The bond market was quiet to end the week, with munis and U.S. Treasuries little changed ahead of next week's Federal Open Market Committee meeting. Equities were up near the close.
The two-year muni-to-Treasury ratio Friday was at 59%, the three-year at 61%, the five-year at 62%, the 10-year at 65% and the 30-year at 89%, according to Refinitiv MMD's 3 p.m. read. ICE Data Services had the two-year at 60%, the three-year at 61%, the five-year at 60%, the 10-year at 65% and the 30-year at 89% at 4 p.m.
Market participants will be watching the outcome of the FOMC meeting next week where it is expected the Fed will hike rates 25 basis points, but investors are less certain of what comes after, said Barclays strategists Mikhail Foux, Clare Pickering and Mayur Patel.
The fed fund futures has fully priced in the expected rate hike, they noted. The wildcard, though, it was will happen after the meeting, with some seeing the Fed "pausing here for good," while "others expect at least one more 25bp hike in the fall," they said.
In any case, Barclays strategists said it is clear that "policymakers are finally getting close to the end of the tightening cycle, and market participants have started to position accordingly."
Treasury yields slowly moved lower at the start of the week, falling around five basis points for the week and 10 basis points in July "until the sharp rebound on Thursday on the back of a stronger Philly Fed release" and initial jobless claims falling below expectations, they said.
Munis, they said, "have largely kept their pace with USTs and actually outperformed in the rate selloff, with [Refinitiv] MMD-UST ratios moving sideways."
Over the past two months, ratios generally "have been trading in a narrow trading range, in stark contrast with the previous price action since the start of this tightening cycle," they said.
Supportive Treasuries and range-bound rates have led to solid muni performance so far in July, according to Barclays strategists.
They do not expect much to change in the coming weeks. Additionally, after next week's FOMC meeting, they said "only several active trading weeks likely remain for the rest of the summer."
Technicals are still supportive "at least until the fall, as we continue to see net negative issuance in July and August … while fund flows might be finally turning the corner," they said.
Refinitiv Lipper reported for the week ending Wednesday that investors added $1.04 billion to muni mutual funds. This is the first time that inflows topped the $1 billion mark since the end of January.
Trading activity in July, which has been "relatively robust," will start to slow after the FOMC meeting, they said.
They do not expect much volatility in August, even though the month has been volatile at times in the past. This, they said, will likely also put a damper on trading with the back half of the month being quiet as a result.
Meanwhile, they said "rich valuations in the belly of the high-grade curve are forcing investors to look for more attractive opportunities."
The long end benefits from rate stability, they said, "as investors get more comfortable to extend."
The yield curve remains steep, while long-dated muni to UST ratios are more attractive than short-dated ones, they said.
"If Treasuries continue moving sideways or trend lower, we might see the IG yield curve finally start to flatten on additional investor demand," they added.
Calendar stands at $5.4B
For the coming week, investors will be greeted with a new-issue calendar estimated at $5.439 billion.
There are $3.5 billion of negotiated deals on tap and $1.939 billion on the competitive calendar.
The negotiated calendar is led by $671 million of gas project revenue refunding bonds from the Black Belt Energy Gas District, followed by $364 million of PSF-insured unlimited tax school building bonds from the Medina Valley Independent School District, Texas.
Getting ahead of the FOMC decision, Washington will lead the competitive calendar with $1.1 billion of GOs in four deals Tuesday, followed by $178 million of GOs from Miami-Dade County, Florida, also Tuesday.
Secondary trading
Lone Star College System, Texas, 5s of 2024 at 3.29%. North Carolina 5s of 2025 at 2.94%. Maryland 5s of 2025 at 2.97%.
Ohio 5s of 2027 at 2.68%-2.62%. California 5s of 2028 at 2.51%-2.50% versus 2.49% Wednesday. NYC 5s of 2028 at 2.73%.
Washington 5s of 2032 at 2.59% versus 2.58% Thursday and 2.59%-2.58% Wednesday. Indiana Finance Authority 5s of 2032 at 2.68% versus 2.80% original on Wednesday. Santa Clara Valley Transportation Authority, California, 5s of 2035 at 2.58% versus 2.63%-2.62% Thursday and 2.63% original on Wednesday.
LA DWP 5s of 2047 at 3.54%. Massachusetts 5s of 2048 at 3.70%-3.69% versus 2.71% Thursday and 3.70%-3.67% Wednesday. Indiana Finance Authority 5s of 2053 at 4.01% versus 4.03% Thursday and 4.01%-4.00% Tuesday.
AAA scales
Refinitiv MMD's scale was unchanged: The one-year was at 3.00% and 2.87% in two years. The five-year was at 2.52%, the 10-year at 2.50% and the 30-year at 3.46% at 3 p.m.
