Taxables take the spotlight as muni market sees larger slate for holiday week
This week’s slate of over $7.2 billion is hefty for a holiday-shortened week and as the market drives slowly into quarter end, tax-exempts will ride in the back seat for a change.
It will be taxables at the wheel this week, according to Kim Olsan, senior vice president at FHN Financial.
“In a rare circumstance, taxable issuance this week is greater than expected tax-exempt volume and includes a $1 billion Massachusetts School Building sales tax issue. June’s taxable muni share of syndicate deals will exceed 35% and for the year moves up to 25%,” she wrote in a Monday market comment.
“Considering the credit/spread proposition in taxable munis against lower UST rates, the sector can only be expected to draw ongoing interest into Q3,” Olsan said.
Municipals finished little changed on Monday in quiet trading action as focus remained on the new-issue sector.
Action started early as Goldman Sachs priced the Children's Hospital Corp.’s (Aa2/AA/NR/NR) $300 million of taxable bonds.
The deal was priced at par to yield 2.585% in 2050, about 120 basis points above the comparable Treasury security.
The Massachusetts School Building Authority (Aa2/AA+/AAA/NR) is coming to market Tuesday with two social bond deals totaling $1.45 billion.
The deals are made up of $350 million of tax-exempts and $1.095 billion of taxables. BofA Securities, Citigroup and UBS are lead managers on the dedicated sales tax refunding bonds.
Since 2010, the authority has sold almost $8 billion of debt, with the most issuance coming in 2012 when i offered $1.7 billion.
In the short-term sector, JPMorgan Securities is set to price Los Angeles County, Calif.’s $1.2 billion of tax and revenue anticipation notes on Tuesday.
Co-managers are Academy Securities, Raymond James & Associates and Siebert Williams Shank
Citigroup is set to price the Port Authority of New York and New Jersey’s $1.1 billion of taxable notes on Tuesday.
BofA is expected to price the Philadelphia School District, Pa.’s up $550 million of tax and revenue anticipation notes on Tuesday.
Some notable trades:
San Mateo, California USD 4s of 2022 trading at 0.21%. New Jersey EFC green bonds, 4s of 2023, at 0.34%. Loudoun County, Virginia GOs, 5s of 2023, 0.32%-0.31%. Utah GOs, 5s of 2024, at 0.34%-0.33%. Maryland GOs, 5s of 2027 at 0.65%-0.64%.
Prince Georges County, Maryland GOs, 5s of 2028 at 0.82%-0.81%. Sold in early June at 0.85%, this trade shows how much the market has mostly maintained levels throughout the month.
Outside of 10 years, Lewisville, Texas ISD, 4s of 2034 traded at 1.37%-1.43% with the original yield on June 22 priced at 1.48%. Barbers Hill, Texas ISD 3s of 2040 traded at 1.88%-1.81%.
On Monday, readings on MMD’s AAA benchmark scale were unchanged. Yields on the 2021 and 2023 maturities were steady at 0.25% and 0.27%, respectively. The yield on the 10-year GO muni was flat at 0.90% while the 30-year yield was steady at 1.63%.
The 10-year muni-to-Treasury ratio was calculated at 141.5% while the 30-year muni-to-Treasury ratio stood at 117.2%, according to MMD.
“The muni bond market is starting off the holiday-shortened week on a quiet note,” ICE Data Services said in a Monday market comment.
ICE said yields on its curve were lower in the front end and basically unchanged in the back end.
“In high-yield, the market continues to slowly tighten. Illinois State uninsured issues are trading better. Taxable and Puerto Rico bonds are little changed,” ICE said.
The ICE AAA municipal yield curve showed short yields fell one basis point, with the 2021 and 2022 maturities at 0.220% and 0.231%, respectively. Out longer, the 10-year maturity was steady at 0.855% while the 30-year was flat at 1.650%.
ICE reported the 10-year muni-to-Treasury ratio stood at 144% while the 30-year ratio was at 116%.
The IHS Markit municipal analytics AAA curve showed the 2021 maturity yielding 0.25% and the 2022 maturity at 0.28% while the 10-year muni was at 0.91% and the 30-year stood at 1.66%.
The BVAL curve showed the 2021 maturity flat at 0.19% and the 2022 unchanged at 0.24%. BVAL calculated the 10-year muni unchanged at 0.84% while the 30-year was down one bp at 1.64%.
Munis were little changed on the MBIS benchmark and AAA scales.
Munis appear comfortable just gliding into the end of the quarter, uninspired to follow Treasuries, Olsan said.
“Bids wanteds posted to Bloomberg’s bid system on Friday were the lowest figure since Jan. 4 at just $303 million — signaling that syndicate purchases are being paid for with cash balances and that month/quarter-end activities are not that active,” Olsan said.
She added a tightly traded yield range in recent days against the flight-to-quality Treasury trade has moved relative value ratios higher but with limited benefit given where absolute muni yields sit.
Treasuries were mixed as stocks traded higher.
The three-month Treasury note was yielding 0.140%, the 10-year Treasury was yielding 0.636% and the 30-year Treasury was yielding 1.391%.
The Dow rose 1.67%, the S&P 500 increased 0.97% and the Nasdaq gained 0.51%.