Munis stronger out long as market absorbs near-record supply
New York City offered its Transitional Finance Authority bonds to retail investors for a second day as new supply loaded with some big Texas and South Carolina issues headed into the marketplace.
In secondary trading, municipals were mostly stronger Tuesday, with yields on the AAA scales dropping by as much as two basis points on longer-dated maturities while rising on the short end of the curve.
The municipal market was flat to slightly better in 30-years by a basis point or two, a New York underwriter said Tuesday.
“Bid lists are a little greater, but the market is performing well — despite the large calendar,” he said, noting that the deals from the Central Texas Regional Mobility Authority and the South Carolina Public Service Authority were well-received amid the overall firmness.
“Assuming that nothing dramatic happens in the next four days, the broad market will end down about 40 basis points for the month, but would hold onto a near-3% gain for the year,” according to Kim Olsan, senior vice president at FHN Financial. “High-yield is up a nominal amount this month and just above positive year-to-date.”
Taxables, while exploding in terms of total volume as a percentage of new issuance, took a hit this month, she said.
“The big story has been in taxable munis, down more than 1% in October on volume that could exceed $25 billion for the month (there was $43 billion through the first 10 months last year),” Olsan said. “The sector is still up more than 7% in 2020, but will need a large reversal into year-end to surpass the 11% gain in 2019.”
Peter Block, managing director of credit strategy at Ramirez & Co., said this week’s calendar is another “blockbuster” led by some sizable deals such as the upcoming offerings from the Los Angeles Community College District and the $1.1 billion Los Angeles Unified School District.
Beyond this week, Block said the 30-day visible supply is estimated at negative $4.1 billion — consisting of $24.5 billion of maturities and calls, and $20.4 billion of announced supply.
“The secondary remains well bid as bid-wanted and trading throughout remains at average levels,” Block wrote in a weekly municipal commentary. “Dealer inventory remains light ahead of the election. Tax-exempts remain fairly valued on a ratio and spread basis, while taxables remain cheap versus comparable taxable corporates,” he continued.
Ramirez & Co. held a second day of retail orders on the New York City Transitional Finance Authority’s (Aa1/AAA/AAA/NAF) $700 million of tax-exempt future tax-secured subordinate fixed-rate Fiscal 2021 Series D Subseries D-1 bonds. Yields remained unchanged from Monday's levels.
The bonds were priced for retail to yield from 0.30% with a 5% coupon (+12 basis points) in 2022 to 0.79% with a 5% coupon (+35 basis points) in 2026 and to yield from 1.82% with a 5% coupon (+56 basis points) in 2034 to 2.80% with a 2.75% coupon (+106 basis points) and 2.78% with a 3% coupon (+104 basis points) in a split 2050 maturity.
The bonds will be priced for institutions on Wednesday; the TFA also plans to competitively sell about $200 million of taxable fixed-rate bonds on Wednesday. And the TFA will be reoffering $218.215 million of Fiscal 2001 Series C bonds, Fiscal 2010 Subseries G-5 bonds and Fiscal 2013 Subseries S-6 bonds.
“Depending on one’s estimate for New York City credits to recover from this year’s widening, a commitment in the new issue Transitional Finance Authority bonds could look attractive,” FHN’s Olsan said. “Intermediate maturities were offered for retail orders at spreads above +50/AAA and with absolute yields exceeding 2% in long, sub-5% coupons.”
She said other sectors were seeing rewards too.
“Likewise, certain pockets in secondary business show similar advantages. Bid lists are still biased toward short-maturity and short-call structures — which appears to be both a seller- and buyer-friendly approach in short calls with almost no new issue up against those formats,” Olsan said. “A seller of 20-year state GOs with a five-year call was paid through 1% on a bid list, nearly 50 basis points lower than the implied 20-year AAA spot, but with ample concession to a 2025 call date.”
Since 2020, the NYC TFA has sold about $57 billion of debt, with the most issuance occurring in 2018 when it offered $7.76 billion of debt.
The South Carolina Public Service Authority (A2/A/A-/NR came to market with $638.33 million of bonds for Santee Cooper in two issues.
Barclays Capital priced the South Carolina Public Service Authority’s $338.49 million of Series 2020A tax-exempt refunding and improvement revenue obligations. The bonds were priced to yield from 0.37% with a 5% coupon in 2021 to 2.38% with a 5% coupon in 2043.
BofA Securities priced the PSA’s $299.84 million of Series 2020B taxable refunding revenue obligations. The bonds were priced at par to yield from 1.485% in 2025 to 2.659% in 2032.
BofA priced the Central Texas Regional Mobility Authority’s $340.91 million of Series 2020E (Baa1/A-/NR/NR) senior lien revenue bonds, Series 2020F (Baa2/BBB+/NR/NR) subordinate lien revenue bond anticipation notes and Series 2020G (Baa2/BBB+/NR/NR) subordinate lien revenue refunding bonds.
