Municipals were little changed Friday, largely ignoring a weaker U.S. Treasury market, ahead of a larger new-issue calendar that features several billion-dollar state general obligation deals.
U.S. Treasury yields rose, pushing them to multiyear highs. The two-year closed above 4.5% and the 10-year eclipsed 4%. Equities ended down on continued concerns over inflation.
Muni-UST ratios had the three-year on Thursday was at 66%, the five-year was at 70%, the 10-year at 79% and the 30-year at 95%, according to Refinitiv MMD’s 3 p.m. read. ICE Data Services had the three at 67%, the five at 71%, the 10 at 82% and the 30 at 95% at a 4 p.m. read.
“Despite a pick-up in volatility in the rates market, municipals have been performing relatively well in October,” according to Barclays PLC.
“Muni ratios have come down across the curve substantially and, despite outflows, the market tone remains relatively positive,” Barclays strategists Mikhail Foux, Clare Pickering and Mayur Patel said.
Helping is the slowdown in issuance, despite October usually being one of the heaviest supply months of the year. However, they believe issuance will “pick up near term but this month will likely turn out to be relatively light by historic standards.”
Bond Buyer 30-day visible supply sits at $15.35 billion.
BofA strategists concurred, saying, “munis performed better in October so far as consistently lighter-than-expected new issuance volume has offset the impact of mutual funds outflows.
“Retail investors, on the other hand, appear to appreciate current higher tax-exempt yield levels and view munis as an area with lower volatility relative to taxable bond or the equity markets,” they said.
If issuance increases, Barclays strategists said it will “put some pressure on the secondary market,” which “could present a good entry point in the next several weeks.
“In our view, investors are better off just nibbling, rather than being aggressive right now,” they said.
Since early August, muni-UST ratios have been steady while “the ’non-recession’ trade lifted the 10-year Treasury yield by 150bps,” BofA strategists said.
The 10-year triple-A yield rose around 100 basis points over the August-September period, significantly outperforming USTs.
“If 10+ year Treasury yields climb into higher ranges, we think the 10-year muni AAA yield most likely would only revisit its September peak,” BofA strategists said.
Some investors appear to be “taking advantage of the relative stability in the muni market and have been trying to raise liquidity, keeping the number of bid-wanteds still elevated at the moment,” Barclays strategists said.
As a result, they noted said “dealers have been slowly getting longer but the market still seems relatively stable.”
“Even on Thursday as a result of the CPI’s negative surprise, muni yields widened a bit, but still outperformed Treasuries by a wide range, pushing ratios down even more,” Barclays strategists said.
BofA strategists said, “economic data continues to be supportive of a hawkish Fed stance as the ’non-recession trade’ extends to October.”
While “employment reports are strong, and inflation shows little signs of abating,” they said there’s still the question of “how much longer can this ’non-recession’ theme extend is likely to become a market focus over the next several weeks.”
Barclays strategists said that Thursday’s CPI “presented an unwelcome surprise to investors,” and in response, USTs “sold off by 10-15bp with the curve bear-flattening.”
“Fed Funds futures now price in with 60%+ probability another 75bps rate hike at December’s meeting if the Fed only hikes 75bps at the November meeting,” according to BofA strategists.
Barclays strategists added there’s even a “small probability of a 100bp rate hike,” though that seems unlikely to them.
Therefore, Barclays strategists have revised their rate hike expectations forecast, expecting two “75bp moves in November and December, followed by a 50bp in February.”
They remain “optimistic on municipal performance in Q4, but would prefer to add at more attractive entry points versus Treasuries.”
Calendar rebounds eightfold
Investors will be greeted Monday with a new-issue calendar estimated at $8.527 billion.
There are $7.413 billion of negotiated deals on tap and 1.113 billion on the competitive calendar.
The negotiated calendar is led by $1.5 billion of corporate CUSIPs and revenue bonds from CommonSpirit Health, Colorado, in two deals, followed by $1.1 billion of special tax obligation bonds from the state of Connecticut and $1.1 billion of GOs from the commonwealth of Massachusetts.
Rhode Island leads the competitive calendar with $223 million of GOs in two deals.
2.95%. North Carolina 5s of 2023 at 2.90%. Georgia 5s of 2024 at 2.96% versus 2.99% Thursday and 3.03%-3.00% original on 10/7.
California 5s of 2026 at 3.00%-3.02%. Washington 4s of 2027 at 3.06% versus 3.07% Thursday. DC 5s of 2028 at 3.07%.
NYC TFA 5s of 2031 at 3.32%. Delaware 5s of 2032 at 3.13% versus 3.17% original on Thursday.
NY Dorm PIT 5s of 2041 at 4.35% versus 4.20%-4.21% on 10/5.
NY State Urban Development Corp. 5s of 2050 at 4.40%-4.42% versus 4.37%-4.39% Wednesday. Celina ISD, Texas, 5s of 2052 at 4.00% versus 4.17%-4.13% Tuesday and 4.09%-4.06% on 10/4.
Refinitiv MMD’s scale was unchanged: the one-year at 2.93% and 2.97% in two years. The five-year at 3.00%, the 10-year at 3.15% and the 30-year at 3.76%.
The ICE AAA yield curve was little changed: 2.96% (flat) in 2023 and 3.00% (flat) in 2024. The five-year at 3.03% (flat), the 10-year was at 3.22% (flat) and the 30-year yield was at 3.79% (+1) at a 4 p.m. read.
