Bonds

Municipals were steady in secondary trading Wednesday as the competitive market saw the states of Washington and Delaware price large general obligation bond deals. U.S. Treasuries were weaker in most spots and equities ended mixed.

The two-year muni-Treasury ratio Monday was at 66%, the three-year at 68%, the five-year at 68%, the 10-year at 68% and the 30-year at 91%, according to Refinitiv MMD’s 3 p.m. ET read. ICE Data Services had the two-year at 67%, the three-year at 69%, the five-year at 67%, the 10-year at 69% and the 30-year at 93% at 4 p.m.

The Investment Company Institute reported investors pulled $377 million from to mutual funds in the week ending April 12, after $229 million of inflows the previous week. Exchange-traded funds saw outflows of $716 million after $38 million of outflows the week prior, per ICI data.

A solid tone was evident in the municipal market on Wednesday, according to Tom Kozlik, head of public policy and municipal strategy at Hilltop Securities Inc.

“Investors are putting money to work, and maybe some like the slightly better technical backdrop,” he said Wednesday.

It was a big day in the competitive market with bellwether Washington and Delaware selling general obligation bonds.

As such, secondary volume “is competing for attention with new issues but the main theme continues to be a curve inversion and flattening,” said Kim Olsan, senior vice president of municipal bond trading at FHN Financial.

Generic one-year “AAA spots have faded nearly 50 basis points this month while intermediate and long yields are up by fewer than 10 basis points,” she said.

The inversion of the curve “is deepening in the 1-10 year range — the 5s1s slope has moved to negative 41 basis points, well away from the +10 basis point curve average of the last year,” she said.

The average slope is +21 basis points over a five-year period, she said.

The 10s5s slope “sits slightly negative against a +37 basis point average since 2018,” according to Olsan. The back half of the curve, though, “has developed with interesting value [as] the 30s10s curve is 104 basis points against an annual average slope of 72 basis points (20-year bonds offer 82 basis points extension value to 10 year bonds).”

Across the entire curve, she said “the slope is at its flattest since 2018 at just 42 basis points.”

Over a wider horizon since 2000, Olsan said “the flattest 1-30 year curve was 39 basis points (in 2007).”

Buyer preferences, meanwhile, “favor name diversity at the upper rating echelons,” according to Olsan.

Investors had their pick of those names in the competitive market Wednesday.

Washington (Aaa/AA+/AA+/) sold $509.680 million of motor vehicle fuel tax and vehicle-related fees general obligation refunding bonds, Series R-2023B, to Morgan Stanley, with 5s of 7/2023 at 3.00%, 5s of 2028 at 2.42%, 5s of 2033 at 2.45%, 5s of 2038 at 3.10% and 5s of 2042 at 3.32%, callable 7/1/2033.

The state also sold $327.320 million of various purposed general obligation refunding bonds, Series R-2023A, Bid Group 1, to BofA Securities, with 5s of 8/2023 at 2.90% and 5s of 2028 at 2.36%, noncall.

Additionally, Washington sold $289.260 million of various purposed general obligation refunding bonds, Series R-2023A, Bid Group 2, to BofA Securities, with 5s of 8/2029 at 2.36% and 5s of 2033 at 2.45%, noncall.

The state sold $206.320 million of various purposed general obligation refunding bonds, Series R-2023A, Bid Group 3, to BofA Securities, with 5s of 8/2034 at 2.50% and 5s of 2038 at 3.05%, callable 8/1/2033, as well.

Delaware (Aaa/AAA/AAA/) sold $362.840 million of GOs, Series 2023A, to BofA Securities, with 5s of 5/2024 at 2.93%, 5s of 2028 at 2.31%, 5s of 2033 at 2.34%, 5s of 2038 at 2.91% and 4s of 2043 at 3.70%, callable 5/1/2033.

The state also sold $34.115 million of GO refunding bonds, Series 2023B, to BofA Securities, with 5s of 8/2024 at 2.93% and 5s of 2026 at 2.50%, noncall.

In the negotiated market, BofA Securities priced for the Illinois State Toll Highway Authority (Aa3/AA-/AA-/) $500 million of toll highway senior revenue bonds, 2023 Series A, with 5s of 1/2041 at 3.66%, 5s of 2043 at 3.73% and 5s of 2045 at 3.80%, callable 7/1/2033.

Ramirez & Co. priced for the Ohio Water Development Authority (Aaa/AAA//) $336.660 million of Water Pollution Control Loan Fund refunding revenue bonds, Series 2023A, with 5s of 6/2024 at 3.00%, 5s of 6/2028 at 2.45%, 5s of 12/2028 at 2.45% and 5s of 12/2032 at 2.47%, noncall.

Siebert Williams Shank & Co. priced for Hartford, Connecticut, (Aa3/AA-//) $124.950 million of special obligation refunding bonds, Series 2023, with all bonds pricing at par: 3.09s of 4/2024, 2.62s of 2028 and 2.7s of 2033, noncall.

