Municipal bonds were steady to slightly stronger out long on Monday as investors look forward to this week’s new-issue slate in the last full trading week ahead of the Thanksgiving holiday and month end.
Yields on top-rated bonds fell by as much as one basis point on longer-dated maturities on AAA scales while U.S. Treasury bonds were slightly weaker, with yields rising as much as one basis point. Equities rose on positive news of an additional vaccine to fight the coronavirus.
“Moderna CEO Stephane Bancel announced this morning that their Phase 3 vaccine trial data suggests a 94.5% efficacy rate which Bancel said on CNBC was a ‘gamechanger,’ said Peter Franks, Refinitiv MMD senior market analyst. “Moderna developed its vaccine in collaboration with the National Institute of Allergy and Infectious Diseases and has contracted to supply the U.S. with 100 million doses with an option for the U.S. to buy 400 million more doses.”
Treasuries and munis one again moved in opposite directions on Monday, although in not as a dramatic a fashion as last week.
“The performance of Treasuries and tax-free bonds has been quite disparate over the past week, with U.S. yields jumping higher and munis still struggling with finding any direction," said Eric Kazatsky, senior municipal strategist at Bloomberg Intelligence.
Examining the root cause of the large Treasury rate move last week, he said the optimism on vaccine news sent yields higher, but rising uncertainty around COVID-19 cases helped cap the trip upward.
“On the muni side, despite the market feeling much more firmly bid, this wasn't reflected in large, notable week-over-week yield moves,” he said. “Being the realists that we are, muni analysts and buyers are seeing signs on the wall of a potential spring repeat in credit weakness, and uncertainty surrounding the depth of the slide backward, which may act as an albatross around performance for the back half of this month.”
CUSIP requests remain on the rise
Municipal requests continued to climb in October, according to CUSIP Global Services. Issuance of new security identifiers can be an early indicator of debt activity in the next few months.
The total of all municipal securities, which include bonds, long- and short-term notes and commercial paper, rose 31.8% to 2,171 from 1,647 in September. On an annualized basis, total muni CUSIP identifier request volumes were up 15.4% to 14,141 through October from 12,256 in September.
For municipal bonds alone, CUSIP requests in October rose 38.2% to 1,925 from 1,393 in September; they are up 18.9% to 11,753 on an annualized basis from 9,884 in the same period last year.
On a state-by-state basis, issuers in Texas requested 300 new municipal identifiers in October, followed by California with 175 and New York with 148.
“The real story in this month's data comes from the municipal market, where issuers have really ramped up access to debt markets,” said Gerard Faulkner, director of operations for CGS. “In Texas alone we saw 300 identifier requests for new municipal debt issues this month. It's clear that the combination of low rates and increasing funding needs is creating a recipe for increased municipal market activity.”
Primary market
This week’s supply is estimated at about $11.5 billion, with almost half of the offerings coming from just two states, New Jersey and Massachusetts.
“Underwriters scale writing abilities will be tested this week with the uptick in supply. A fair number of the transactions are high profile that have not been in the market recently. There are a few deals that will provide tests in different ways,” said John Hallacy, founder of John Hallacy Consulting LLC.
“The Port of Oakland's $186.7 million features a forward delivery bond that we have not seen much of late. The National Financing Authority is bringing a taxable federal lease bond. NYS EFC is bringing a large green-designated bond of top quality,” Hallacy said. “And once again,
In the competitive arena on Tuesday, the City and County of Denver, Colo., will sell $401.68 million of bonds in two offerings. The sale consist of $231.755 million of Series 2020B Better Denver GO refunding bonds and $169.925 million of Series 2020A Elevate Denver GOs. Hilltop Securities is the financial advisor; Butler Snow is the bond counsel.
Also Tuesday, Orange County, Fla., (/AAA/AAA/) is selling $155.265 million of Series 2020 water and wastewater utility revenue bonds. PFM Financial Advisors is the financial advisor; Nabors Giblin is the bond counsel.