The ICE AAA yield curve was bumped up to one basis point: 2.99% (flat) in 2024 and 2.90% (flat) in 2025. The five-year was at 2.50% (-1), the 10-year was at 2.47% (-1) and the 30-year was at 3.48% (-1) at 3:15 p.m.
The IHS Markit municipal curve was unchanged: 3.00% in 2024 and 2.88% in 2025. The five-year was at 2.52%, the 10-year was at 2.51% and the 30-year yield was at 3.47%, according to a 3 p.m. read.
Bloomberg BVAL was little changed: 2.93% (unch) in 2024 and 2.83% (unch) in 2025. The five-year at 2.51% (unch), the 10-year at 2.46% (unch) and the 30-year at 3.15% (unch) at 4 p.m.
Treasuries were little changed.
The two-year UST was yielding 4.847% (+1), the three-year was at 4.447% (+1), the five-year at 4.096% (flat), the 10-year at 3.840% (-1), the 20-year at 4.107% (flat) and the 30-year Treasury was yielding 3.908% (flat) at 3:15 p.m.
Primary to come:
The Black Belt Energy Gas District (A2///) is set to price next week $680.920 million of gas project revenue refunding bonds, Series 2023D, consisting of $620.835 million of Series D-1; $10.085 million of Series D-2; and $50 million of Series D-3. Goldman Sachs.
The Medina Valley Independent School District, Texas (/AAA//), is set to price Thursday $363.690 million of PSF-insured unlimited tax school building bonds, Series 2023, serials 2026-2053. Raymond James & Associates.
The National Finance Authority (/BBB//) is set to price Tuesday $270.250 million of partially tax-exempt social municipal certificates, Series 2023-2 Class X, serial 2038. Citigroup Global Markets.
The National Finance Authority (/BBB//) is set to price Tuesday $270.250 million of social municipal certificates, Series 2023-2 Class A, serial 2038. Citigroup Global Markets.
The North Carolina Housing Finance Agency (Aa1/AA+//) is set to price Wednesday $199 million of non-AMT social home ownership revenue bonds, Series 51, serials 2024-2035, terms 2038, 2043, 2048, 2054. RBC Capital Markets.
The Royse City Independent School District, Texas, is set to price Tuesday $187.995 million of PSF-insured unlimited tax school building bonds, Series 2023. FHN Financial Capital Markets.
Pflugerville, Texas (Aa1///AA+)m is set to price Tuesday $179.615 million of bonds and certificates of obligation, consisting of $103.615 million of limited tax bonds, Series 2023, serials 2024-2043, terms 2048, 2053; and $76 million of combination tax and limited revenue certificates of obligation, Series 2023A, serials 2024-2043, terms 2048, 2053. Siebert Williams Shank & Co.
The Charleston Educational Excellence Financing Corp., South Carolina (Aa3/AA-//), is set to price Thursday on behalf of the Charleston County School District $142.535 million of installment purchase revenue refunding bonds, Series 2023, serials 2023-2026, 2028. Wells Fargo Bank.
The Denison Independent School District, Texas (Aaa/AAA//), is set to price Thursday $131.405 million of PSF-insured unlimited tax school building and refunding bonds, Series 2023, serials 2024-2050. Raymond James & Associates.
The Minnesota Housing Finance Agency (Aa1/AA+//) is set to price Thursday $130 million of taxable social residential housing finance bonds, Series 2023J, serials 2023-2033, terms 2038, 2043, 2047, 2053. RBC Capital Markets.
The Michigan Finance Authority is set to price Monday $120.110 million of state aid revenue notes, Series 2023A, consisting of $59.955 million of Series A-1, serial 2024; and $60.155 million of Series A-2, serial 2024. PNC Capital Markets.
The Louisiana Local Government Environmental Facilities and Community Development Authority (Aaa///) is set to price Tuesday on behalf of the American Biocarbon CT Project $104 million of revenue bonds, consisting of $60 million of Series 2021 and $44 million of series 2023. Jefferies.
Competitive
Miami-Dade County, Florida, is set to sell $177.660 million of capital asset acquisition special obligation bonds, Series 2023A, at 9:30 a.m. eastern Tuesday.
Washington (Aaa/AA+/AA+/) is set to sell $347.615 million of various purpose GOs, Series 2023A - Bid Group 1, at 10:15 Tuesday; $344.630 million of various purpose GOS, Series 2023A - Bid Group 2, at 10:45 a.m. Tuesday; $381.580 million of motor vehicle fuel tax and vehicle-related fees GOs, Series 2024B, at 11:15 a.m. Tuesday; and $55.220 million of taxable GOs, Series 2024T, at 11:45 a.m. Tuesday.
Christina Baker contributed to this story.
