With very few trades to point to any movement, municipal benchmarks were little changed Monday, even as U.S. Treasuries rose from Friday's lows and the stock market was on fire with the Dow up 500-plus points near the close.
Triple-A benchmarks were little changed while municipal-to-UST ratios fell slightly as Treasury yields rose Monday. Long UST yields were up nine basis points while the 10-year moved five higher to 1.49% after trading as low as 1.35% overnight.
The 10-year muni to UST ratio was at 65% while the 30-year was at 69%, according to Refinitiv MMD. ICE Data Services had the 10-year muni-to-Treasury ratio at 65% and the 30-year ratio stood at 70%.
Refinitiv MMD had the five-year at 56% and ICE pegged it at 52%. ICE's one-year rose to 102% from 99% on Friday.
Roberto Roffo, managing director and portfolio manager at SWBC Investment Company, said since ratios cheapened “for the first time in a while, investors will probably see this back-up in yields as an opportunity to allocate some of the cash they have on hand.”
The upcoming supply versus redemptions should be supportive of the market going forward, according to Roffo. The Bond Buyer's 30-day visible supply is $13.83 billion. Bloomberg pegs 30-day net negative supply at $27.3 billion.
“The net negative supply along with cash on the sidelines should support the valuations in the municipal market going forward,” he said.
After last week's
"We expect tax-exempt municipal bonds to remain well-bid, and an outsized $180 billion of reinvestment money is returning to the tax-exempt market this summer," Miller wrote in a note Monday.
High-yield municipal credit quality is improving and technical factors are strengthening, he said.
"Despite the imbalance of supply and demand, investors can choose from a high number of new deals coming to market," Miller said. "Regardless, credit spreads on existing holdings have clear downward pressure and offer high scarcity value."
Secondary trading and scales
Trading showed little to move scales. West Virginia 5s of 2022 at 0.15%. New York Dorm PIT 5s of 2023 traded at 0.19%. Charlotte, North Carolina, water 5s of 2023 at 0.20%. South Carolina 5s of 2023 at 0.18%. New York City TFA 5s of 2024 at 0.33%. South Carolina 5s of 2025 at 0.39%.
New York City 5s of 2026 at 0.61%. Massachusetts clean water 5s of 2026 at 0.48% versus 0.41% Thursday. Utah 5s of 2026 at 0.55%. Wisconsin 5s of 2027 at 0.63% versus 0.54% on June 14. Texas water 5s of 2027 at 0.66% versus 0.56% on June10.
North Carolina 5s of 2029 at 0.93%. California 5s of 2030 at 1.03%-1.01%. Massachusetts 5s of 2033 at 1.17%-1.15%.
High-grade municipals were little changed on all triple-A benchmarks on Monday. According to Refinitiv MMD's AAA, short yields were steady at 0.12% and at 0.16% in 2021 and 2022. The yield on the 10-year was unchanged at 0.96% while the yield on the 30-year sat at 1.46%.
The ICE AAA municipal yield curve showed bonds in 2022 at 0.11% and up one basis point to 0.16% in 2023. The 10-year maturity sat at 0.97% and the 30-year yield was unchanged at 1.47%.
The IHS Markit municipal analytics AAA curve showed short yields were steady at 0.12% and 0.15% in 2021 and 2022, respectively, with the 10-year at 0.96% and the 30-year yield was unchanged at 1.46%.
Bloomberg BVAL AAA curve showed short yields steady at 0.11% and 0.14% in 2021 and 2022, with the 10-year one higher at 0.96% and the 30-year yield steady at 1.47%.
In late trading, the 10-year Treasury was yielding 1.49% and the 30-year Treasury was yielding 2.11%. Equities rallied, with the Dow Jones gaining 572 points, or 1.71%, the S&P 500 up 1.31% while the Nasdaq gained 0.68%.
More hawkish Fed talk
The Federal Reserve must be prepared to move if inflation continues to surprise to the upside, according to one Fed president, while another again stated a desire for the Fed to pull back on its accommodation.
Inflation risks “remain to the upside” and “could go higher,” said Federal Reserve Bank of St. Louis President James Bullard, so the Fed “has to be ready to react.”
“No one really knows how this is going to play out, but [we] need to be ready for upside risks to inflation,” he said at the Official Monetary and Financial Institutions Forum Monday. “We have to be just as nimble coming out of the pandemic as we were coming into it.”
