Muni market faces uncertainty ahead; DASNY, NYC deals top $12.5B slate
From the uncertainty surrounding the presidential election to the continuing economic fallout from the coronavirus pandemic, the municipal bond market will face a dislocated market environment as the new week begins.
On Friday, President Donald Trump said he and First Lady Melania Trump had tested positive for the coronavirus after one of his aides had fallen ill. The diagnosis caused more concern in financial markets as more questions surrounded next month’s presidential election. Former Vice President Joe Biden tested negative.
Stocks initially traded sharply lower on the news as well as on the latest employment data showing that jobs growth slowed in September, with non-farm payrolls rising by 661,000; economists surveyed by IFR Markets has expected a gain of 850,000.
But by late in the day, equities had clawed back most of their earlier losses to trade modestly lower.
“We retain our positive medium-term outlook for stocks," said Mark Haefele, chief investment officer at UBS Global Wealth Management. "Election uncertainty is a near-term issue, over the medium-term we expect sustained improvements in mobility based on the development of a vaccine, and the passing of additional U.S. fiscal stimulus to shift the economy toward ‘more normal.’ ”
Municipals traded little changed as investors watched cautiously from the sidelines. Munis ended mostly steady on the AAA scales Friday, with yields on intermediate- and longer-dated maturtities rising by as much as one basis point.
Taxable deals abound on the upcoming week’s new-issue calendar while three large deals from issuers in New York will be in the spotlight.
These first few days of October have already proven the coming weeks will be volatile, says Kim Olsan, senior vice president at FHN Financial.
“Some benchmarks made minor cuts inside 10-years but others showed nominal weakness further out, suggesting that inventory paring ahead of heavy issuance would bring further concessions in secondary positions,” she said. “This is among several factors indicating the dynamic that was a sedate September is changing, including fund flows and credit developments.”
She said that turnover in high-grade state names like Georgia GOs has slowed and slightly wider spreads are developing — indicative of more caution and buyers assessing where fair value levels exist.
“Small signs of waning mutual fund support came with an outflow of $775 million as reported by Lipper. The last time flows were negative was in May, following yields going through a 30 basis-point correction from April trading that took the 10-year AAA spot to 1.42% (currently 0.80%),” she said.
Olsan said an adjustment period may be developing with fixed-duration fund commitments, where more cash could flow into money markets. Muni money market funds have fallen to a low of about $113 billion recently, averaging $133 billion since the last election cycle, she added.
Municipal supply for the upcoming week is estimated at about $12.5 billion.
Fresh off a ratings downgrade, New York City will sell about $1.1 billion of tax-exempt fixed rate general obligation bonds on Wednesday after a two-day retail order period.
The deal will be priced by Siebert Williams Shank and proceeds will be used to fund capital projects and convert some of floating-rate debt to fixed-rate debt. BofA Securities, Citigroup, JPMorgan, Jefferies, Loop Capital Markets, Ramirez & Co., RBC Capital Markets and Wells Fargo Securities are co-senior managers.
Ahead of the sale, Moody’s Investors Service cut the city’s GO rating Aa2 from Aa1, citing the ongoing economic effects of COVID-19. Moody’s also lowered the state’s GO rating.
The city’s GOs are rated AA S&P Global Ratings and Fitch Ratings.
Friday afternoon, the Dormitory Authority of the State of New York announced they would competitively sell about $1.9 billion of state personal income tax revenue bonds in six offerings on Thursday.
DASNY's sales consist of $486.365 million of Series 2020A Bidding Group 2 PITs, $485.085 million of Series 2020A Bidding Group 5 PITs, $439.855 million of Series 2020A Bidding Group 3 PITs, $415.705 million of Series 2020A Bidding Group 4 PITs, Series 2020A $53. 293 million of Bidding Group 1 bonds and $48.155 million of Series 2020B taxable PITs.
The Rockefeller Foundation (Aaa/AAA/NR/NR) in New York is coming to market with $700 million of taxable bonds.
Barclays Capital as senior manager is expected to price the bonds on Thursday. Academy Securities, Loop Capital Markets, Ramirez & Co. and Siebert Williams Shank are co-managers.
Proceeds will be used to fund the foundation’s charitable activities and operations such as “driving a more equitable and inclusive health response to the global COVID-19 pandemic,” according to the roadshow for the bond sale.
Some taxable healthcare deals that are set for the upcoming week include Maryland’s Bon Secours Mercy Health’s (/A+/AA-/NR) $650 million offering of taxable corporate CUSIP refunding bonds to be priced by JPMorgan Securities on Wednesday and the Children’s Hospital of Philadelphia’s (Aa2/AA/NR/NR) taxable corporate CUSIP bonds to be priced by JPMorgan on Tuesday.
Also in the healtcare-related sector, the Virginia Small Business Financing Authority will be coming to market with $377 million of revenue bonds for the Obligated Group of National Senior Campuses Inc. RBC Capital Markets is expected to price the deal for continuing care retirement communities on Tuesday.
