Munis firmer as strong November performance persists

Bonds

Municipals were firmer Monday as investors prepare for a larger, $7 billion new-issue calendar while U.S. Treasuries made gains and equities were mixed near the close.

Triple-A yield curves were bumped one to four basis points, depending on the curve, while UST yields fell by six to eight basis points.

Munis continued to rally last week — the fourth straight week of falling yields — giving “us hope to avoid four straight down-months,” said Jason Wong, vice president of municipals at AmeriVet Securities.

“The November muni rally continues as month-to-date returns are now at 4.68%, pushing us further into positive territory for the year as year-to-date returns now stand at 2.35%,” he said.

At the start of the month, munis were seeing a loss of 2.22% year-to-date and “there was some talk that we could end the year negatively for the second consecutive year,” he said.

This, though, “appears to be averted,” Wong said.

The last time the market saw losses in December was in 2013 when munis were down just 0.26%.

Since Nov. 1, muni yields “have fallen an average of 63 basis points across the curve, giving us one of the strongest month-to-date returns for the year,” Wong said.

While USTs ended the week with slightly higher yields, AAA tax-exempt muni yields were six to 10 basis points firmer, “bull steepening slightly as demand continues to favor the front end,” said Matt Fabian, a partner at Municipal Market Analytics.

“Which is consistent with trading flows dominated by small lot sizes: reasonably retail continuing to harvest tax losses and/or reinvest despite the holiday-shortened week,” he said.

With the continued rally in munis, they also continued to outperform USTs, pushing muni-UST ratios lower.

The five-, 10- and 30-year muni-UST ratios closed last week at their richest levels of the last 90 days, noted CreditSights strategists Pat Luby and Sam Berzok.

Muni-UST ratios fell slightly Monday, with the two-year muni-to-Treasury ratio at 62%, the three-year at 64%, the five-year at 64%, the 10-year at 66% and the 30-year at 88%, according to Refinitiv Municipal Market Data’s 3 p.m., ET, read. ICE Data Services had the two-year at 62%, the three-year at 62%, the five-year at 62%, the 10-year at 65% and the 30-year at 85% at 3:30 p.m.

However, CreditSights strategists don’t believe rich ratios mean muni investors should be holding off on putting money to work.

When compared to comparably rated corporate bonds, tax-exempts are “indeed generally too rich to appeal to corporate investors subject to the 21% federal corporate income tax rate, but for high tax bracket individual investors, there is good relative value available in tax-exempts, with better incremental yield available in single-A rather than double-A bonds,” they said,

“And although municipal AAA tax-exempt benchmarks now approximate or exceed levels of relative richness last seen before the Fed started raising its target rate, there is no reason these could not rally further if UST demand is slower to emerge,” Fabian said.

Last week also marked a return of inflows as investors added $292.5 million to muni mutual funds for the week ending Wednesday, according to LSEG Lipper. This came after $234.9 million of outflows the week prior.

High-yield saw inflows of $126.4 million after $33.7 million of inflows the week prior.

Before last week, the recent string of outflows could mostly be attributed due to tax-loss swaps, CreditSights strategists said.

They expect most of the swaps will be completed within the next several weeks, but they would be surprised if mutual fund flows turn “significantly positive” before January.

However, “if fund flows can remain sustainably positive into year-end, municipal prices will be pressured to keep rising absent a compelling argument for the opposite,” Fabian said.

With the holiday-shortened week last week, secondary trading was around $28.2 billion for the week with about 54% of trades being dealer sells, Wong said.

Clients put up only $3.43 billion for the bid, with the largest volume of bids-wanted seen on Tuesday, according to Bloomberg.

Secondary trading
Utah 5s of 2024 at 3.24%. Georgia 5s of 2025 at 3.08% versus 3.09% Wednesday and 3.19% on 11/15. Washington 5s of 2025 at 3.14%.

Tennessee 5s of 2027 at 2.94% versus 2.97% Friday and 3.18% on 11/14. Tahoma School District No. 409, Washington, 5s of 2028 at 2.90%. Gaston County, North Carolina, 5s of 2029 at 2.89%.

Alabama 5s of 2031 at 2.95%. California 5s of 2033 at 2.93%-2.90% versus 3.01% on 11/20 and 3.05% on 11/17. Massachusetts 5s of 2036 at 3.28% versus 3.30%-3.28% Wednesday and 3.35%-3.30% Tuesday.

NYC TFA 5s of 2045 at 4.00%. Massachusetts 5s of 2051 at 4.26% versus 4.29% Tuesday.

AAA scales
Refinitiv MMD’s scale was bumped two to four basis points: The one-year was at 3.19% (-2) and 3.05% (-4) in two years. The five-year was at 2.83% (-4), the 10-year at 2.90% (-4) and the 30-year at 3.98% (-2) at 3 p.m.

The ICE AAA yield curve was bumped one to three basis points: 3.19% (-2) in 2024 and 3.07% (-2) in 2025. The five-year was at 2.83% (-3), the 10-year was at 2.93% (-2) and the 30-year was at 3.93% (-1) at 3:30 p.m.

The S&P Global Market Intelligence municipal curve was bumped three basis points: The one-year was at 3.14% (-3) in 2024 and 3.01% (-3) in 2025. The five-year was at 2.87% (-3), the 10-year was at 2.94% (-3) and the 30-year yield was at 3.95% (-3), according to a 3 p.m. read.

