Municipal yields rise for first time in seven weeks, ICI reports $3B inflow

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Municipals made a U-turn and traded weaker on Wednesday with yields moving off record lows and rising by as much as four basis points on the AAA GO scales. However, ICI reported more than $3 billion of inflows in its latest statement.

“Municipal bonds are sliding back again … but continuing to outperform Treasuries,” ICE Data Services said. “Late yesterday, the [Federal Reserve] lowered the interest rate it charges by 50 basis points for the Municipal Liquidity Facility. So far, Illinois is the only issuer to have accessed the facility.”

"Tax-exempt bond yields rose for the first time in seven weeks on Wednesday as all-time low yields and unattractive muni/U.S. Treasury ratios encouraged better selling into easier bids," said Greg Saulnier, Refinitiv MMD market analyst.

More supply came to market Wednesday, with the new-issue slate being led by charter school issuers and deals from New York City and upstate New York.

Primary market
RBC Capital Markets priced the Equitable School Revolving Fund’s $141.745 million of Series 2020 national charter school revolving loan fund revenue social bonds in two tranches.

The Arizona Industrial Development Authority’s (NR/A/NR/NR) $109.23 million of Series 2020A senior national charter school revolving loan fund revenue social bonds were priced to yield from 0.38% with a 4% coupon in 2021 to 2.11% with a 4% coupon in 2040; a 2045 maturity was priced to yield 2.25% with a 4% coupon and a 2050 maturity was priced to yield 2.30% with a 4% coupon.

The California Infrastructure and Economic Development Bank’s (NR/A/NR/NR) $32.515 million of Series 2020B senior national charter school revolving loan fund revenue social bonds were priced to yield from 0.28% with a 4% coupon in 2021 to 1.96% with a 4% coupon in 2040; a 2045 maturity was priced to yield 2.10% with a 4% coupon, a 2050 maturity was priced to yield 2.15% with a 4% coupon and a 2055 maturity was priced to yield 2.25% with a 4% coupon.

BofA Securities priced and repriced the Broome County Local Development Corp.’s (NR/AA/NR/NR) $259.25 million of Series 2020 revenue bonds for United Health Services Hospitals Inc. The deal is insured Assured Guaranty Municipal Corp.

The bonds were repriced to yield from 0.54% with a 5% coupon in 2024 to 1.96% with a 4% coupon in 2040; a 2045 maturity was repriced to yield 2.40% with a 3% coupon, a 2050 maturity was priced to yield 2.45% with a 3% coupon and a 2055 maturity was priced to yield 2.07% with a 4% coupon.

The bonds had been tentatively priced to yield from 0.62% with a 5% coupon in 2024 to 2.03% with a 4% coupon in 2040; a 2045 maturity was priced to yield 2.47% with a 3% coupon, a 2050 maturity was priced to yield 2.52% with a 3% coupon and a 2055 maturity was priced to yield 2.22% with a 4% coupon.

JPMorgan Securities priced the New York City Housing Development Corp.’s (VMIG1/A1+/NR/NR) $218.14 million of Series 2020G term-rate multi-family housing revenue bonds.

The bonds were priced at par to yield 0.20% in a 2052 bullet maturity with a mandatory tender in 2021.

RBC priced the Community Development Administration of Maryland’s Department of Housing and Community Development (Aa1/NR/AA/NR) $160 million of Series 2020D non-AMT residential revenue bonds.

The bonds were priced to yield from 0.15% at par in 2021 to 1.70% and 1.75% at par in a split 2032 maturity. A 2035 maturity was priced at par to yield 1.95%, a 2040 maturity was priced at par to yield 2.10%, a 2042 maturity was priced at par to yield 2.15% and a 2050 PAC bond was priced at 110.896 with a 3.25% coupon to yield about 1% with a five-year average life.

BofA priced the National Finance Authority of New Hampshire’s (B1/B/NR/NR) $129.405 million of resource recovery refunding revenue bonds for the Covanta project consisting of Series 2020A bonds not subject to the alternative minimum tax and Series 2020B AMT green bonds.

The Series 2020A non-AMT bonds were priced at par to yield 3.625% in 2043 with a mandatory tender in 2040. The Series 2020B AMT green bonds were priced at par to yield 3.75% in 2045 with a mandatory tender in 2040.

Wells Fargo Securities priced Lehigh University’s (Aa3/AA-/NR/NR) $170.79 million of taxable bonds.

The bonds were priced at par to yield 120 basis points over the comparable U.S. Treasury in 2043 and 135 120 basis points over the comparable U.S. Treasury in 2050.

On Thursday, Miami-Dade County, Fla., will competitively sell two offerings of transit system sales surtax revenue and refunding bonds totaling $750.71 million. The sales consist of $239.55 million of tax-exempts and $511.16 million of taxables.

Also Thursday, Citigroup is expected to price the San Diego Unified School District’s (Aa2/NR/AAA/AAA) $739.815 million of Series 2020 dedicated unlimited ad valorem property tax GOs.

NYC TFA to sell $1.6B future tax bonds
The New York City Transitional Finance Authority will sell about $1.6 billion of future tax secured subordinate bonds next week.

