All eyes were on the primary Wednesday as several large New York negotiated deals and competitive sales came to market with demand there keeping secondary traders on the sidelines.
U.S. Treasuries lost ground and equities gained on better private-sector payrolls numbers and Democrats giving a nod toward moving on stimulus with or without Republican sign-on.
The fundamentals in munis seem to be ironclad at the moment. The Investment Company Institute reported a third week in a row of inflows into municipal bond mutual funds with $3.258 billion of long-term flows and $884 million of inflows into exchange-traded funds.
With the weakness in UST — the 10-year landed at 1.13% and the 30-year at 1.91% — once again dislocated the relationship of municipals as a percentage of Treasuries. They dipped a basis point to 65% in 10 years and fell a two basis points to 72% in 30 years on Wednesday, according to Refinitiv MMD. ICE Data Services reported ratios at 62% in 10 years and 74% in 30.
"What is standing out among both competitive and negotiated sales is the level of specificity for inquiry is getting more pronounced the longer rates remain below years-long averages," said Kim Olsan, senior vice president at FHN Financial. "Couponing, in particular, is becoming as relevant a consideration as credit ratings for order indications."
Many deals priced so far this week are varying their coupon structures with a lot of 2s, 3s and 4s out longer.
Primary market
Wells Fargo Securities priced for institutions $900 million of future tax-secured subordinate refunding bonds for the New York City Transitional Finance Authority (Aa1/AAA/AAA/) with few changes from retail scales. Bonds in 2023 with a 5% coupon yield 0.16%, 4s of 2026 yield 0.35%, 5s of 2034 yield 1.21%, 5s of 2036 at 1.37%, 5s of 2041 at 1.58%, 4s of 2041 at 1.79%, 4s of 2046 at 1.93% (five basis points higher than retail) and 2.25s of 2051 yield 2.35% (+4 bps) and 3s of 2051 at 2.22%.
The TFA also sold $205 million of taxable future tax-secured subordinate bonds to Wells Fargo Securities. Bonds all priced at par: 0.49% in 2024, 0.66% in 2025, 0.86% in 2026 and 1.50% in 2031.
Goldman, Sachs & Co. LLC priced for retail $577.65 million of sales tax-secured bonds for the Nassau County Interim Finance Authority (/AAA/AAA/). Bonds in 2029 with a 5% coupon yield 0.68%, 5s of 2031 at 0.88%, 5s of 2035 at 1.09% and 4s of 2035 yield 1.25%.
J.P. Morgan Securities LLC re-priced $304 million of limited general obligation bonds for Wake County, North Carolina, (Aa1/AA+/AA+/) with five to eight basis point bumps. Bonds in 2022 with a 5% coupon yield 0.06%, 5s of 2026 at 0.26%, 5s of 2031 at 0.79%, 3s of 2036 at 1.39% and 4s of 2038 at 1.26%.
RBC Capital Markets priced $170 million of Honor Health hospital revenue refunding bonds for the Industrial Development Authority of the County of Maricopa, California (A2//A+/). Bonds in 2024 with a 5% coupon yield 0.34%, 4s of 2026 at 0.56%, 5s of 2031 at 1.23%, 5s of 2036 at 1.52%, 3s of 2051 at 2.38% and 4s of 2051 at 2.13%.
Siebert Williams Shank & Co. LLC priced $159 million of unlimited tax school building bonds for the Arlington Independent School District, Texas, (Aaa/AAA//) PSF guaranteed. Bonds in 2021 with a 5% coupon yield 0.11%, 5s of 2026 yield 0.32%, 4s of 2031 at 0.87%, 4s of 2036 at 1.14%, 4s of 2041 at 1.34% and 4s of 2046 at 1.48%.
On Tuesday, Ramirez & Co. Inc. priced $106.3 million of taxable pension obligation bonds for the City of Monterey Park, California (/AA//). All bonds priced at par: 2022 at 0.213%, 2026 at 1.087%, 2031 at 1.993%, 2036 at 2.493% and bonds in 2043, the largest tranche $45.735 million, yield 3.021%.
ICI reports $4.1 billion of inflows
Long-term municipal bond funds and exchange-traded funds saw combined inflows of $4.142 billion in the week ended Jan. 27, the Investment Company Institute reported Wednesday.
In the previous week, muni funds saw a revised inflow of $3.829 billion, ICI said.
Long-term muni funds alone had an inflow of $3.258 billion in the latest reporting week after an inflow of $3.234 billion in the prior week.
ETF muni funds alone saw an inflow of $884 million after an inflow of $595 million in the prior week.
Taxable bond funds saw combined inflows of $18.956 billion in the latest reporting week after an inflow of $18.917 billion in the prior week.
ICI said the total combined estimated inflows from all long-term bond funds and ETFs were $23.099 billion after an inflow of $22.746 billion in the previous week.
Secondary market
New York City Transitional Finance Authority 5s of 2023 traded at 0.16%-0.15%. Virginia GO 5s of 2026 at 0.25%-0.23%. New York City TFA 5s of 2027 at 0.46%. Utah 5s of 2027 traded at 0.35%-0.34%. North Carolina GO 5s of 2027 traded at 0.34%-0.33%. Delaware GO 5s of 2028 at 0.42% versus 0.44% Friday.