Bloomberg BVAL was bumped three to four basis points: 3.12% (-3) in 2024 and 3.05% (-3) in 2025. The five-year at 2.82% (-3), the 10-year at 2.90% (-4) and the 30-year at 3.93% (-3) at 3:30 p.m.

Treasuries were firmer.

The two-year UST was yielding 4.891% (-6), the three-year was at 4.603% (-6), the five-year at 4.412% (-7), the 10-year at 4.388% (-8), the 20-year at 4.723% (-8) and the 30-year Treasury was yielding 4.529% (-7) at 3:30 p.m.

Primary to come:
The New York Transportation Development Corp. (Baa3//BBB-/BBB-/) is set to price Wednesday $1.5 billion of green AMT John F. Kennedy International Airport New Terminal One Project special facilities revenue bonds, Series 2023, serials 2038-2044, terms 2049, 2054, 2060. Citigroup Global Markets.

The Los Angeles Community College District (Aaa/AA+//) is set to price Thursday $575 million of tax-exempt GOs, consisting of $174 million of Series M, serials 2024-2038, and $400 million of Series D, serials 2024-2030. BofA Securities.

The Virginia Housing Development Authority (Aaa/AAA//) is set to price Tuesday $505 million of commonwealth mortgage bonds, consisting of $50 million of non-AMT bonds, Series 2023C, serials 2025-2035, terms 2038, 2043, 2048, 2054; $100 million of taxables, Series 2023D, serials 2025-2033, terms 2038, 2043, 2048, 2054; $200 million of non-AMT bonds, Series E1, serial 2055; and $155 million of non-AMT bonds, Series 2023E-2, serial 2055. Wells Fargo Bank.

Miami-Dade County, Florida (A3//A/), is set to price Thursday $455.110 million of taxable seaport revenue bonds, Series 2023, serials 2026-2038, term 2055. Stifel, Nicolaus & Co.

The Massachusetts Development Finance Agency (A3/A//) is set to price Tuesday $400 million of Beth Israel Lahey Health issue revenue bonds, consisting of $200 million of Series M-1 and $200 million of Series M-2. Goldman Sachs.

The Ohio Water Development Authority is set to price Wednesday $300 million of green Water Pollution Control Loan Fund revenue bonds, Series 2023C, serials 2027-2033. Citigroup Global Markets.

The Economic Development Authority of the Isle Of Wight County, Virginia (A1/AA//), is set to price Wednesday $273.075 million of Riverside Health System health system revenue bonds, Series 2023, serials 2026-2033, terms 2043, 2048, 2053, insured by Assured Guaranty Municipal Corp. KeyBanc Capital Markets.

Utah Housing Corp. (Aa2///) is set to price Wednesday $232.380 million of single-family mortgage bonds, consisting of $108.145 million of non-AMT refunding bonds, 2024 Series A, and $124,235 million of taxables, 2024 Series B. Jefferies.

The Idaho Housing And Finance Association (Aa1///) is set to price Wednesday $205.115 million of taxable single-family mortgage bonds, 2023 Series E, serials 2024-2033, terms 2039, 2044, 2049, 2054, 2054. Barclays.

Manatee County, Florida (Aaa//AA+/) is set to price Thursday $175 million of revenue improvement bonds, serials 2026-2043, terms 2048, 2053. BofA Securities.

The Palm Beach County School Board, Florida (Aa3//AA-/) is set to price Tuesday $149.525 million of certificates of participation, Series 2023A, serials 2032-2040. BofA Securities.

The Ohio Housing Finance Agency (Aaa///) is set to price Thursday $130 million of taxable social Mortgage-Backed Securities Program residential mortgage revenue bonds, 2023 Series C, J.P. Morgan Securities.

King County, Washington (Aaa/AAA/AAA/) is set to price Wednesday $126.410 million of taxable social limited tax GOs, Series 2023C. Morgan Stanley.

The Fort Bend County Public Facilities Corp., Texas (Aa2//AA/), is set to price Thursday $107.230 million of lease revenue bonds, Series 2023, serials 2025-2053. Raymond James & Associates.

EP Tuscany Zaragosa PFC, Texas (/A+//) is set to price Wednesday $101,005 million of HOME Essential Function Housing Program Project residential development revenue bonds, Series 2023, serial 2033. KeyBanc Capital Markets.

Competitive
Illinois (A3/A-/A-/) is set to sell $175 million of taxable GOs, Series of December 2023A, at 10:15 a.m. eastern Tuesday; $350 million of GOs, Series of December 2023B, at 10:45 a.m. Tuesday; and $350 million of GOs, Series of December 2023C, at 11:15 a.m. Tuesday.

Alexandria, Virginia, (Aaa/AAA//) is set to sell $253.545 million of GO capital improvement bonds at 10:30 a.m. Wednesday.

Westchester County, New York, is set to sell $125.469 million of GOs, 2023 Series A, at 11 a.m. Thursday; $27.468 million of GOs, 2023 Series B1, at 11:15 a.m. Thursday; $34.035 million of taxable GOs, 2023 Series C, at 11:30 a.m. Thursday; and $15.625 million of taxable GOs, 2023 Series D, at 11:45 a.m. Thursday.

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