Bonds

Municipals were steady Monday, while U.S. Treasuries were little changed, and equities ended down.

The two-year muni-Treasury ratio Monday was at 67%, the three-year at 69%, the five-year at 70%, the 10-year at 70% and the 30-year at 90%, according to Refinitiv MMD’s 3 p.m. read. ICE Data Services had the two-year at 66%, the three-year at 69%, the five-year at 68%, the 10-year at 70% and the 30-year at 92% at 4 p.m.

Munis ended May with a “firmer tone narrowly missing out on having one of the worst months of May in nearly two decades,” said Jason Wong, vice president of municipals at AmeriVet Securities.

Munis were down 0.87% to end the month, and “at its lowest peak, munis were down 1.38% in May,” he said.

Year-to-date, munis are up 2.03%. At this time last year, munis were down 7.37%.

“With June being a big period for reinvestment, we could see munis take a firmer tone but we still have to wait and see if the Fed will continue to raise rates once again,” Wong said.

With Friday’s jobs report coming in higher than expected, he said there may be another rate hike during the next two Federal Open Market Committee meetings.

Following two consecutive weeks of rising yields, muni yields were “firmer for the week as yields fell an average of 11.7 basis points for the week with 10-year notes falling by 11.4 basis points this past week to 2.57%,” he said.

Last week, munis underperformed “the Treasury market across the curve through Thursday with yields lower just 13bps,” according to Birch Creek strategists.

However, they said Friday’s rally “in the front end helped pull shorter maturity munis ahead.”

Despite investors pulling $1.3 billion from muni mutual funds for the week ending Wednesday, according to Refinitiv Lipper, Birch Creek strategists said the Treasury rally and influx of cash on June 1 helped buoy munis.

Secondary trading was over $33.25 billion last week with 58% of the trading being dealer sells, Wong said.

“Clients put up roughly $4.9 billion up for the bid with [Wednesday] having the largest volume of bids-wanted with $1.5 billion,” Wong said.

Birch Creek strategists said there was an increase in activity as the week progressed, especially after the pricing of new issues.

“Many high-grade deals came at concessions and were significantly oversubscribed, which led buyers to comb through the secondary to add paper,” Birch Creek strategists noted.

Separately managed accounts led the front-end outperformance, they said.

Longer maturity buyers, they noted, “were a little more patient, especially in light of the continued [Federal Deposit Insurance Corp.] bid lists.”

That said, Birch Creek strategists said that there has been “shrinking interest in the FDIC process as spreads continue to trade tighter and there have been fewer opportunities to pick up bargains.”

Long-duration buyers have found opportunity rotating out of “4% coupons that are now approaching par again and into better convexity 3s and 5s,” they said.

Munis see a disappointing month in May
Despite May volume falling 29% year-over-year, Jeff Lipton, managing director of credit research at Oppenheimer, said in one of the worst performing months in over three decades, “munis lost 87 basis points last month … yet outperformed the 116-basis point and 145-basis point losses posted by UST and corporates respectively.”

Muni performance last month “would have been meaningfully worse had supply taken on a more normal trajectory,” Lipton said.

“Admittedly, we were posturing for better May performance but the debt ceiling debate took on a life of its own,” Lipton said.

Munis seem to be “enjoying some early-June bumps along the curve,” he said.

For most of May, market participants expected “a technical shift in the muni market projected to deliver stronger performance,” according to Lipton.

“We are keeping our fingers crossed that our expectations come to fruition,” he said.

Through May, “the debt ceiling saga and concern over tighter monetary policy fostered higher absolute muni yields, escorted by advancing UST yields, and more attractive ratios, which advanced from their yearly lows,” he said.

“What had previously been overbought and rich areas of the muni market, are now offering better entry points to lock in higher cash flows and potentially stronger portfolio returns should yields demonstrate meaningful contraction,” he noted.

Secondary trading
North Carolina 5s of 2024 at 3.15%-3.11% versus 3.32%-3.31% on 5/23. Massachusetts 5s of 2024 at 3.09% versus 3.27%-3.05% on 5/25. DC 5s of 2024 at 3.18%.

Washington 5s of 2028 at 2.72%. Georgia 5s of 2028 at 2.65%. Louisiana 5s of 2029 at 2.75%-2.73%.

DASNY 5s of 2033 at 2.50% versus 2.56%-2.55% Friday and 2.60% Thursday. LA DWP 5s of 2034 at 2.57%-2.56% versus 2.55% Thursday and 2.66% Wednesday. Maryland 5s of 2036 at 2.96% versus 2.88% Friday.

California 5s of 2042 at 3.37%. NYC TFA 5s of 2046 at 3.84%. Crosby ISD, Texas, 4s of 2046 at 4.14% versus 4.11% Friday and 4.26% on 5/24.

AAA scales
Refinitiv MMD’s scale was unchanged: The one-year was at 3.13% and 2.99% in two years. The five-year was at 2.66%, the 10-year at 2.59% and the 30-year at 3.50% at 3 p.m.

The ICE AAA yield curve was bumped up to two basis points: 3.15% (-2) in 2024 and 3.00% (-1) in 2025. The five-year was at 2.65% (flat), the 10-year was at 2.59% (-1) and the 30-year was at 3.55% (flat) at 4 p.m.