In the negotiated space Tuesday, RBC Capital Markets is set to price Mesa, Ariz.’s (Aa2/AA-//) $108 million of Series 2020 utility systems revenue refunding bonds.
On Wednesday, BofA Securities is expected to price New Jersey’s (A3/BBB+/A-/A) $4 billion of COVID-19 emergency general obligation bonds. Also Wednesday, Morgan Stanley is expected to price Massachusetts’ (Aa1/AA/AA+/) $1.362 million of GOs.
UBS financial Services is set to price Baltimore, Md.’s (Aa2/AA-/NR/NR) $670.33 million of revenue bonds on Wednesday while Siebert Williams Shank is set to price California’s (Aa1/AAA/AA) $100 million of Series 2020A variable-rate GOs due 2048.
In the short-term sector on Wednesday, Suffolk County, N.Y., is competitively selling $100 million of Series 2020I tax anticipation notes. Capital Markets Advisors is the financial advisor; Harris Beach is the bond counsel.
On Thursday, BofA is set to price the Port of Oakland, Calif.’s $531.08 million deal consisting of $344.29 million of Series 2020R (A1/A+/A+/NR) taxable senior lien refunding revenue bonds and $186.79 million of Series 2021H forward delivery intermediate lien refunding revenue AMT bonds.
Last week, the largest use of proceeds in the muni sector was industrial development followed by education and utilities, according to IHS Markit.
Secondary market
Some notable trades Monday:
Tennessee GO, 5s of 2023, traded at 0.23%-0.21%. Henrico County, Virginia GO 5s of 2023 at 0.23%.. Charles County, Maryland GOs, 5s of 2025 at 0.27%. Maryland GOs, 5s of 2026, at 0.36%-0.35%. Loudon County, Virginia 5s of 2026 at 0.41%.NYC TFA subs, 5s of 2029, at 1.01%. Friday, at 1.03%-1.00%.
Delaware GOs, 5s of 2030 at 0.77%. Baltimore County, Maryland 5s of 2030 at .80%-0.79%. Washington GOs, 5s of 2038, at 1.30%-1.28%. Washington GOs, 5s of 2040 at 1.41%. Dallas Texas waters 4s of 2049 at 1.78%-1.77%. Lubbock Texas ISD 4s of 2050 at 1.66%-1.57%. Friday at 1.69%-1.68%.
High-grade municipals were mixed Monday, according to final readings on Refinitiv MMD’s AAA benchmark scale. Short yields were unchanged at 0.17% in 2021 and 0.18% in 2022. The yield on the 10-year muni fell one basis point to 0.80% while theyield on the 30-year dropped one basis point to 1.54%.
The 10-year muni-to-Treasury ratio was calculated at 88.4% while the 30-year muni-to-Treasury ratio stood at 92.9%, according to MMD.
The ICE AAA municipal yield curve showed short maturities unchanged at 0.16% in 2021 and 0.18% in 2022. The 10-year maturity dropped one basis points to 0.80% and the 30-year yield fell one basis point to 1.56%.
The 10-year muni-to-Treasury ratio was calculated at 89% while the 30-year muni-to-Treasury ratio stood at 94%, according to ICE.
The IHS Markit municipal analytics AAA curve showed yields unchanged at 0.16% and 0.17% in 2021 and 2022, respectively, and the 10-year at 0.82% with the 30-year yield at 1.56%.
The BVAL AAA curve showed the yield on the 2021 and 2022 maturities unchanged at 0.15% and 0.16%, while the 10-year was steady at 0.81% and the 30-year fell one basis point to 1.57%.
Treasuries were weaker as stock prices traded higher.
The three-month Treasury note was yielding 0.09%, the 10-year Treasury was yielding 0.90% and the 30-year Treasury was yielding 1.67%. The Dow rose 1.23%, the S&P 500 increased 0.82% and the Nasdaq gained 0.38%.
