Bonds

Municipals were steady Monday ahead of the Federal Open Market Committee meeting, while U.S. Treasury yields rose as investors considered the stability of the banking sector. Equities ended up.

Triple-A benchmarks were little changed, no more than a basis point or two, while U.S. Treasury yields rose five to 12 basis points.

The two-year muni-UST ratio was at 63%, the three-year at 63%, the five-year at 65%, the 10-year at 68% and the 30-year at 93%, according to Refinitiv MMD’s 3 p.m. ET read. ICE Data Services had the two at 61%, three at 61%, the five at 63%, the 10 at 69% and the 30 at 95% at 4 p.m.

The banking sector crisis, which erupted with the collapse of Silicon Valley Bank and resurfaced with the struggles of Credit Suisse, sent USTs on a flight-to-quality bid last week.

“The two-year plummeted by well over 100 basis points [since March 8], after the short benchmark attained a multiyear high of 5.08% during [Federal Reserve Board] Chair [Jerome] Powell’s semi-annual testimony,” said Jeff Lipton, managing director of credit research at Oppenheimer Inc.

Munis joined “the flight-to-quality bandwagon with 10- and 30-year AAA benchmark yields dropping by 23 and 16 basis points respectively,” he said.

“Price advances have been more pronounced on the short-end of the muni curve as yields on the one- and two-year tenors declined by 40 and 39 basis points respectively,” he noted.

The more significant “pull-back on short-term yields reflects the heavier sell-off previously witnessed along the short-end, which has preserved the muni curve inversion,” Lipton said.

Following movements in the Treasury market, he expects “the muni curve to steepen, yet such trajectory may be short-lived.”

Last week, “with many buyers choosing to move to the front end of the curve, we did see the muni curve steepen this past week by 20.6 basis points to 93 basis points,” said Jason Wong vice president of municipals at AmeriVet Securities.

“Markets, in general, remain volatile due to banking sector concerns,” said Nuveen strategists Anders S. Persson and John V. Miller.

Some investors, they said, “believe banks may be forced to sell municipal holdings and use the cash to shore up their balance sheets.”

At this time, the Nuveen strategists “see no credit issues appearing in municipals as an asset class.”

“Banks would be selling to raise liquidity to meet customers’ withdrawal demands,” they said. “With excess cash on the sidelines waiting to be invested, we would see any municipal sell off as a potential buying opportunity.”

Overall, the flight-to-quality has largely overshadowed muni market technicals, macro themes, and the inflation story,” according to Lipton.

“Trading totaled roughly $37.6 billion for the week with about 53% of trades being clients sells,” Wong said.

There was an “uptick in bids-wanted last week, with clients putting $5.1 billion up for the bid compared to $4.9 billion from the prior week,” he said. Wong said there are “larger than average bids-wanted as volatility continues to affect the markets.”  

Despite munis being firmer for the last couple of weeks, he said, investors continue to “pull money out of muni bond funds.” Investors pulled about $461 million from muni bond funds last week, following the previous week’s outflow of $308 million, per Refinitiv Lipper.

Wong said investors have “added roughly $1.77 billion to muni funds this year.”

Technicals, he said, “have improved somewhat with a net negative supply forecasted over the next 30 days,” per Bloomberg data.

This week’s “calendar is expected to be lighter given the banking uncertainty and the FOMC meeting,” Lipton said.

He said the “supply backdrop could produce a stronger primary bid.”

“With retail having a discerning eye and thinning product availability expected, meaningful cash deployment will likely encounter headwinds,” he said. “We expect any ensuing selling pressure to be more aligned with rate uncertainty as opposed to fundamental concerns and April 15 tax-related liquidations.”

Secondary trading
California 5s of 2024 at 2.44%. Midland, Texas, 5s of 2025 at 2.63%-2.62%. Fairfax County, Virginia, 5s of 2025 at 2.55%.

Maryland 5s of 2029 at 2.36%-2.35%. Seattle 5s of 2029 at 2.34% versus 2.36%-2.35% Friday and 2.51% on 3/14. NYC 5s of 2030 at 2.45%-2.42%.

