Municipals' ‘impressive’ performance; taxable deals lead week’s supply slate
Municipals were steady on Monday, with yields unchanged on the AAA curves as the market moved into the dog days of August.
“July proved to be one for the record books, which apparently will need new pages added if the current momentum continues,” according to FHN Financial Senior Vice President Kim Olsan.
“Several major spot yields hit new yield lows as the effect of reinvestment demand and declining tax-exempt supply was felt through the month,” she said in a report Monday. “None of the major municipal sectors posted a loss as the entire Bloomberg Barclay’s index set put in an impressive showing.”
Wells Fargo Securities agreed, saying in a Monday market comment that municipals were doing well this summer.
Wells said that for the entire month of July tax-exempts generated about 80 basis points of excess return.
Wells Fargo added that taxable bonds were shining brightly.
“Taxable munis outperformed tax-exempts week over week,” Wells Fargo said. “Yields on the high-yield index rallied 38 basis points in July outperforming all muni indices for the month, generating 96 basis points of excess return.”
BofA Securities said demand for munis remained strong.
“Supply/demand conditions remain robust despite record low AAA rates. Besides the large principal and coupon redemptions in August, mutual fund flows have been consistently positive and large on a daily basis, much like pre-COVID-crisis months,” BofA said in its weekly market comment. “Yield-chasing is back. Investors can find more yield by either going to longer term maturities in high grades and lower coupons, or shifting down in credit.”
This week’s supply is estimated at $7.3 billion in a calendar composed of $6.3 billion of negotiated deals and $931 million of competitive sales.
On Tuesday, Goldman Sachs is expected to price the Long Island Power Authority, N.Y.’s (A2/A/A/NR) $507 million of electric system general revenue bonds.
The deal consists of Series 2020A revenue bonds and Series 2020B mandatory tender revenue bonds.
Goldman is also set to price the Hospital for Special Surgery’s (A1/A+//) $350 million taxable deal.
Barclays Capital is expected to price Rutgers State University, N.J.’s (Aa3/A+//) 220.69 million of GO refunding bonds.
Morgan Stanley is expected to price the Texas Health Resources’ (Aa2/AA/NR/NR) $300 million of corporate CUSIP revenue bonds.
HilltopSecurities is set to price Bexar County, Texas’ (Aaa/AAA/AAA/) $228.65 million of Series 2020B limited tax refunding bonds and Series 2020 limited flood control tax refunding bonds.
On Wednesday, BofA Securities is set to price Hawaii’s (/AA+/AA+/) $900 million of Series 2020FZ GOs.
Last week, the most traded muni sector was industrial development followed by education and utilities.
On Monday, municipals were steady all along the curve, according to final readings on Refinitiv MMD’s AAA benchmark scale.
MMD reported yields on the 2021 and 2023 GO munis were unchanged at 0.11% and 0.13%, respectively. The yield on the 10-year muni was steadt at 0.65% while the 30-year yield was flat at 1.37%.
The 10-year muni-to-Treasury ratio was calculated at 115.5% while the 30-year muni-to-Treasury ratio stood at 109.7%, according to MMD.
The ICE AAA municipal yield curve showed short yields setady, at 0.100% in 2021 and 0.113% in 2022. The 10-year maturity was unchanged at 0.634% and the 30-year was flat ar 1.406%.
ICE reported the 10-year muni-to-Treasury ratio stood at 121% while the 30-year ratio was at 110%.
The IHS Markit municipal analytics AAA curve showed the 2021 maturity yielding 0.09% and the 2022 maturity at 0.12% while the 10-year muni was at 0.66% and the 30-year stood at 1.37%.
Munis were little changed on the MBIS benchmark and AAA scales.
Treasuries were weaker as stock prices rose.
The three-month Treasury note was yielding 0.101%, the 10-year Treasury was yielding 0.563% and the 30-year Treasury was yielding 1.246%.
The Dow rose 1.03%, the S&P 500 increased 0.92% and the Nasdaq gained 1.62%.