Wells Fargo Bank priced for the Virginia Port Authority (Aa1/AA+/AA+/) $201.465 million of non-AMT Commonwealth Port Fund revenue bonds. The first tranche, $149.145 million of new bonds, Series 2023A, saw 5s of 7/2032 at 2.55%, 5s of 2033 at 2.58%, 5s of 2038 at 3.15%, 5s of 2043 at 3.47% and 5.25s of 2048 at 3.65%, callable 7/1/2033.

The second tranche, $52.320 million of refunding bonds, Series 2023B, saw 5s of 7/2028 at 2.46%, 5s of 2033 at 2.58% and 4s of 2036 at 3.20%, callable 7/1/2033.

Despite the robust demand for state credits and highly rate issuers, credit quality is of rising concern among some municipal market watchers, according to Kozlik.

He said HilltopSecurities lowered its state government sector outlook to stable from positive in January.

“Not because we expected credit deterioration, but because we thought that state government credit quality likely peaked,” he said. “What we have seen since January has reinforced our stance.”

Local government credit quality, on the other hand, is faring much better, Kozlik noted.

“Our local government sector outlook remains positive because we continue to believe there are more credit upgrades than downgrades in store for that sector in 2023,” he said.

Secondary trading
California 5s of 2024 at 2.80%-2.89% versus 2.84%-2.80% on 4/20 and 2.45% original on 4/6. Washington 5s of 2025 at 2.75%-2.79% versus 2.80% Tuesday. Maryland 5s of 2026 at 2.58%-2.55% versus 2.55% Tuesday.

Oregon 5s of 2028 at 2.40%. Connecticut 5s of 2029 at 2.46%. Indiana Finance Authority 5s of 2029 at 2.44%.

Wisconsin 5s of 2032 at 2.40% versus 2.43% Friday. University of California 5s of 2035 at 2.45%-2.44%. California 5s of 2035 at 2.62%-2.63% versus 2.74% on 4/20 and 2.58%-2.46% original on 4/6.

Illinois Finance Authority 5s of 2051 at 4.27%-4.20%. LA DWP 5s of 2052 at 3.64%-3.63%.

AAA scales
Refinitiv MMD’s scale was unchanged: The one-year was at 2.95% and 2.61% in two years. The five-year was at 2.36%, the 10-year at 2.33% and the 30-year at 3.37% at 3 p.m.

The ICE AAA yield curve was bumped up to one basis point: 2.90% (-1) in 2024 and 2.64% (-1) in 2025. The five-year was at 2.33% (flat), the 10-year was at 2.31% (flat) and the 30-year was at 3.37% (-1) at 4 p.m.

The IHS Markit municipal curve was unchanged: 2.91% in 2024 and 2.61% in 2025. The five-year was at 2.36%, the 10-year was at 2.33% and the 30-year yield was at 3.38%, according to a 4 p.m. read.

Bloomberg BVAL was little changed: 2.75% (unch) in 2024 and 2.62% (unch) in 2025. The five-year at 2.30% (unch), the 10-year at 2.31% (unch) and the 30-year at 3.38% (unch) at 4 p.m.

Treasuries were weaker in most spots.

The two-year UST was yielding 3.939% (-1), the three-year was at 3.647% (+4), the five-year at 3.489% (+4), the seven-year at 3.465% (flat), the 10-year at 3.442% (+4), the 20-year at 3.819% (+5) and the 30-year Treasury was yielding 3.814% (+4) at 4 p.m.

Primary to come
Columbus, Ohio, (Aaa/AAA/AAA/) is set to price Thursday $441.760 million of tax-exempt and taxable GOs, consisting of $320.215 million of Series 2023A, serials 2024-2043; $25.125 million of Series 2023B, serials 2024-2038; $23.960 million of Series 2023C, serials 2024-2041; $51.750 million of Series 2023D, serials 2024-2038; $5.325 million of Series 23-1, serials 2025, 2029; and $15.385 million of Series 23-2, serials 2024, 2026-2029. BofA Securities.

The Greater Asheville Regional Airport Authority (Baa2///A+/) is set to price Thursday $175 million of AMT airport system revenue bonds, Series 2023, serials 2027-2043, terms 2048, 2053. Siebert Williams Shank & Co.

Competitive
Nassau County, New York, (Aa3/AA-/A+/) is set to sell $154.68 million of general improvement bonds at 10 a.m. eastern Thursday.

Primary on Tuesday
Wells Fargo Bank priced for the Southern California Public Power Authority (Aa2//AA-/) $431.500 million of Southern Transmission System Renewal Project revenue bonds, Series 2023-1A, with 5s of 7/2029 at 2.33%, 5s of 2033 at 2.42%, 5s of 2038 at 3.11%, 5s of 2043 at 3.46%, 5s of 2048 at 3.65% and 5s of 2053 at 3.67%, callable 7/1/2033.

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