Oregon 5s of 2033 at 2.47% versus 2.60% original on Thursday. NYC Municipal Water Finance Authority 5s of 2034 at 2.69% versus 2.64% Thursday and 2.99%-3.04% original on 3/9. Maryland 5s of 2035 at 2.62% versus 2.62% Thursday.

Texas Water Development Board 5s of 2047 at 3.74%-3.73%. San Diego County Water Authority 5s of 2052 at 3.65%. Triborough Bridge and Tunnel Authority 5s of 2053 at 3.96%-3.95% versus 4.16% original on 3/10.

AAA scales
Refinitiv MMD’s scale was bumped up to two basis points. The one-year was at 2.51% (-2) and 2.51% (-2) in two years. The five-year was at 2.35% (unch), the 10-year at 2.38% (unch) and the 30-year at 3.42% (unch) at 3 p.m.

The ICE AAA yield curve was cut up to two basis points: 2.54% (flat) in 2024 and 2.54% (flat) in 2025. The five-year was at 2.34% (flat), the 10-year was at 2.39% (flat) and the 30-year yield was at 3.47% (+2) at 4 p.m.

The IHS Markit municipal curve was bumped up to two basis points: 2.53% (-2) in 2024 and 2.51% (-2) in 2025. The five-year was at 2.34% (unch), the 10-year was at 2.38% (unch) and the 30-year yield was at 3.40% (unch) at a 4 p.m. read.

Bloomberg BVAL was little changed: 2.55% (-1) in 2024 and 2.50% (-1) in 2025. The five-year at 2.33% (unch), the 10-year at 2.38% (unch) and the 30-year at 3.40% (+1).

Treasuries were weaker.

The two-year UST was yielding 3.961% (+12), the three-year was at 3.795% (+8), the five-year at 3.589% (+11), the seven-year at 3.567% (+8), the 10-year at 3.486% (+6), the 20-year at 3.842% (+5) and the 30-year Treasury was yielding 3.675% (+5) at 4 p.m.

Primary to come:
The negotiated calendar is led by a $1.491 billion sale from the Louisiana Local Government Environmental Facilities and Community and Development Authority. The deal, which is rated triple-A by both Moody’s Investors Service and S&P Global Ratings, consists of system restoration bonds for the Louisiana Utilities Restoration Corp. Project/ELL. The Series 2023 taxable deal is being senior managed by J.P. Morgan Securities.

Energy Southeast, Alabama, will sell $846.880 million of energy supply revenue bonds in a two-pronged financing that is slated for pricing by Morgan Stanley & Co. Series 2023 A-1 fixed rate bonds totals $746.880 million, while Series 2023 A-2 Secured Overnight Financing Rate index bonds totals $100 million. Both series are rated A1 by Moody’s and A-plus by Fitch Ratings.

A $502.7 million sale of affordable housing revenue bonds is on tap on Tuesday from the New York State Housing Finance Agency. The Wells Fargo Bank-managed negotiated deal consists of four series of 2023 bonds rated Aa2 by Moody’s.

Series A-1 $111.200 million of climate bond certified/sustainability bonds, while Series B-1 consists of sustainability bonds totaling $34.874 million — both series maturing serially from 2024 to 2035 with terms in 2038, 2043, 2048, 2053, 2058. Series A-1 also has a 2063 term bond.

Series A-2 is $230.915 million of climate bond certified/sustainability bonds and Series B-2 consists of $125.725 million of sustainability bonds — both maturing in 2062. 

A $250 million sale of solid waste disposal and sewage facilities revenue bonds is being sold by Cascade County, Montana, on Tuesday. The bonds, which are rated B-minus by S&P, are green bonds for the Montana Renewables LLC project and are being senior managed by Citigroup Global Markets.

Birmingham Public Schools in Oakland County, Michigan, plan to sell $117.5 million sale of school building and site and refunding bonds backed by unlimited tax general obligation bonds.

The refunding is rated AA-plus by S&P and will be structured as serial bonds maturing from 2024 to 2043. The bonds will be priced by bookrunner Stifel, Nicolaus & Co.

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