Federal Reserve Bank of Dallas President Robert Kaplan, also speaking at the event, said “gently” easing “off the accelerator, sooner rather than later as opposed to hitting the brakes down the road,” will make it easier for the Fed to reach its goals.
“Risks are definitely to the up side and I think that the inflation pressures will bleed out into a broader range of items and persist into 2022,” Kaplan said.
“The timing of tapering has an impact on what we may do down the road,” Kaplan said. “If you wait too long to taper and increase build up, it will make it more likely you need to take additional actions down the road that you don't really want to take.”
Projections now suggest the Fed will hit its dual mandate “over time,” Bullard said. While beginning to talk taper is positive, he added, “I don’t think you can just go on auto pilot in this environment, where so much is still uncertain.”
Neither Bullard nor Kaplan are Federal Open Market Committee voters this year.
Since COVID spurred supply shortages, Kaplan said, quantitative easing may not be as valuable as it was after the financial crisis.
In data released Monday, the Federal Reserve Bank of Chicago’s National Activity Index gained to positive 0.29 in May from a revised negative 0.09 in April, first reported as positive 0.24.
The CFNAI-MA3, the three-month moving average, rose to positive 0.81 in May from a revised positive 0.17 in April, originally reported as positive 0.07, while the diffusion index climbed to positive 0.39 in May from a revised positive 0.16 in April, first reported as positive 0.22.
A zero reading suggests the national economy is growing at its usual pace.
Primary market to come
Los Angeles, California, is set to price $1.858 billion of tax and revenue anticipation notes on Tuesday. BofA Securities will run the books.
The Michigan Strategic Fund (Aa2//AA-/) is set to price on Tuesday $604 million of taxable limited obligation revenue bonds (Flint Water Advocacy Fund Project), serials 2022-2039, term 2051. Citigroup Global Markets Inc. is head underwriter.
The Gulf States Gas District (A2///) is set to price $556.6 million of gas supply revenue bonds. Goldman Sachs & Co. LLC is lead underwriter.
Tennessee (Aaa/AAA/AAA/) is set to price $492.7 million of taxable general obligation refunding bonds, serials 2021-2035. Jefferies LLC will run the books.
Tennessee is also set to price $164.9 million of tax-exempt general obligation refunding bonds on Wednesday. FHN Financial Capital Markets is lead underwriter.
The Indiana University Health, Inc. Obligated Group through the Indiana Finance Authority (Aa2/AA/AA/) is set to price on Thursday $407.8 million of taxable hospital revenue bonds, $300 million of which are corporate CUSIP. J.P. Morgan Securities LLC is lead underwriter.
Philadelphia (A1/A+/A+/) is set to price on Wednesday $359.5 million of taxable water and wastewater revenue refunding bonds, serials 2022-2036, terms 2041, 2045. Citigroup Global Markets Inc. is head underwriter.
The Town of West Hartford, Connecticut, (Aaa/AAA//) is set to price on Thursday $324.4 million of taxable general obligation bonds, serials 2022-2036, terms 2041, 2046. Raymond James & Associates, Inc. is bookrunner.
The State of Connecticut Health and Educational Facilities Authority (Aaa/AAA//) is set to price $300 million of Yale University revenue bonds, remarketing Series 2015A. Barclays Capital Inc. is head underwriter.
The Northern Tobacco Securitization Corp., Alaska, is set to price $284.8 million of tobacco settlement asset-backed refunding bonds, Series 2021 senior bonds, with $152.8 Series A, serials 2022-2041, term 2050, and $35 million of Series B1, terms 2031, 2050, and $97 million of Series B2, terms 2066. Jefferies LLC will run the books.
The Massachusetts Educational Financing Authority (/AA//) is set to price on Thursday $269.8 million of taxable education loan revenue bonds, serials 2024-2031, term 2037. RBC Capital Markets is head underwriter.
San Antonio, Texas, (Aa2/AA/AA/) is set to price on Tuesday $257.7 million of water system junior lien revenue and refunding bonds, serials 2022-2041, terms 2046, 2051. RBC Capital Markets is lead underwriter.
Glendale, Arizona, (/A+/AA-/) is set to price on Wednesday $252.8 million of taxable certificates of participation, serials 2024-2037. RBC Capital Markets is bookrunner.
Miami-Dade County, Florida, (A1/A+//) is set to price on Wednesday $244.5 million of subordinate water and sewer system revenue refunding bonds, serials 2027-2028, 2034-2044, terms 2046, 2048, 2051. RBC Capital Markets is head underwriter.
