Overwhelming demand for new issues commanded the long end of the municipal market on Tuesday as yields were bumped by as much as four basis points.
It was the first time the municipal yield curve saw such noticeable movement, following unchanged activity for nearly the past two weeks.
“The demand is very strong on new-issue product,” a New York manager said, adding that many are being oversubscribed against a strong Treasury market.
The trader said the market needs supply to soak up the “enormous amount of money on the sidelines and enormous inflows.”
Municipals yields fell, with maturities in 2022 and 2023 bumped as much as two basis points, while those in 2024 and 2025 were bumped between one and three basis points, according to triple-A benchmarks.
The longer 2026 through 2051 maturities were bumped between two and four basis points.
Municipals as a percentage of Treasuries fell to 70% in 10 years and 78% in 30 years, according to Refinitiv MMD. Ratios also fell to 70% in 10 years and 80% in 30, according to ICE Data Services data.
The movement followed a steady open by municipals, which were unchanged across the yield curve Tuesday. Tuesday’s strength followed a swell in demand for new issues.
“New issues were priced and big-time oversubscribed and that caused the bump and the secondary market goes right with it,” he said. “No new issues are getting held up. There is more strength in the market, more inflows, and the Treasury market is stronger than last week.”
Primary market
BofA Securities to priced $1.06 billion of gas supply revenue refunding bonds for the Texas Municipal Gas Acquisition and Supply Corp. (A3/BBB+//). Bonds in 2021 with a 5% coupon yield 0.31%, 5s of 2026 at 0.89%, 5s of 2031 at 1.58% and 5s of 2032 at 1.67%.
Fairfax County, Virginia, (Aaa/AAA/AAA/) sold $263 million of unlimited tax general obligation bonds to Citigroup Global Markets Inc. Bonds in 2021 with a 4% coupon yield 0.08%, 4s of 2026 at 0.25%, 4s of 2031 at 0.77%, 2s of 2036 at 1.44% and 2s of 2040 at 1.60%.
Raymond James & Co. priced $151.9 million of electric system revenue bonds for the Metropolitan Government of Nashville and Davidson County, Tennessee (/AA+/AA/). Bonds in 2022 with a 5% coupon yield 0.06%, 5s of 2026 yield 0.30%, 5s of 2031 at 0.82%, 5s of 2036 at 1.14%, 4s of 2041 at 1.42% and 5s of 2046 at 1.48%.
Citigroup Global Markets Inc. priced $140.9 million of turnpike revenue bonds for the Ohio Turnpike and Infrastructure Commission (Aa2/AA-/AA/) Terms in 2046 with a 5% coupon yield 1.53% and 5s of 2051 yield 1.59%.
Knoxville, Tennessee, (/AA+//) sold $104 million of unlimited tax GOs to J.P. Morgan Securities LLC. Bonds in 2022 with a 5% coupon yield 0.11%, 5s of 2026 at 0.31%, 5s of 2031 at 0.84%, 3s of 2036 at 1.29% and 3s of 2041 at 1.50%. Bonds in 2022-2024 and 2034-2040 were all away in the morning.
Secondary market
In the secondary market, meanwhile, investors are favoring the long end of the curve as opposed to the short end, the trader noted.
Even though the percentage of municipals to Treasuries is more attractive in one and two years, the low absolute yields in that slope are curtailing investors away from the ultra short end of the curve, according to the trader.
“Six years and out is stronger in the secondary,” the trader said. “The front end is a roadblock with the way rates are.” He said that is especially true among individual investors. “The institutional money and bank money is there, but retail is very hesitant,” he said. “They don't want to buy a 0.2% or lower on the short end.”
High-grade municipals were stronger, according to final readings on Refinitiv MMD’s AAA benchmark scale. Short yields were at 0.09% in 2022 and 0.10% in 2023. The 10-year fell to 0.71% and the 30-year fell to 1.40%.
The ICE AAA municipal yield curve showed short maturities at 0.10% in 2022 and 0.12% in 2023. The 10-year fell to 0.72% while the 30-year yield fell to 1.44%.
The IHS Markit municipal analytics AAA curve showed yields at 0.11% in 2022 and 0.12% in 2023 while the 10-year fell to 0.71% and the 30-year yield at 1.40%.
The Bloomberg BVAL AAA curve showed yields at 0.10% in 2022 and 0.11% in 2023, down one basis point, while the 10-year fell three basis points to 0.70% and the 30-year yield at 1.43% was three basis points lower.
The three-month Treasury note was yielding 0.09%, the 10-year Treasury was yielding 1.04% and the 30-year Treasury was yielding 1.80%. The Dow rose 51 points, the S&P 500 rose 0.11% and the Nasdaq rose 0.11%.
Economic indicators
The Consumer Confidence Index rose despite a decline in consumers’ assessment of current conditions, according to The Conference Board.