The deal consists of $1.3 billion of tax-exempt fixed-rate bonds and $275 million of taxable fixed-rate bonds.

Proceeds from the bond sale will be used to refund certain outstanding bonds for savings.

BofA Securities as book- running lead manager is expected to price the tax-exempts on Wednesday, Aug. 19, after a two-day retail order period. Citigroup and Ramirez & Co. are co-senior managers.

Also on Aug. 19, the TFA expected to competitively sell around $275 million of taxable fixed-rate bonds.

ICI: Muni bond funds see $3.4B inflow
Long-term municipal bond funds and exchange-traded funds saw combined inflows of $3.410 billion in the week ended Aug. 5, the Investment Company Institute reported Wednesday.

It marked the 14th week in a row the funds saw inflows. In the previous week, muni funds saw an inflow of $2.879 billion, ICI said.

Long-term muni funds alone had an inflow of $2.975 billion in the latest reporting week after an inflow of $2.4482 billion in the prior week.

ETF muni funds alone saw an inflow of $435 million after an inflow of $431 million in the prior week.

Taxable bond funds saw combined inflows of $23.924 billion in the latest reporting week after revised inflows of $15.616 billion in the prior week, originally reported as a $15.617 inflow.

ICI said the total combined estimated inflows from all long-term mutual funds and ETFs were $9.279 billion after a revised inflow of $6.586 billion in the previous week, originally reported as a $6.540 billion inflow.

Secondary market
FHN Financial Senior Vice President Kim Olsan says August’s daily bid lists have barely scratched the surface as to what the markets’ total needs are, but noted that Tuesday’s $1.07 billion produced some much needed flows.

She said Tuesday was also the first day since early May that the $1 billion mark was passed.

“In a rare occurrence, there were multiple $10 million-plus blocks posted for sale across the curve,” Olsan said. “One nuance to the makeup of the lists was the prevalence of seasoned calls from issuance in 2013-2017 — where premium coupons have amortized but wider yield-to-calls are a draw with low rates.”

She said there was a mismatch of incoming redemptions compared to outgoing commitments, with generic yields absorbing large new issues, weaker U.S. Treasury rates and diverse bids wanteds.

“This activity occurs as June state tax revenues showed a 12.8% drop from the period last year, according to the Urban Institute,” Olsan said. "Personal income taxes fell 17.9% and corporate tax collections dropped 37.2%. One bright spot was a 4.5% rise in sales taxes when more states reopened.”

Trading showed some concessions on Wednesday. Massachusetts green bonds, 5s of 2022, traded at 0.13%-0.12%. Delaware GOs 5s of 2022 landed at 0.12% while Tennessee GOs in 2022 with a 5% coupon were at 0.11%.

Utah GOs, 5s of 2024, traded at 0.13%. Klein, Texas, ISD 5s of 2028 at 0.64%. Ohio waters in 10 years at 0.68%. Maryland GOs, 4s of 2034, at 1.00%-1.01%, signifying weakness.

Little longer out, Fort Worth Texas ISD 3s of 2037 traded in blocks at 1.61%-1.53%. Washington GOs, 5s of 2043, traded at 1.40%-1.39%. Oklahoma waters, 4s of 2045, traded at 1.76%-1.65%.

On Wednesday, municipals were weaker across the curve, according to the final readings on Refinitiv MMD’s AAA benchmark scale.

Yields rose two basis points in the 2021 and 2022 maturities, to 0.10% in 2021 and 0.11%, respectively. The yield on the 10-year muni gained three basis points to 0.61% while the 30-year yield increased four basis points to 1.31%.

The 10-year muni-to-Treasury ratio was calculated at 90.9% while the 30-year muni-to-Treasury ratio stood at 96.0%, according to MMD.

The ICE AAA municipal yield curve showed the 2021 maturity rising one basis point to 0.080% and the 2022 maturity up one basis point to 0.0930%. The 10-year maturity was up two basis points to 0.594% and the 30-year gained two basis points to 1.336%.

ICE reported the 10-year muni-to-Treasury ratio stood at 91% while the 30-year ratio was at 96%.

The IHS Markit municipal analytics AAA curve showed the 2021 maturity yielding 0.09% and the 2022 maturity at 0.10% while the 10-year muni was at 0.59% and the 30-year stood at 1.30%.

The BVAL AAA curve showed the 2021 maturity yielding 0.08% and the 2022 maturity at 0.09%, both up two basis points, while the 10-year muni was at 0.56% plus two, and the 30-year was up four at at 1.33%.

Munis were little changed on the MBIS benchmark and AAA scales.

Treasuries were weaker as stock prices traded higher.

The three-month Treasury note was yielding 0.117%, the 10-year Treasury was yielding 0.676% and the 30-year Treasury was yielding 1.367%.

The Dow rose 1.10%, the S&P 500 increased 1.50% and the Nasdaq gained 2.20%.

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Primary bond market Secondary bond market Municipal bond funds Miami-Dade County San Diego Unified School District New York City Housing Development Corporation Maryland Department of Housing & Community Development
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