The Fort Worth Independent School District, Texas, (Aaa/AAA//) (PSF guarantee) is set to price on Thursday $242.5 million of unlimited tax school building bonds. Piper Sandler & Co is head underwriter.
The New York State Housing Finance Agency (Aa2///) is set to price $209.6 million of affordable housing revenue bonds on Tuesday consisting of $48.46 million of 2021 Series D-1 (Climate Bond Certified/Sustainability Bonds), $87.75 million of 2021 Series D-2 (Climate Bond Certified/Sustainability Bonds), $34.8 million of 2021 Series E-1 (Sustainability Bonds), $32.96 million of 2021 Series E-2 (Sustainability Bonds), and $5.65 million of 2021 Series F (Federally Taxable) (Sustainability Bonds). Morgan Stanley & Co. LLC will run the books.
The Northwest Independent School District, Texas, (Aaa//AAA/) (PSF guarantee) is set to price on Thursday $181.5 million of unlimited tax school building bonds, serials 2022-2046. RBC Capital Markets is head underwriter.
The Liberty Hill Independent School District, Texas, (Aaa///) (PSF guarantee) is set to price on Wednesday $180 million of unlimited tax school building bonds, serials 2022-2041, terms 2046, 2056. RBC Capital Markets will run the books.
The Richardson Independent School District, Texas, (Aaa/AAA//) (PSF guarantee) is set to price on Tuesday $179.1 million of unlimited tax school building bonds, serials 2022-2041, term 2046. Citigroup Global Markets Inc. is head underwriter.
The Lone Star College System, Texas, (/AAA//) is set to price on Wednesday $176.5 million of $161.5 million of limited tax general obligation bonds, Series 2021A, and $15 million of limited tax general obligation refunding bonds, Series 2021B. Morgan Stanley & Co. LLC will run the books.
The Boston Water and Sewer Commission (Aa1/AAA//) is set to price on Tuesday $138.8 million of general revenue and refunding bonds, $101.9 million of Series A taxable green bonds and $36.9 million of tax-exempts. BofA Securities is head underwriter.
The Waco Education Finance Corporation, Texas, (/A+/A+/) is set to price on Thursday $124.5 million of Baylor University revenue bonds. Morgan Stanley & Co. LLC is lead underwriter.
The Massachusetts Educational Financing Authority is set to price on Thursday $111.8 million of education loan revenue bonds, $71.8 million of Series B (/AA//) AMT, serials 2024-2031, term 2037, and $40 million of subordinate Series C (/BBB//), serial 2051. RBC Capital Markets will run the books.
The Sacramento City Unified School District (/AA//) is set to price on Tuesday $110.3 million of revenue and refunding bonds, Assured Guaranty Municipal Corp. insured. Raymond James & Associates, Inc. is lead underwriter.
The Metropolitan Water District of Southern California (Aa1/AAA//) is set to price on Wednesday $96.7 million of water revenue refunding bonds. Siebert Williams Shank & Co., LLC will run the books.
In the competitive market Tuesday, Idaho (MIG1/SP-1+//) is set to sell $300 million of tax anticipation notes (due 6/30/2022) at 11 a.m. eastern.
Denton, Texas, (/AAA/AAA/) is set to sell $97.5 million of certificates of obligation at 10:30 a.m. and $44.1 million of general obligation bonds at 11 a.m.
On Wednesday, the Georgia Road and Tollway Authority (Aaa/AAA//) is set to sell $210.5 million of managed lane system guaranteed revenue bonds at 10:15 a.m., $115.3 million of managed lane system guaranteed revenue bonds at 10:45 a.m. and $36.6 million of managed lane system guaranteed taxable revenue bonds at 11:15 a.m.
Hempstead, New York, is set to sell $140 million of public improvement bonds at 11 a.m.
Texas is set to sell $144.25 million of college student loan general obligation AMT bonds at 11 a.m. and $72.5 million of college student loan guarantee general obligation refunding AMT bonds at noon.
Quincy, Massachusetts, is set to sell $121 million of general obligation bond anticipation notes at 10 a.m.
On Thursday, Bryan Independent School District, Texas, (/AAA/AAA/) (PSF guarantee) is set to sell $120 million of unlimited tax school bonds at 10 a.m.
Christine Albano contributed to this report.
