Municipals were off by a few basis points ahead of a larger new-issue calendar, while U.S. Treasuries rallied with the largest swings to lower yields on the short end, steepening the curve, and equities sold off to 13-month lows.
Triple-A muni benchmarks were cut up to four basis points while UST yields fell 10 to 16 basis points on bonds 10 years and in.
Muni to UST ratios were at 86% in five years, 93% in 10 years and 100% in 30, according to Refinitiv MMD's 3 p.m. read. ICE Data Services had the five at 86%, the 10 at 94% and the 30 at 103% at a 4 p.m. read.
Munis simply cannot ignore the swings of UST, said Jeff Lipton, managing director of credit research at Oppenheimer Inc.
While munis have been lagging big moves in UST, as was the case Monday, they have been following along despite the positive credit backdrop.
“While UST yields test new cyclical highs in search of a ceiling, or at the very least, a stabilized trading range, munis cannot help but move in sympathy,” Lipton said in a Friday report.
Triple-A 10- and 30-year yields have risen by 184 basis points and 171 basis points respectively year-to-date, and similar maturity relative value ratios are now at 93% and 100%, respectively, per Refinitiv MMD.
Lipton said, “ratios were significantly more expensive throughout much of 2021, and now fairer value is available.” More recent muni outperformance, he said, “has pressed ratios down from higher levels, yet munis can certainly display intermittent underperformance going forward.”
Vikram Rai, head of Citi’s municipal strategy group, said due to
“Ratios are generally attractive, but the market is decidedly unstable in a rising-rate environment, so ratios are going to stay elevated given the skewed supply-demand equation," he said.
The calendar is heavier this week with more than $11 billion of negotiated and competitive deals following a relatively light calendar last week due to the
Compared to 2021, Rai said, issuance is only down 10% year-to-date. Despite this, Rai said, he believes total volume will meet his estimate of $520 billion.
Lipton said “there is ample cash awaiting directional guidance and at currently cheaper (i.e. attractive) ratios and absolute yield levels, muni interest should take hold and make for a very different muni market during the second half of 2022 with the opportunity to capture value and to add inflationary insulation to portfolios.”
He said, “retail has been putting more than just a toe into the market, both for secondary as well as primary business given the compelling opportunities.” Daily Street bids remain active, and while “competitive deals are getting done, syndicate bidding remains cautious,” he said.
“Negotiated transactions continue to be priced at cheaper levels in order to be comfortably placed,” Lipton noted.
The municipal market remains solid, noted Nuveen head of municipals John Miller.
"The
Despite outsized volatility and liquidity challenges ahead, the possibility of more extended relief is not too far off, Lipton said.
“Muni yield movements are closely following the volatility very much on display in the Treasury market and it would likely take a tempering of such volatility and/or a more compelling technical muni backdrop to catalyze enduring market conviction with sustained outperformance,” Lipton said.
And “although muni bond prices may have some further room to move lower,” he believes, yields “are moving closer to a range-bound trade, albeit not necessarily permanent, as better technicals loom on the horizon.”
“Now that the Fed has concluded its policy meeting, we still may not see a meaningful withdrawal of Treasury market volatility for some time to come and if that turns out to be the case, we would not expect to see a return to consistent muni inflows until then,” Lipton said.
The Fed has provided the bond markets "with a degree of clarity and guidance" and now it is up to investors "to decide how to proceed,” he said.
“If the belief is that the central bank has lost its grip on inflation, volatility and sentiment will likely hold course,” he added.
Secondary trading
Georgia 5s of 2024 at 2.35% versus 2.29%-2.27% Thursday. Maryland 5s of 2024 at 2.34%. Maryland 5s of 2025 at 2.50%-2.49%. District of Columbia 5s of 2025 at 2.52%.
Georgia 5s of 2026 at 2.53%-2.52%. New York City TFA 5s of 2026 at 2.75%-2.70% versus 2.75%-2.74% Friday.
Los Angeles DWP 5s of 2029 at 2.81%-2.79%. Florida PECOs 5s of 2030 at 2.91%-2.90%. California 5s of 2030 at 3.07%-3.06% versus 3.05%-3.04%.
New York Dorm PITs 5s of 2031 at 3.27%-3.25%. New York City water 5s of 2031 at 3.05%.
Washington 5s of 2044 at 3.53%. Ohio water 5s of 2046 at 3.51%. Washington 5s of 2046 at 3.60%-3.59% versus 3.45%-3.40% Thursday.
In late trading, a block of Triborough Bridge and Tunnel MTA Bridges and Tunnels payroll mobility 5s of 2051 traded at 4.09% versus 3.76%-3.75% at the end of February. LA DWPs 5s of 2051 at 3.79% versus 3.63% on Thursday.
AAA scales
Refinitiv MMD’s scale was cut up to four basis points 3 p.m. read: the one-year at 1.97% (unch) and 2.29% (+2) in two years. The five-year at 2.56% (+2), the 10-year at 2.88% (+3) and the 30-year at 3.21% (+4).