Maryland 5s of 2029 at 0.62%, the same as Tuesday. Montgomery County, Maryland, 4s of 2029 traded at 0.57% versus 0.62% Tuesday and at 0.70% on Jan. 26. North Carolina GO 5s of 2030 at 0.70%-0.69%. Washington GO 5s of 2031 at 0.86%-0.85%.
New York City TFA 4s of 2035 traded at 1.51%. Washington GO 5s of 2039 at 1.26%-1.23%. They traded at 1.45%-1.44% on Jan. 21.
High-grade municipals were steady, 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 stayed at 0.73% and the 30-year was flat at 1.38%.
The ICE AAA municipal yield curve showed short maturities steady at 0.09% in 2022 and 0.11% in 2023. The 10-year was at 0.70% while the 30-year yield sat at 1.40%.
The IHS Markit municipal analytics AAA curve showed yields all a basis point to 0.10% in 2022 and 0.11% in 2023 while the 10-year fell one basis point to 0.68% and the 30-year yield at 1.37%.
The Bloomberg BVAL AAA curve showed yields at 0.08% in 2022 and 0.10% in 2023, while the 10-year was flat at 0.69%, and the 30-year yield rose one basis point to 1.42%.
The three-month Treasury note was yielding 0.09%, the 10-year Treasury was yielding 1.13% and the 30-year Treasury was yielding 1.91% near the close. Equities saw gains for a third day with the Dow up 36 points, the S&P 500 rose 0.10% and the Nasdaq lost 0.02%.
Economic data
Some good news on employment and the services sector on Wednesday.
Private-sector payrolls added 174,000 jobs in January, after an upwardly revised 78,000 lost a month earlier, ADP reported.
The December drop was first reported as 123,000. Economists polled by IFR Markets expected 45,000 private-sector jobs to be added.
“The labor market continues its slow recovery amid COVID-19 headwinds,” according to Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “Although job losses were previously concentrated among small and midsized businesses, we are now seeing signs of the prolonged impact of the pandemic on large companies as well.”
ADP historically was not a strong indicator of the employment report, scheduled for release Friday. But since the COVID-19 pandemic, “it has done a good job,” said Ed Moya, senior market analyst at
The better-than-expected performance in ADP in January, and the improvement to the December read, “suggests the economy might not be in terrible shape,” Moya added. “With January being the expected worst of the virus, the labor market should steadily improve from here on out.”
Another possible sign of a turnaround, he noted, “even leisure and hospitality showed some gains, an increase of 35,000 jobs in January, which was an improvement from the 58,000 jobs lost in the prior month.”
Separately, the Treasury Department announced it will raise $63.1 billion of new cash in its quarterly refunding, selling $126 billion of debt next week, comprised of $27 billion 30-year bonds, $41 billion 10-year notes and $58 billion three-year notes.
Also released Wednesday, the Institute for Supply Management’s Services PMI increased to 58.7 in January from 57.7 in December, while the business activity/production index slid to 59.9 from 60.5. New orders rose to 61.8 from 58.6, employment gained to 55.2 from 48.7 and prices dipped to 64.2 from 64.4.
Economists expected the services PMI to fall to 56.8. The index was at its highest read since February 2019.
“Although services have been disproportionately affected by the pandemic, this sentiment index recorded its eight consecutive month in expansion territory (above 50) in January,” noted Roiana Reid, U.S. economist at Berenberg Capital Markets. “We expect activity and employment growth in the services sector to accelerate in the coming months as the pandemic ebbs.”
Separately, the “labor market recovery is about four years ahead of where it was following the 2007-09 recession,” said Federal Reserve Board of St. Louis President James Bullard. If those who consider themselves temporarily laid off return to the workforce, the unemployment rate would drop to 4.8%, he said. Even if the number of temporarily laid off dropped to its usual level of about 1 million, Bullard said, the unemployment rate would fall to 5.4%, still below the median rate since World War II.
Inflation expectations are growing, he noted, with TIPS-based breakeven inflation possibly moving to a level that would suggest inflation “modestly above” the 2% Fed target. “This would be a welcome development for the Federal Open Market Committee, as inflation has generally been below target for many years,” Bullard said.
Still to come
Seattle Children’s Hospital (Aa2//AA/) is set to price $405 million of corporate CUSIP green refunding bonds on Thursday. J.P. Morgan Securities is head underwriter.
Willis-Knighton Medical Center (/A/AA-/) is set to price $400 million of taxable bonds on Wednesday. Goldman is head underwriter.
New Orleans, Louisiana, (/AA//) is set to price $191.6 million of taxable water revenue refunding bonds insured by Assured Guaranty on Thursday. J.P. Morgan is bookrunner.
New Orleans will also issue $185 million of taxable sewerage service revenue refunding bonds Thursday. J.P. Morgan is head underwriter.
Detroit (Ba3/BB-//) is set to price $175 million of unlimited tax exempt ($135 million) and taxable ($40 million) social bonds on Thursday. BofA is lead underwriter.
The state of Louisiana (A1/A+//) is set to price $135.9 million of taxable unclaimed property special revenue refunding bonds, $64.78 million Series 2021 (I-49 North Project) and $71.1 million Series 2021 (I-49 South Project) serials, 2021-2033, serials 2021-2035, respectively. TD Securities LLC is lead underwriter.
