Muni rates come off record lows; Demand for deals doesn't stop

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New muni and taxable muni issuance was easily absorbed as yields moved up off of the record lows they hit last week.

“The new-issue deals continue to be easily absorbed,” said Peter Block, managing director, credit and market strategy at Ramirez. “Secondary market activity is robust with above-average bid-wanted lists and trading volumes. Dealer inventories are -32% below average due to investors’ ravenous appetite for bonds.”

He noted that last week’s underperformance was insufficient to meaningfully cheapen any spots on the curve as tax-exempts remain expensive based on several measures — ratios, spreads, and absolute yields — all driven by chronic imbalance of supply/demand.

NYC to sell $1.5B GO refunding bonds
New York City said it will sell about $1.51 billion of general obligation bonds next week.

Citigroup is set to price $1.08 billion of tax-exempt fixed-rate bonds on Wednesday, Feb. 12, after a two-day retail order period. BofA Securities, Goldman Sachs, Jefferies, JPMorgan Securities, Loop Capital Markets, Ramirez & Co., RBC Capital Markets and Siebert Williams Shank will serve as co-senior managers.

Also on Feb. 12, the city will competitively sell around $423 million of taxable fixed-rate bonds. The proceeds will be used to refund outstanding bonds.

Primary market
A strong primary market debuted on Tuesday, even as it continues to reckon with historically low yields, according to Bill Walsh, president of Hennion & Walsh.

“We still see demand from investors but we advise to be cautious and not reach for yield on lower-quality issues,” Walsh said Tuesday afternoon. ”We don’t believe it’s worth putting principal at risk for not much more return.”

One Pennsylvania trader noted that although the market is technically weaker, it certainly doesn’t feel like it.

“The market feels stronger than it should, deals are being devoured, that’s the best I can describe it,” he said. “This market is crazy right now and it feels like nothing can stop it.”

Barclays priced Pennsylvania State University’s (Aa1/AA/ / ) $411.54 million of mostly taxable bonds with $331 million of taxables and $80 million of exempts on Tuesday.

Raymond James priced New York City Municipal Water Finance Authority’s (Aa1/AA+/AA+/NR) $465 million of water and sewer second general resolution bonds for retail investors on Tuesday.

Morgan Stanley sent around indications of interest on the University of Southern California’s (Aa1/AA/ / ) $310 million of taxable corporate CUSIP bonds.

Citi priced Berks County Municipal Authority, Pennsylvania’s (NR/BBB+/BBB/NR) $264.595 million of revenue bonds for Tower Health Project.

Competitively, Tarrant Regional Water Department, Texas sold $130.845 million of water revenue refunding taxable bonds. Morgan Stanley won the bonds with a true interest cost of 2.7917%.

“Flight-to-safety adjustments could have been affecting municipal prices as well, but our sector has needed little outside influence recently,” Matt Fabian, partner at Municipal Market Analytics, said in a weekly report. “Customer purchases accounted for 49.2% of all par traded last month — a January record going back at least to 2008. This not only follows a lack of inter-dealer trading (noting that dealers have needed to rely less on their peers to move inventories) but also the exceptional customer demand input.”

Secondary market
Munis were mixed Tuesday on the MBIS benchmark scale, with yields rising by seven basis points in the 10-year maturity and falling by less than a basis point in the 30-year maturity. High-grades were weaker, with yields on MBIS AAA scale increasing seven basis points in the 10-year and by one basis point in the 30-year maturity.

On Refinitiv Municipal Market Data’s AAA benchmark scale, the yield on both the 10- and 30-year GO were three basis points higher to 1.18% and 1.83%, moving off of the record lows they were at.

The 10-year muni-to-Treasury ratio was calculated at 73.3% while the 30-year muni-to-Treasury ratio stood at 88.1%, according to MMD.

The rally rolled on as stocks were in the green again on Tuesday after results from the Iowa caucus were still not announced but expected to by 5 p.m. eastern. Treasuries yields were on the rise. The Dow Jones Industrial Average was up about 1.56% and having its best day since Aug. 8 2019, the S&P 500 Index gained around 1.69% and the Nasdaq was rose about 2.17%.

The Treasury three-month was yielding 1.561%, the two-year was yielding 1.415%, the five-year was yielding 1.421%, the 10-year was yielding 1.605% and the 30-year was yielding 2.084%.

“The muni market is outperforming Treasuries today as the ICE Muni Yield Curve is one to two basis points higher,” ICE Data Services said in a Tuesday market comment. “Tobaccos and high-yield are up about 1bp as they are joining the broader market. Puerto Rico is higher, led by the bellwether 8% GO bonds up 1 ½ point, though the PREPA electric power revenue bonds are down 3/8 point.”

Previous session's activity
The MSRB reported 27,842 trades Monday on volume of $9.51 billion. The 30-day average trade summary showed on a par amount basis of $10.73 million that customers bought $5.42 million, customers sold $3.56 million and interdealer trades totaled $1.76 million.

New York, Texas and California were most traded, with the Empire State taking 12.765% of the market, the Lone Star State taking 12.647% and the Golden State taking 11.883%.

The most actively traded security was the Puerto Rico Sales Tax Financing Corp. restructured COFINA, zeros of 2051, which traded 19 times on volume of $45.503 million.

Chip Barnett and Christine Albano contributed to this report.

Data appearing in this article from Municipal Bond Information Services, including the MBIS municipal bond index, is available on The Bond Buyer Data Workstation.

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