Also on tap, Goldman Sachs is set to price the City and County of San Francisco Public Utilities Commission’s (Aa2/AA-NR/NR) $665 million of water revenue refunding bonds on Wednesday; BofA is expected to price the Hampton Roads Transportation Accountability Commission, Va.’s (Aa2/AA//) $600 million of senior lien revenue bonds for the Hampton Roads transportation fund on Tuesday.
In the tobacco bond sector, the Michigan Finance Authority is tentatively coming to market with $884.056 million of tobacco settlement asset-backed bonds. Jefferies is expected to price $459.017 million of Series 2020 A, B1 and B2 senior bonds (2007 sold tobacco receipts) and $425.039 million of Series 2020 A1, A2 and B bonds (2006 sold tobacco receipts).
In the airline sector, Morgan Stanley is expected to price Hawaii’s (A1/A+//) $575 million of airport system revenue bonds consisting of AMT and non-AMT tax-exempts and taxable bonds on Wednesday.
Also, Miami-Dade County is competitively selling $182 million of double-barreled aviation refunding GOs on Thursday. HilltopSecurities is the financial advisor; Greenberg Traurig and Edwards & Feanny are the bond counsel.
Philadelphia just came to market with a $372 million airport revenue and revenue refunding bond sale right after Atlanta sold $365 million of airport general revenue refunding AMT and non-AMT bonds. In the previous week, Chicago came to market with a $1.2 billion offering for O’Hare International Airport and in July, the cities of Dallas and Fort Worth, Texas, sold $1.19 billion of taxable revenue refunding bonds for the Dallas-Fort Worth International Airport.
In the competitive arena, North Carolina is selling $400 million of public improvement GOs for the Connect NC program on Thursday. Davenport & Co. and the Local Government Commission in Raleigh are the financial advisors. Womble Bond is the bond counsel.
The Maryland Department of Transportation (Aa1/AAA/AA+/) is selling $300 million of consolidated transportation revenue bonds on Wednesday. PFM Financial Advisors and People First Financial Advisors are the financial advisors. Kutak Rock is the bond counsel.
Proceeds will fund part of the capital projects including highways and certain other transportation activities.
Some notable trades from Friday include Washington GOs, 5s of 2023, traded at 0.16% while yesterday trading all the way as high as 0.36% to 0.16%. Montgomery County, Maryland GOs, 5s of 2023 traded at 0.21%. Georgia GOs, 5s of 2024 at 0.20%. Seattle 5s of 2029traded at 0.79% to 0.69%.
Washington Suburban Sanitation District 5s of 2030 traded at 0.94%-0.93%. Trinity River Texas Authority revs 3s of 2032 traded at 1.37% to 1.35% after originally selling at 1.43%. Texas waters, 3s of 2034, traded at 1.56% to 1.50% (originally priced at 1.60%). Washington GOs, 5s of 2038, traded at 1.50%. Texas waters 4s of 2045 traded at 1.84%-1.80%.
High-grade municipals were little changed Friday, according to final readings on Refinitiv MMD’s AAA benchmark scale. Yields were steady in 2021 and 2022 at 0.12% and 0.13%, respectively. The yield on the 10-year muni rose one basis poimt to 0.88% while the 30-year yield increased one basis point to 1.63%.
The 10-year muni-to-Treasury ratio was calculated at 126.4% while the 30-year muni-to-Treasury ratio stood at 109.8%, according to MMD
The ICE AAA municipal yield curve showed short maturities steady, with the 2021 maturity at 0.12% and the 2022 maturity at 0.13%. The 10-year maturity was up one baisis point to 0.84% and the 30-year was at 1.64%. The 10-year muni-to-Treasury ratio was calculated at 127% while the 30-year muni-to-Treasury ratio stood at 109%, according to ICE.
The IHS Markit municipal analytics AAA curve showed yields at 0.13% in 2021 and 0.14% in 2022 while the 10-year muni was up one basis pouint at 0.90% and the 30-year rose one basis point to 1.64%.
The BVAL AAA curve showed the yield on the 2021 maturity unchanged at 0.11%, the 2022 maturity unchanged at 0.13%, the 10-year up one basis point to 0.84% and the 30-year up one basis point to 1.63%.
Treasuries were weaker as stock prices traded lower.
The three-month Treasury note was yielding 0.09%, the 10-year Treasury was yielding 0.69% and the 30-year Treasury was yielding 1.48%.
The Dow lost 0.15%, the S&P 500 dropped 0.67% and the Nasdaq fell 2.00%.
Bond Buyer indexes mixed
The weekly average yield to maturity of the Bond Buyer Municipal Bond Index, which is based on 40 long-term bond prices, was unchanged from 3.57% in the previous week.
The Bond Buyer's 20-bond GO Index of 20-year general obligation yields rose four basis points to 2.25% from 2.21% in the previous week.
The 11-bond GO Index of higher-grade 11-year GOs increased four basis points to 1.78% from 1.74%.
The Bond Buyer's Revenue Bond Index fell one basis point to 2.70% from 2.71%.