The index improved to 89.3 in January from 87.1 in December, while the present situation index declined to 84.4 from 87.2 and the expectations index climbed to 92.5 from 87.0.
Economists polled by IFR Markets expected an increase to 89.0.
The index is still well below the 130.4 posted last January and is below the three-month average.
“Consumers’ appraisal of present-day conditions weakened further in January, with COVID-19 still the major suppressor,” noted Lynn Franco, senior director of economic indicators at The Conference Board. “Consumers’ expectations for the economy and jobs, however, advanced further, suggesting that consumers foresee conditions improving in the not-too-distant future. In addition, the percent of consumers who said they intend to purchase a home in the next six months improved, suggesting that the pace of home sales should remain robust in early 2021.”
The respondents who said business conditions were good increased to 15.8% from 15.4%, but those seeing conditions as bad also grew, to 42.8% from 39.7%. But looking six months ahead, more respondents see conditions improving (33.7%) than worsening (18.1%).
Fewer than last month saw jobs as plentiful and more respondents said jobs were hard to get, but again the trend of responses showed improvement in six months.
Separately, the Federal Reserve Bank of Philadelphia’s nonmanufacturing index suggested weakening in the services sector in the region, with the general business conditions index narrowing to negative 17.5 in January from negative 26.6 in December, while at the firm level, the index dropped to negative 14.3 from positive 5.0.
“Although the indexes for new orders and full-time employment increased, readings for both remained low,” the Fed said. “The firms continued to report overall increases in the prices of both their own goods and their inputs. The respondents continued to anticipate growth over the next six months.”
The Federal Reserve Bank of Dallas reported the service sector in its region “was roughly flat in January,” with the revenue index slipping to 0.8 in January from 5.5 in December.
The Federal Reserve Bank of Richmond reported manufacturing “showed signs of growth” in the month while the service sector was “mixed.” In manufacturing, the composite index held in positive territory, although it declined to 14 in January from 19 in December.
The shipments and new orders indexes also slipped in the month, but remained positive, while the number of employees index rose.
In services, the revenues index narrowed to negative 3 in January from negative 9 in December, while the demand index rebounded to positive 7 from negative 6. But the local business conditions index was contractionary at negative 9, albeit better than the negative 12 posted a month earlier.
Also released Tuesday, home prices rose 9.5% year-over-year the November, the S&P CoreLogic Case-Shiller Index indicated, the largest gain since May 2014. In October, the index was up 8.5%.
Month-over-month the national index rose 1.1%.
Economists expected the 1.1% month-over-month increase, but saw the year-over-year gaining only 8.1%.
New issues still to come
Barclays Capital Inc. is set to price $664.3 million of Los Angeles International Airport revenue refunding bonds for the Department of Airports of the City of Los Angeles (Aa3/A+/AA-/). Series A, $420 million, is serials from 2025-2041, terms 2046 and 2051. Series B, $244 million is serials 2025-2041, terms 2046 and 2048. Barclays will also price $95 million of subordinate taxable revenue refunding bonds for the issuer on Wednesday. Serials 2025-2036.
J.P. Morgan Securities LLC is set to price $560 million of unlimited tax general obligation and refunding GOs for the Board of Education of the City of Chicago (NR/BB-/BB/BBB-/).
Goldman Sachs & Co. LLC is set to price $398.7 million of taxable senior- and junior-lien toll road refunding revenue bonds for the Foothill/Eastern Transportation Corridor Agency, (Baa2//BBB/). The senior-lien Series 2021B, $244.9 million, is rated Baa2/A-/BBB/. Series 2021D junior-lien $153.8 million is rated Baa2/BBB+/BBB-/. The deal is set for Tuesday.
UBS Financial Services Inc. priced $319 million of taxable general obligation refunding bonds for the Metropolitan Government of Nashville and Davidson County, Tennessee, (Aa2/AA//). Serials 2021-2027, 2031-2032.
UBS is also set to price $131.9 million of tax-exempt general obligation refunding bonds for the issuer on Tuesday. Serials 2021-2026.
J.P. Morgan Securities LLC is set to price $275 million of Yale University revenue bonds for the Connecticut Health and Educational Facilities Authority (Aaa/AAA/NR/NR) on Thursday.
Jefferies LLC is set to price $175 million of taxable limited tax refunding bonds for Williamson County, Texas (NR/AAA/AAA/NR). Serials 2022-2033.
J.P. Morgan Securities LLC is set to price $135 million of taxable corporate CUSIP bonds for The Nature Conservancy, D.C. (Aa2///) on Wednesday.
Stifel, Nicolaus & Company, Inc. is set to price $111 million of Galveston and Brazoria Counties, Texas unlimited tax school building bonds for the Friendswood Independent School District (Aaa/AAA//) (PSF insured) on Thursday. Serials 2022-2051.
Jefferies LLC is set to price $105 million of Stoneridge Apartments essential housing revenue bonds for the California Community Housing Agency on Tuesday. Terms in 2056.
