Municipals ended little changed on Wednesday after spending most of the day treading water while traders waited for the Federal Reserve’s monetary policy meeting to end.
The market held in as anticipation builds for the New York Dormitory Authority’s $3.3 billion revenue anticipation note deal, municipal players said.
The municipal market appeared “quite firm due to strong technicals,” said Michael Pietronico, chief executive officer at Miller Tabak Asset Management.
“Our sense is that spreads will continue to pull tighter as yields remain painfully low, especially in the very short end of the yield curve,” Pietronico said. “Some greater level of enthusiasm can be felt across the high yield space as the economy is slowly gathering back some momentum.”
Dan Urbanowicz, director and fixed-income portfolio manager at Washington Crossing Advisors, witnessed “compelling” strength in the market, as the supply demand imbalance continued to impact new issuance Wednesday.
“Even with such low absolute yields, new issues this week for a wide range of issuers have been met with strong demand and repricing higher across the curve,” he said. “As cash continues to return to muni funds, and a large negative net supply number is expected through the summer, we expect this dynamic to continue, with a flood of cash chasing a small amount of paper.”
DASNY’s subordinate personal income tax RANs are set to be priced by Citigroup on Thursday.
The one-year notes are expected to price in the neighborhood of 0.75%, according to a New York trader close to the deal.
The Federal Open Market Committee held rates at zero to ¼% and the Summary of Economic Projections (SEP) shows members expect the fed funds rate target to remain at zero lower bound through next year, with all but two participants expecting no rate hikes in 2022.
One FOMC member sees rates jumping a full point in 2022, while the other outlier sees rates climbing 25 basis points in 2022. But over the longer run, most members see rates at 2.5%, with others ranging from 2.0% to 3.0%.
The SEP suggests GDP will fall 6.5% this year, but rise 5.0% next year and 3.5% in 2022.
As for unemployment, the SEP projects a 9.3% rate this year, 6.5% next year and 5.5% in 2022.
While the post-meeting statement notes conditions have improved, it notes members expect the “will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.”
Primary market
June is the start of the yearly redemption season — the spike in calls and maturing bonds — that lasts through July and corresponds with the start of many states fiscal years.
“The upcoming eight-week period brings not only municipal seasonals, but is occurring as many states roll back shutdown measures with important revenue considerations,” said Kim Olsan, senior vice president at FHN Financial.
“In both 2018 and 2019, scheduled maturities outnumbered called bonds by at least a two to one ratio,” Olsan said. “Projected 30-day supply in each year between June and August averaged $8 billion period against redemptions that exceeded a combined $40 billion.”
She noted that “theoretical outperformance should occur” given a large mismatch between implied demand and expected supply.
“However, there have been mixed results in yield performance — by the end of July 2018 intermediate yields were unchanged and long rates sold off by seven basis points,” she said, “In 2019, the late July/early August period saw the 10-year and 30-year benchmarks rally seven to 10 basis points, as supply projections fell but demand held steady.”
As the new cycle beings, yields are up by a nominal amount, but the starting point is low relative to recent years.
“Current estimated redemptions total nearly $50 billion with projected 30-day supply of $12 billion,” Olsan wrote. “Whether or not the market will find enough impetus from implied demand to push yields lower remains to be seen, but is very much dependent on the credit side of the equation as states and municipalities wrestle with challenging revenue conditions.”
Turning to Wednesday’s sales, Morgan Stanley priced for retail the state of Connecticut’s (A1/A/A+/AA-) $400 million of Series 2020C general obligation bonds.
The deal was priced to yield from 0.63% with a 3% coupon in 2021 to 2.87% with a 3% coupon in 2040.
Barclays Capital priced as a remarketing the Connecticut Health and Educational Facilities Authority’s (Aaa/AAA/NR/NR) $194.285 million of revenue bonds for Yale University.
The Series 2017B-1 were priced to yield 0.84% with a 5% coupon in 2029; the Series 2017B-2 bonds were priced at par to yield 0.55% in 2037.
Goldman Sachs priced Ohio State University’s (Aa1/AA/AA/NR) $186.565 million of general receipts bonds issued under the multiyear debt issuance program.
The deal was priced to yield from 0.29% with a 5% coupon in 2022 to 1.07% with a 5% coupon in 2030.
JPMorgan Securities priced the E-470 Public Highway Authority, Colo.’s (A2/A/NR/NR) $171.085 million of senior revenue bonds.
The bonds were priced with 5% coupons to yield from 0.58% in 2023 to 1.24% in 2028 and from 1.66% in 2034 to 1.70% in 2036 and 1.72% in 2040.
Fort Worth, Texas, (Aa1/AA+/AA+/AA/NR) competitively sold $169.18 million of water and sewer system revenue refunding and improvement bonds.
Wells Fargo Securities won the bonds with a true interest cost of 1.9%.