The IHS Markit municipal curve bumped two basis points: 2.92% (-2) in 2023 and 2.94% (-2) in 2024. The five-year was at 3.00% (-2), the 10-year was at 3.14% (-2) and the 30-year yield was at 3.74% (-2) at a 4 p.m. read.
Bloomberg BVAL was little changed: 2.97% (unch) in 2023 and 3.00% (unch) in 2024. The five-year at 3.04% (unch), the 10-year at 3.16% (unch) and the 30-year at 3.80% (unch) at 4 p.m.
Treasuries were weaker.
The two-year UST was yielding 4.504% (+4), the three-year was at 4.513% (+5), the five-year at 4.267% (+7), the seven-year 4.166% (+8), the 10-year yielding 4.014% (+6), the 20-year at 4.293% (+6) and the 30-year Treasury was yielding 3.990% (+7) at the close.
Primary to come:
Connecticut (Aa3/AA-/AA-/AA+) is set to price Tuesday $1.143 billion, consisting of $830 million of special tax obligation bonds, transportation infrastructure purposes Series A, serials 2023-2043 and $312.730 million of special tax obligation refunding bonds, transportation infrastructure purposes, Series B, serials 2024-2033. Siebert Williams Shank & Co.
Massachusetts (Aa1/AA/AA+/) is set to price Wednesday $1.105 billion of general obligation bonds consolidated loan of 2022, Series C, and general obligation refunding bonds, Series A, consisting of $1 billion of Series 1 and $104.770 million of Series 2. Morgan Stanley & Co.
CommonSpirit Health, Colorado, (Baa1/A-/A-/) is set to price Tuesday $1 billion of taxable corporate CUSIPs. J.P. Morgan Securities.
The nonprofit hospital chain also is set to price Tuesday $500 million of the Colorado Health Facilities Authority revenue bonds, consisting of $250 million of Series A, $125 million of Series B-1 and $125 million of Series B-2. J.P. Morgan Securities
Hawaii (Aa2/AA+//) is set to price Wednesday $800 million of taxable general obligation bonds, Series GK. Morgan Stanley & Co.
The New Jersey Economic Development Authority (A3/BBB+/A-/) is set to price Wednesday $583.245 million of Portal North Bridge Project NJ Transit transportation project bonds, Series A, serials 2023-2042, terms 2047 and 2052. Barclays Capital.
The Southeastern Pennsylvania Transportation Authority (Aa3//AA/AA/) is set to price Tuesday $511.965 million of Asset Improvement Program revenue bonds, serials 2024-2042, terms 2047 and 2052. Citigroup Global Markets.
Wisconsin (Aa1/AA+//AAA/) is set to price Wednesday $249.240 million of general obligation refunding bonds, Series 4. Jefferies.
The Liberty Hill Independent School District, Texas, (Aaa///) is set to price Tuesday $196.025 million of unlimited tax school building and refunding bonds, Series A. Piper Sandler & Co.
The New Braunfels Independent School District, Texas, is set to price Thursday $194.595 million of unlimited tax school building and refunding bonds, Series B. Piper Sandler & Co.
The Ohio Housing Finance Agency (Aaa///) is set to price Thursday $149.995 million of non-AMT social Mortgage-Backed Securities Program residential mortgage revenue bonds, Series C, serials 2024-2034, terms 2037, 2042, 2047, 2053 and 2054. Citigroup Global Markets.
The Rhode Island Housing And Mortgage Finance Corporation (Aa1/AA+//) is set to price Thursday $128.460 million of homeownership opportunity bonds, consisting of $113.460 million of non-AMT social bonds, Series 78-A and $15 million of taxable bonds, Series 78-T. J.P. Morgan Securities.
New Orleans (A2/A+/A/) is set to price Wednesday $122.695 million of general obligation refunding bonds. J.P. Morgan Securities LLC, New York
The Connecticut Housing Finance Authority (Aaa/AAA//) is set to price Wednesday $118.135 million of social Housing Mortgage Finance Program bonds, Series E, Subseries E-1, serials 2023-2034, terms 2037, 2042, 2045 and 2052. Citigroup Global Markets.
The Indiana Finance Authority (Aaa/AAA/AAA/) is set to price Tuesday $105 million of green State Revolving Fund Program bonds, Series D. Morgan Stanley & Co.
The Municipality of Anchorage, Alaska, (/AA//) is set to price Thursday $100.775 million of solid waste services revenue refunding bonds, Series A. J.P. Morgan Securities.
The Miracosta Community College District, California, (Aaa/AAA//) is set to price Wednesday $100 million of Election of 2016 general obligation bonds, Series C. Piper Sandler & Co.
The Mountain View Whisman School District, California, (Aaa/AAA//) is set to price next week Election of 2020 general obligation bonds, Series B. RBC Capital Markets.
St. Johns County, Florida, (Aa2/AAA//) is set to sell $120.945 million of water and sewer revenue bonds at 10:30 a.m. eastern Tuesday.
Rhode Island (Aa2/AA/AA/) is set to sell $162.450 million of general obligation bonds consolidated capital development loan of 2022, Series A, at 10:15 a.m. Tuesday, and $60.300 million of taxable general obligation bonds consolidated capital development loan of 2022, Series A, at 10:45 a.m. Tuesday.
The Virginia Public School Authority (Aa1/AA+/AA+/) is set to sell $103.660 million of 1997 Resolution school financing bonds at 10:30 a.m. Tuesday.