The municipal market was quiet and little changed Monday with light trading as participants await the post-holiday new-issue calendar and December redemptions.
Triple-A benchmarks saw levels bumped a basis point 10 years and out.
However, with another week of healthy municipal inflows, December redemptions and coupons looming large (about $30 billion estimated), and issuance that usually evaporates after the second full week of December, activity likely will increase in the lead-up to the holidays.
“We saw some better buying around 10 years and longer as demand continues to outpace supply at this juncture,” a New York trader said.
The final month of the year will bring a larger calendar than November’s sub-$20 billion month — the smallest November tally since 1999 — but the first round coming this week “is of the variety that likely doesn’t address a majority of needs,” said FHN Financial Senior Vice President Kim Olsan.
“That decline (along with a mid-month U.S. Treasury rally) helped overall yield performance reach what will be gains of 1.50% or more in many sectors,” she said.
The better performers have been “down-in-credit and longer-duration structures as the elusive 1% (10-year area) and 2% (20+ years) handles have largely disappeared,” she said, adding that a combination of lower yields and ratios is complicating the picture for value seekers.
Olsan said the secondary market may be the default source for high-grade names, given that more sizable deals feature truncated maturity schedules 15 years and longer or with a focus on specialty-state or higher-yielding names, including Illinois Tolls, Miami-Dade Airports and New Jersey Transportations.
“More traditional GO and essential service credits will remain in demand and well bid until more volume cycles through the primary market,” she said.
The post-holiday vibe in the buy side sector was promising, given the overall market technicals and the plentiful supply scheduled for pricing later in the week, according to a New Jersey trader.
“The percentages are OK — they aren’t great — but munis have rallied quite a bit and we are attractive in the front end of the curve and money keeps flowing in,” he said.
Aside from a few minor credit issues on small, weaker deals, “there is no reason the deals shouldn’t do well,” especially given the technicals in both the tax-exempt and equity markets, the trader said.
The majority of the deals slated for pricing this week should be highly sought after, judging by the prior demand for the pre-holiday deals in the last two weeks.
In addition, the trader said a weak equity market is providing municipal investors a seasonal buying opportunity.
“With stocks weaker, they come over to bonds,” he said of conservative investors looking for safety and stability, especially in the backdrop of the ongoing uncertainty and volatility stemming from the COVID-19 pandemic and potential vaccine release.
Primary market
Goldman Sachs is set to price the
“After a quiet week last week, the market is waiting for this week’s supply,” the New Jersey trader said, pointing to the upcoming New York City Municipal Water Authority deal and the $1.5 billion New Jersey general obligation sale. He called the water deal “a suburb credit,” and said the New Jersey deal is sizable enough to attract demand as strong as the state's emergency COVID-19 bond, which priced last month.
“I would assume this deal will do just the same,” pointing to the heavy oversubscription on the COVID-19 bonds.
Siebert Williams Shank is set to price the Illinois State Toll Highway Authority’s (A1/AA-/AA-/) $500 million of Series 2020A toll highway senior revenue bonds on Tuesday. Siebert is also set to price the New York City Municipal Water Finance Authority’s (Aa1/AA+/AA+/NR) $494 million of tax-exempt fixed rate bonds on Wednesday after a one-day retail order period.
The New York State Housing Finance Agency (Aa2/NR/NR/NR) is coming to market on Thursday with two deals totaling $483.44 million. JPMorgan Securities is set to price the $287.55 million of Series 2020L-2 climate bond certified affordable housing revenue sustainability and Series 2020M-2 sustainability bonds. Wells Fargo Securities is expected to price the $195.89 million of Series 2020L-1 climate bond certified/sustainability bonds and Series 2020M-1 affordable housing revenue bonds.
BofA Securities is expected to price the Regional Transportation District, Colo.’s (Baa2//A-/) $343 million of Series 2020A tax-exempt private activity bonds not subject to the alternative minimum tax and Series 2020B taxable private activity bonds for the Denver Transit Partners Eagle P3 Project on Tuesday.
In the competitive arena, the Metropolitan St. Louis Sewer District, Mo., is selling $120 million of Series 2020B wastewater system revenue bonds on Thursday. PFM Financial Advisors and Independent Public Advisors are the financial advisors. Gilmore & Bell and White Coleman are the bond counsel.
Secondary market
High-grade municipals were flat to a basis point better 10 years and out, according to final readings on Refinitiv MMD’s AAA benchmark scale. Short yields were flat at 0.14% in 2021 and 0.15% in 2022. The yield on the 10-year muni bumped one basis point to 0.72% while the yield on the 30-year was 1.41%.
The 10-year muni-to-Treasury ratio was calculated at 85% while the 30-year muni-to-Treasury ratio stood at 89%, according to MMD.
The ICE AAA municipal yield curve showed short maturities unchanged at 0.15% in 2021 and 0.16% in 2022. The 10-year maturity fell one basis point to 0.71% while the 30-year yield fell one basis point to 1.43%.
The 10-year muni-to-Treasury ratio was calculated at 87% while the 30-year muni-to-Treasury ratio stood at 90%, according to ICE.
The IHS Markit municipal analytics AAA curve showed short yields at 0.13% and 0.14% in 2021 and 2022, respectively, and the 10-year steady at 0.70% as the 30-year yield fell three basis points to 1.41%.
Treasuries were mixed as stocks fell. The three-month Treasury note was yielding 0.09%, the 10-year Treasury was yielding 0.85% and the 30-year Treasury was yielding 1.58%. The Dow fell 1.10%, the S&P 500 decreased 0.51% and the Nasdaq rose 0.05%.