The bonds were priced to yield from 0.16% with a 5% coupon in 2021 to 2.39% with a 2.5% coupon in 2046 and from 2.37% with a 2.75% coupon in 2048 to 2.43% with a 2.5% coupon in 2050.
Hilltop Securities and Estrada Hinojosa are the financial advisors; McCall Parkhurst, Kelly Hart and the State Attorney General are the bond counsel.
The Florida State Board of Education (Aaa/AAA/AAA/NR) competitively sold $112.335 million of GO capital outlay refunding bonds. Morgan Stanley won the bonds with a TIC of 0.2431%.
The State Division of Bond Finance was the financial advisor; Squire Patton was the bond counsel.
Goldman Sachs received the written award on the Memorial Sloan Kettering Cancer Center’s (Aa3/AA-/AA//) $500 million of taxable corporate CUSIP bonds.
Piper Sandler received the written award on the Texas Transportation Commission’s (Aaa/AAA/NR/NR) $341.425 million of state highway fund first tier revenue refunding bonds.
Citigroup received the written award on Oregon’s (AA1/AA+/AA+/NR) $320.475 million of general obligation bonds, consisting of Series 2020D taxable sustainability new money bonds, Series 2020F taxable refunding seismic bonds, Series 2020G taxable refunding state project bonds and Series 2020H taxable refunding state project bonds.
Ramirez & Co. received the official award on El Monte, Calif., $118.725 million of taxable pension obligation bonds. The deal was insured by Assured Guaranty Municipal and rated AA by S&P Global Ratings and A- by Fitch Ratings.
ICI: Muni bond funds see $3.1B inflow
Long-term municipal bond funds and exchange-traded funds saw combined inflows of $3.106 billion in the week ended June 3, the Investment Company Institute reported Wednesday.
It marked the fifth week in a row the funds saw inflows. In the previous week, muni funds saw inflows of $1.939 billion, ICI said.
Long-term muni funds alone had an inflow of $2.301 billion in the latest reporting week after an inflow of $1.650 billion in the week ended May 27.
ETF muni funds alone saw an inflow of $805 million after an inflow of $289 million in the prior week.
Taxable bond funds saw combined inflows of $22.884 billion in the latest reporting week after inflows of $15.509 billion in the prior week.
ICI said the total combined estimated inflows from all long-term mutual funds and ETFs were $17.630 billion after inflows of $16.168 billion in the previous week.
Secondary market
Some notable trades:
Mecklenburg County, NC, GOs, 5s of 2021, at 0.21%. Wake County, NC, GOs, 5s of 2022, at 0.25%. North Carolina GOs, 5s of 2022, at 0.22%. NYC TFAs, 5s of 2022, at 0.39%-0.37%. Utah GOs, 5s of 2022, at 0.25%.
As we go out the cu
rve, Baltimore County GOs, 5s of 2028 traded at 0.81%-0.80%. King County, Washington school district #414, 4s of 2029, landed at 1.00%
New York State EFCs, 5s of 2031, traded at 1.08%-1.07%.
Meanwhile, New York City TFAs, 3s of 2047, traded at 2.79%-2.68%.
Even longer, Texas waters, 4s of 2049, landed at 1.93%-1.91%.
On MMD’s AAA benchmark scale, the yields on the 2021-2023 maturities were unchanged at 0.18%, 0.21% and 0.23%, respectively. The yields on the 10- and 30-year GOs were steady at 0.88% and 1.68%, respectively.
The 10-year muni-to-Treasury ratio was calculated at 118.4% while the 30-year muni-to-Treasury ratio stood at 111.1%, according to MMD.
The ICE AAA municipal yield curve also showed yields unchanged in the 2021-2023 maturities, which yielded 0.170%, 0.193% and 0.249%, respectively. Out longer the story was the same with yields on the 10- and 30-year flat at 0.853% and 1.673%, respectively.
ICE reported the 10-year muni-to-Treasury ratio stood at 117% while the 30-year ratio was at 110%.
The IHS Markit municipal analytics AAA curve also showed the 2021 maturity yielding 0.19%, the 2022 maturity at 0.24% and the 2023 maturity at 0.25% while the 10-year muni was at 0.87% and the 30-year stood at 1.66%.
The BVAL curve showed the 2021 maturity unchanged 0.12% and the 2022 also unchanged at 0.18%. BVAL calculated the 10-year muni fell one basis point to 0.83% while the 30-year fell one basis piont to t0 1.70%.
Munis were little changed on the MBIS benchmark scale.
Treasuries were stronger as stocks traded mixed.
The three-month Treasury note was yielding 0.173%, the 10-year Treasury was yielding 0.757% and the 30-year Treasury was yielding 1.518%.
The Dow dropped 0.70%, the S&P 500 decreased 0.21% and the Nasdaq gained 0.91%.
Gary E. Siegel contributed to this report.
