The municipal market is running on a treadmill

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The municipal market was running in place Monday as participants wait for the week’s $11.8 billion primary supply slate to get underway.

“There are still plenty of supporting fundamentals, e.g. five consecutive weeks of inflows, attractive municipal to U.S. Treasury ratios, the attention of cross-over buyers,” said Greg Saulnier, municipal analyst at Refinitiv MMD.

“That said, there are a lot of market unknowns as well, including the potential for a second wave of Covid-19, how long the economic impacts from the shutdown will last, and what effect that could have on municipalities already under budget constraints," he said. "Therefore, the bulls and bears are still playing tug-of-war.”

With almost half of June being done and dusted, yield movement is nearly unchanged from May’s closing levels.

This a stark contrast to the same time last month when benchmarks had rallied 30 basis points or more, says Kim Olsan, senior vice president at FHN Financial.

“Although the fundamental case is strong (solid reinvestment totals, favorable relative value), it appears that buyers are beginning to resist pushing yields much lower,” Olsan said. “Current intermediate levels are just above their lows and long-term rates are about 25 basis points off the March lows, essentially creating a logjam. June’s new issues are having enough follow-through business to justify steady yield curves, but the next test of conviction comes on more than $10 billion in volume.”

She said that while the number of deals over $250 million is growing as the redemption cycle runs its course, “buyers are likely not facing much concession with rates expected to trade in their current range for months to come on low inflation expectations.”

CUSIP requests surge in May
For the second month in a row, requests for municipal CUSIP identifiers rose in May at a fast-paced clip, data released on Monday showed.

The aggregate total of all municipal securities — including municipal bonds, long- and short-term notes and commercial paper — climbed 53.1% to 1,534 in May after. 12.3% gain in April to 1,002, according to CUSIP Global Services.

On an annualized basis, total municipal ID requests were up 10.6% to 5,585 through May versus 5,050 in the same period in 2019.

“If there was ever any doubt about the ability of municipal bond issuers to access liquidity during the COVID-19 pandemic, our CUSIP issuance trends indicator is sending a clear signal that municipalities are putting the pieces in place for a surge in new issuance volume in the weeks and months to come,” said Gerard Faulkner director of operations for CGS.

For municipal bonds specifically, requests rose 33.9% to 1,141 in May from 852 in April. For this year through May, requests totaled 4,611 compared to 4,156 in the same period last year, a 10.9% rise.

Among top state issuers, Pennsylvania, Texas and New York were in the most active in May, with 165, 151 and 114 requests, respectively.

Primary market
Citigroup on Monday priced the El Dorado Irrigation District, Calif.'s (Aa3/AA-//) $196 million of certificates of participation and refunding revenue bonds.

On Tuesday, Goldman Sachs will price the New York State Urban Development Corp.’s $1.3 billion of general purpose state personal income tax revenue bonds for retail investors ahead of Wednesday’s institutional pricing. Also on Wednesday, Goldman will price the UDC’s $487 million of taxables.

Goldman is expected to price the North Carolina State University’s (Aa1/AA//) $265 million of tax-exempt and taxable general revenue bonds.

Citigroup is set to price the Wisconsin Health And Educational Facilities Authority’s (NR/A-/A-/NR) $212 million of revenue bonds for the Marshfield Clinic Health System Inc. Citi is also pricing the Marshfield Clinic Health System’s $144 million of corporate CUSIP taxable bonds.

In the competitive arena Tuesday, Henrico County, Va., (Aaa/AAA/AAA//) is selling $118.456 million of general obligation bonds in two issues.

The deals consist of $103.68 million of tax-exempt Series 2020A general obligation public improvement bonds and $14.785 million of taxable Series 2020B GO refunding bonds.

PFM is the financial advisor and Hawkins Delafield is the bond counsel.

Secondary market
Some notable trades:

North Carolina GOs, 4s of 2022, traded at 0.24%.

The ICE AAA municipal yield curve showed yields were little changed, with the 2021 to 2023 maturities steady at 0.190%, 0.216% and 0.257%, respectively.

Washington GOs, 5s of 2022, were at 0.25%. Montgomery County, Maryland 5s of 2023 were at 0.30%-0.29%.

Out longer, the 10- and 30-year maturities were unchanged at 0.820% and 1.617%, respectively.

New York City TFAs, 4s of 2037, traded at 1.99% to 1.98%.

Out even longer, some Texas issuers were getting some reception. Lubbock, Texas ISDs, 4s of 2050, were trading at 1.78%.

ICE reported the 10-year muni-to-Treasury ratio stood at 118% while the 30-year ratio was at 110%.

“The muni market is getting off to a slow start this week,” ICE Data Service said in a Monday market comment. “Yields on the ICE muni curve are unchanged. High-yield bonds are also flat on the day. Trade volumes are very light.”

On MMD’s AAA benchmark scale, yields remained unchanged across the curve. The 2021 to 2023 maturities remained at 0.22%, 0.24% and 0.25%, respectively. The yield on the 10-year GO muni was flat at 0.85% while the 30-year was steady at 1.61%.

The 10-year muni-to-Treasury ratio was calculated at 120.2% while the 30-year muni-to-Treasury ratio stood at 111.0%, according to MMD.

“The muni market is getting off to a slow start this week,” ICE Data Service said in a Monday market comment. “Yields on the ICE muni curve are unchanged. High-yield bonds are also flat on the day. Trade volumes are very light.”

The IHS Markit municipal analytics AAA curve showed the 2021 maturity yielding 0.19%, the 2022 maturity at 0.24% and the 2023 maturity at 0.25% while the 10-year muni was at 0.84% and the 30-year stood at 1.61%.

The BVAL curve showed the 2021 maturity one basis point down to 0.14%, the 2022 unchanged at 0.20%. BVAL calculated the 10-year muni was unchanged at 0.80% while the 30-year was also unchanged at 1.63%.

Munis were stronger on the MBIS benchmark scale.

Treasuries were stronger as stocks traded higher.

The three-month Treasury note was yielding 0.175%, the 10-year Treasury was yielding 0.704% and the 30-year Treasury was yielding 1.453%.

The Dow rose 0.70%, the S&P 500 increased 0.90% and the Nasdaq gained 1.50%.

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