The IHS Markit municipal curve was unchanged: 3.12% in 2024 and 2.99% in 2025. The five-year was at 2.66%, the 10-year was at 2.58% and the 30-year yield was at 3.49%, according to a 4 p.m. read.

Bloomberg BVAL was little changed: 3.05% (+1) in 2024 and 2.95% (+1) in 2025. The five-year at 2.63% (unch), the 10-year at 2.56% (+1) and the 30-year at 3.53% (unch) at 4 p.m.

Treasuries were little changed.

The two-year UST was yielding 4.483% (-1), the three-year was at 4.127% (-1), the five-year at 3.832% (flat), the 10-year at 3.698% (+1), the 20-year at 4.044% (+1) and the 30-year Treasury was yielding 3.894% (+2) at 4 p.m.

Primary to come
The California Community Choice Financing Authority (A2///) is slated to kick off this week’s negotiated activity with $900 million of Series 2023 D clean energy project revenue green bonds on Tuesday. Goldman Sachs.

The Indiana Finance Authority (Aa2/AA/AA/) is set to price $735.260 million of health system revenue bonds on behalf of Indiana University Health — $335.260 million of Series 2023A fixed rate bonds, $300 of Series 2023B long-term rate bonds and $100 million of Series 2023C FRN rate bonds. Serials 2041 to 2043; terms in 2046, 2053, 2062. Citigroup Global Markets.

The Port Authority of New York and New Jersey (Aa3/AA-/AA-/) is set to price $715 million of bonds — $465 million of 239th series taxable consolidated bonds and $250 million of 238th AMT Series bonds on Tuesday. Citigroup Global Markets.

Los Angeles County, California, is slated to price $700 million of tax and revenue anticipation notes on Wednesday. Serial 2024. Citigroup Global Markets.

The New York City Housing Development Corp. (Aa2/AA+//) is slated to price $641.750 million of multifamily housing revenue sustainable development bonds on Thursday, with a retail order period on Wednesday. Serials 2026 to 2035; terms 2038, 2043, 2048, 2053, 2058, and 2063. Barclays Capital.

The Colorado Health Facilities Authority (Aa2/AA/AA/) is set to price $286.175 million of Series 2023 hospital revenue bonds for AdventHealth Obligated Group on Tuesday. J.P. Morgan.

The Metropolitan Water District of Southern California (Aa1/AAA//) is set to price $261.125 million of Series 2023 A water revenue and refunding bonds on Wednesday. Serials 2024 to 2043; terms in 2048 and 2053. Siebert Williams Shank & Co.

The Orlando Utilities Commission (Aa2/AA/AA/) is set to price $247.110 million of Series 2023 utility system revenue bonds on Tuesday. J.P. Morgan.

The Pasco, Washington, School District No. 1 (Aaa///) is set to price $217.240 million of unlimited tax GO improvement and refunding bonds insured by the Washington State School District Credit Enhancement Program on Wednesday. Piper Sandler & Co.

The Texas Department of Housing and Community Affairs (Aaa/AA+//) is set to price $200 million of Series 2023 A non-AMT single family mortgage revenue bonds on Tuesday, following a retail order period on Monday. Barclays Capital.

The Sacramento, California, Municipal Utility District (/AA/AA/) is slated to price $200 million of Series 2023 K electric revenue green bonds that are climate bond certified on Tuesday. Serials 2037 to 2043; terms 2048 and 2053. BofA Securities.

It’s also set to price $100 million of Series 2023 D subordinated electric revenue refunding bonds (/AA-/AA/) on Tuesday. Barclays Capital.

The Pittsburgh, Pennsylvania, Water and Sewer Authority (A3/A+//) is set to price $176.285 million of Series 2023 A water and sewer system first lien revenue bonds and Series 2023 B water and sewer system first lien revenue refunding bonds on Wednesday. Serials 2024 to 2043. BofA Securities.

The Dallas Housing Finance Corp. is set to price $118.755 million of Series 2023 A and Series 2023 B residential development revenue bonds next week. Goldman Sachs.

Harris County, Texas, (Aa2//AA/) is set to price $117.880 million of Series 2023 A toll road first lien revenue refunding bonds on Wednesday. Serial bonds 2026 to 2035. HilltopSecurities.

The Connecticut Health and Educational Facilities Authority (Aaa/AAA//) is slated to price $112.100 million of Yale University revenue bonds Series 2017 B-2 on Monday. Barclays Capital.

Competitive
Prince George’s County, Maryland, (Aaa/AAA/AAA/) is set to sell $226.15 million of 2023 A general obligation consolidated public improvement and refunding bonds on Wednesday. Serials 2024 to 2043. 

The Virginia Transportation Board (Aa1/AA+/AA+/) is set to sell $220.720 million of 2023 transportation revenue bonds on Wednesday on behalf of the U.S. Route 58 Corridor Development Project. Serial bonds 2024 to 2048. 

Arlington County, Virginia, is set to sell $187.375 million of Series 2023 GO public improvement bonds on Tuesday.

The Corpus Christi, Texas, Independent School District is slated to sell $110 million of Series 2023 unlimited tax school building bonds on Thursday. Serials 2028 to 2053.

The Louisiana Public Facilities Authority is slated to sell $105 million of hospital revenue bonds on behalf of the Louisiana Children’s Medical Center Project on Tuesday.

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