The Series 2020E bonds were priced to yield from 1.48% with a 5% coupon in 2029 to 2.42% with a 4% coupon in 2040; a 2045 maturity was priced as 5s to yield 2.43% and a 2050 maturity was priced as 4s to yield 2.71%.
The Series 2020F bonds were priced as 5s to yield 0.93% in a 2025 bullet maturity. The Series 2020G bonds were priced to yield from 1.47% with a 5% coupon in 2028 to 2.62% with a 4% coupon in 2040; a 2045 maturity was priced as 4s to yield 2.79% and a 2050 maturity was priced as 4s to yield 2.86%.
RBC Capital Markets priced Austin, Texas’ (Aa3/AA/AA/NR) $227.795 million of Series 2020A electric utility system revenue refunding and improvement bonds.
The bonds were priced as 5s to yield from 0.28% in 2023 to 1.77% in 2040, 1.94% in 2045 and 2.02% in 2050.
Siebert Williams Shank priced the Cypress-Fairbanks Independent School District, Harris County, Texas’ (Aaa/AAA/NR/NR) $388.23 million of Series 2020A unlimited tax school building and refunding bonds. The deal is backed by the Permanent School Fund guarantee program. The bonds were priced to yield from 0.21% with a 4% coupon in 2022 to 2.46% with a 2.25% coupon in 2045.
In the competitive arena, Hudson County, N.J., (NR/AA/NR/NR) sold $223.086 million of unlimited tax general improvement bonds. JPMorgan Securities won the bonds with a true interest cost of 2.1661%. The bonds were priced to yield from 0.25% with a 2% coupon in 2021 to 2.20% with a 3% coupon in 2041. NW Financial Group is the financial advisor; Wilentz Goldman is the bond counsel.
The Evergreen School District No. 114, Wash., (Aaa/NR/NR/NR) sold $223.845 million of unlimited tax GOS backed by the Washington State School District Credit Enhancement Program. BofA won the bonds with a TIC of 2.2394%. The bonds were priced to yield from 0.20% with a 5% coupon in 2021 to 1.84% with a 4% coupon in 2039.The financial advisor is the Educational Services District 112 of Vancouver, Wash. Pacifica Law Group is the bond counsel.
On Wednesday, Goldman Sachs is set to price the Los Angeles Unified School District’s (Aa3//AA+/AAA) $1.1 billion of Measure Q Series 2020C dedicated unlimited ad valorem property tax bonds.
On Thursday, BofA is expected to price the Los Angeles Community College District’s (Aaa/AA+//) $1.8 billion of taxable general obligation refunding bonds.
Some notable trade on Tuesday:
Delaware GOs, 5s of 2022, traded at 0.19%. Friday, they traded at 0.20%. Texas waters, 5s of 2023, traded at 0.23%-0.22%. Maryland GOs, 5s of 2028, traded at 0.73%. Baltimore County, Maryland GOs, 5s of 2030, traded at 0.98%. When they priced in late February, they came at 1.01%, which points to how far high-grades have come through the pandemic. Katy Texas ISD 4s of 2039 traded at 1.62%-1.55%. Washington GOs, 5s of 2040, traded at 1.61%-1.52%. Leander Texas ISD 4s fo 2041 traded at 1.71%.
On Tuesday, high-grade municipals were mixed, according to final readings on Refinitiv MMD’s AAA benchmark scale. Short yields in 2021 and 2022 rose two basis points to 0.19% and 0.20%, respectively. The yield on the 10-year muni fell two basis points to 0.94% while the yield on the 30-year dropped tow basis points to 1.72%.
The 10-year muni-to-Treasury ratio was calculated at 120.8% while the 30-year muni-to-Treasury ratio stood at 109.6%, according to MMD
The ICE AAA municipal yield curve showed short maturities up one basis point with the 2021 maturity at 0.20% and the 2022 at 0.21%. The 10-year maturity dipped one basis point to 0.93% and the 30-year fell two basis points to 1.73%.
The 10-year muni-to-Treasury ratio was calculated at 120% while the 30-year muni-to-Treasury ratio stood at 110%, according to ICE.
The IHS Markit municipal analytics AAA curve showed short yields up to 0.16% and 0.17% in 2021 and 2022, respectively, with the 10-year yielding 0.97% and the 30-year at 1.73%.
The BVAL AAA curve showed the yield on the 2021 maturity up one basis point to 0.15%, the 2022 maturity up one basis point to 0.16% while the 10-year fell one basis point to 0.93% and the 30-year dropped one basis point to 1.73%.
Treasuries were stronger as stock prices traded mixed.
The three-month Treasury note was yielding 0.10%, the 10-year Treasury was yielding 0.78% and the 30-year Treasury was yielding 1.56%.
The Dow fell 0.70%, the S&P 500 decreased 0.25% and the Nasdaq gained 0.45%.