CUSIP bonds.
The bonds were priced at par to yield 2.396% in 2050.
In the competitive arena Tuesday, the Tarrant County College District, Texas, sold $264.175 million of limited tax general obligation bonds.
Wells Fargo Securities won the bonds with a true interest cost of 1.7058%
The bonds were priced to yield from 0.25% with a 5% coupon in 2021 to 2.18% with a 2.125% coupon in 2040.
PFM is the financial advisor; McCall Parkhurst and the State Attorney General are the bond counsel.
On Wednesday, RBC is expected to price the Tacoma School District No. 1, Pierce County, Wash.'s (Aaa/AA+//) $432 million of taxable GOLT refunding bonds.
The deal is backed by the Washington state credit enhancement program.
And on Thursday, JPMorgan will price the Regents of the University of California’s (Aa2/AA/AA/NR) $2.32 billion tax-exempt and taxable revenue bond deal.
The issue is composed of $790.45 million of exempt Series BE, $328.305 million of taxable Series BF and $1.2 billion of taxable Series BG.
Looking at short-term extension
Municipal yields have been mostly static since June 16, according to Kim Olsan, senior vice president at FHN Financial.
“As the curve has remained stuck, there is some value in short-term extension against earlier periods,” she said.
Looking at a comparison between the seven-day SIFMA yield and the two- and five-year AAA BVAL yields from 2019 to the current period, she said there were several notable factors:
- Early in 2019 the two- and five-year AAA yields were positively sloped to the weekly rate. For the remainder of the year, low demand for floating-rate paper (less money being held in money markets) led to several periods where an inflated seven-day rate traded above two- and five-year levels;
- March’s selloff brought massive money market redemptions that moved the weekly rate above 5% and more than 200 basis points above the two- and five-year yields. With more normalized conditions in May came a restoration of the historical slope across the three rates, brought on in part from fund inflows and June’s seasonal redemptions hitting money markets; and
- The seven-day/two-year slope is now 14 basis points and wider outside of AAA and AA names. An extension out to five years offers more than 30 basis points of implied yield over weekly rates, where the spread can grow to 50 basis points down the credit curve. Muni money market balances as reported by ICI show current levels at $130 billion, from a high of $139 billion in April.
Secondary market
Short-term readings on MMD’s AAA benchmark scale were unchanged on Tuesday. Yields on the 2021 and 2023 maturities were steady at 0.25% and 0.27%, respectively. Munis were stronger out longer. The yield on the 10-year GO muni fell two basis points to 0.88% while the 30-year yield was off two basis points to 1.61%.
The 10-year muni-to-Treasury ratio was calculated at 135.4% while the 30-year muni-to-Treasury ratio stood at 115.8%, according to MMD.
The ICE AAA municipal yield curve showed short yields steady at 0.220% and 0.223% in 2021 and 2022, respectively, while the 10-year maturity dropped one basis point to 0.842% and the 30-year fell two basis points to 1.631%.
ICE reported the 10-year muni-to-Treasury ratio stood at 140% while the 30-year ratio was at 116%.
“Municipal bonds yields are creeping lower today,” ICE Data Services said in a Tuesday market comment. “Taxables are also doing better with the long end yield lower by three basis points.”
The IHS Markit municipal analytics AAA curve showed the 2021 maturity yielding 0.27% and the 2022 maturity at 0.30% while the 10-year muni was at 0.91% and the 30-year stood at 1.66%.
Munis were little changed on the MBIS benchmark and AAA scales.
Treasuries were stronger as stock prices faded.
The three-month Treasury note was yielding 0.153%, the 10-year Treasury was yielding 0.646% and the 30-year Treasury was yielding 1.378%.
The Dow dropped 1.13%, the S&P 500 decreased 0.67% and the Nasdaq declined 0.30%.