The ICE municipal yield curve was cut one to four basis points: 2.03% (+1) in 2023 and 2.36% (+1) in 2024. The five-year at 2.54% (+1), the 10-year was at 2.84% (+2) and the 30-year yield was at 3.28% (+4) at a 4 p.m. read.
The IHS Markit municipal curve was cut four basis points five years and out: 1.99% in 2023 (unch) and 2.29% (unch) in 2024. The five-year at 2.60% (+4), the 10-year was at 2.87% (+4) and the 30-year yield was at 3.21% (+4) at 4 p.m.
Bloomberg BVAL was cut one to three basis points: 2.00% (+1) in 2023 and 2.28% (+2) in 2024. The five-year at 2.59% (+2), the 10-year at 2.85% (+3) and the 30-year at 3.16% (+3) at a 4 p.m. read.
Treasury yields fell.
The two-year UST was yielding 2.591% (-15), the three-year was at 2.796% (-16), five-year at 2.939% (-14), the seven-year 3.034% (-12), the 10-year yielding 3.033% (-10), the 20-year at 3.388% (-6) and the 30-year Treasury was yielding 3.164% (-6) at the close.
Primary to come:
The Dormitory Authority of the State of New York is set to price Wednesday $750.790 million of school districts revenue bond financing program revenue bonds, consisting of $724.310 million (Aa3//AA-/), Series 2022A, serials 2023-2037, term 2042 and 2051 and $26.480 million (/AA/AA-/), Series 2022B, serials 2023-2037. Roosevelt & Cross.
The Dormitory Authority of the State of New York (A3/A-/A-//) is set to price Tuesday $735 million of
The San Francisco Bay Area Rapid Transit District (Aaa//AAA/) is set to price Wednesday $700 million of Election of 2016 general obligation bonds, consisting of $604.270 million of Series D-1, serials 2024-2042, terms 2047 and 2052 and $95.730 million of Series D-2, serials 2022. Stifel, Nicolaus & Co.
Oregon (Aa1/AA+/AA+/) is set to price Tuesday $422.415 million of general obligation bonds, consisting of $178.085 million of bonds, 2022 Series A; $175.800 million of taxable sustainability bonds, 2022 Series B; and $68.530 million of bonds, 2022 Series C. Morgan Stanley & Co.
The Harris County Cultural Education Facilities Finance Corp., Texas, is set to price Thursday $277 million Memorial Hermann Health System hospital revenue bonds, consisting of $170 million of fixed rate bonds, Series 2022A; $55 million of fixed-rate puttable bond, Series 2022B; and $52 million of fixed-rate notes, Series 2022C. J.P. Morgan Securities.
Georgetown, Texas, (/A+//) is set to price Thursday $223.330 million of utility system revenue bonds, Series 2022. Morgan Stanley & Co.
The Industrial Development Authority of the City of Phoenix, Arizona, is set to price Thursday $199.926 million of All Sports Village Project economic development revenue bonds, consisting of $180.660 million of tax-exempt bonds, Series 2022A, $6 million of taxable bonds, Series 2022B and $13.266 million of tax-exempt, Series 2022C. D.A. Davidson & Co.
Richardson Independent School District, Texas, is set to price Tuesday $189.960 million of unlimited tax school building bonds, Series 2022, insured by the Permanent School Fund Guarantee Program. Piper Sandler & Co.
Pennsylvania State University (Aa1/AA//) is set to price Tuesday $151.080 million, consisting of $124.580 million of tax-exempt bonds, Series A of 2022, serials 2023-2042, terms 2047 and 2052 and $26.500 million of taxable bonds, Series B of 2022, serials 2023-2037, term 2042. Barclays Capital Inc.
The School Board of Broward County, Florida, (Aa3//A+/) is set to price Tuesday $151.020 million of certificates of participation, Series 2022B. Morgan Stanley.
The Minnesota Higher Education Facilities Authority (A2///) is set to price Wednesday $128.125 million of University of St. Thomas revenue bonds, consisting of $59.775 million of green bonds, Series 2022A, serials 2025-2042, terms 2047 and 2052 $68.350 million of Series 2022B, serials 2025-2042, terms 2047 and 2052. RBC Capital Markets.
The Bay Laurel Center Community Development District, Florida, (/AA//) is set to price Thursday $126.770 million of taxable water and sewer revenue bonds series 2022B, serials 2024-2032, terms 2042 and 2052, insured by Assured Guaranty Municipal Corp. Jefferies.
The Indiana Housing And Community Development Authority (Aaa//AAA/) is set to price Wednesday $115.840 million of social single-family mortgage revenue bonds, 2022 Series B, serials 2023-2034, terms 2037, 2042, 2047 and 2052. RBC Capital Markets.
The Houston Independent School District, Texas, (Aaa/AAA//) is set to price Tuesday $109.380 million variable rate limited tax schoolhouse bonds, Series 2014A-2, insured by the Permanent School Fund Guarantee Program. Piper Sandler & Co.
Competitive:
Wisconsin is set to sell $183.375 million of general obligation bonds of 2022, Series A, at 10:45 a.m. eastern Tuesday.
Orange United School District, California, (/AA//) is set to sell $100 million of Election of 2016 general obligation bonds, Series 2022, at noon Tuesday.
