Bonds

Municipals were firmer in spots, while U.S. Treasuries were weaker on the front end of the curve and equities closed the session in the black.

Triple-A benchmarks were bumped up to five basis points on the short end, depending on the scale, while UST yields rose up to four basis points 10 years and in.

The two-year muni-Treasury ratio Tuesday was at 66%, the three-year at 68%, the five-year at 69%, 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 67%, the 10-year at 70% and the 30-year at 91% at 4 p.m.

Cheaper yields and the start of a new month is kicking off a brisk pace on the buy-side, according to two municipal experts.

“June started out fairly strong for the municipal market as the relative cheapness attracted investors looking for an opening to start buying bonds at higher yields,” Roberto Roffo, managing director and portfolio manager at SWBC Investment Company, said on Tuesday.

The technical outlook for the market is positive as lower issuance and significant cash balances from reinvestments could provide a ceiling for municipal bonds in the near term, Roffo suggested. 

“Investors are finding value in municipal bonds as tax-equivalent yields on a risk-adjusted basis are attractive compared to taxable bonds,” he said.  

While Roffo said the outlook for fixed income is a bit cloudy at the moment due to the uncertainty of further interest rate hikes from the Federal Open Market Committee, he said investors seem to be positioning portfolios for a weaker economy and falling interest rates going forward. 

With municipal ratios cheapening up leading into this week, that gave a lift to the reinvestment season, according to Chris Brigati, senior vice president and managing director of municipals at Valley National Bank.

“Deal participation and follow through seems to be quite strong as reinvestment cash is not bashful about being put to work right now,” Brigati said.

“Supply remains well below 2022 levels and with higher absolute yields and ample cash seeking a home, following a holiday-shortened week, the market should be well-positioned to perform well,” Brigati said.

Going forward, solid demand should chase municipal paper, especially in the relatively attractive front end of the yield curve, he noted.

“Typically, municipals have exhibited more reinvestment demand than new supply during the summer months,” he said. “With the lighter new-issue volume thus far in 2023, and little evidence that there will be a sudden increase in supply, I see no reason for this dynamic to change.

“Following one of the worst performance months of May, I expect June to demonstrate notable outperformance to retrace some of the prior underperformance,” Brigati continued.

Supply-demand remains favorable for good performance and relatively attractive ratios present a backdrop for investors to “buy with confidence,” he said. 

“Broader interest rate moves hinge upon the FOMC rate decision next week, which coincides with the release of May CPI data,” Brigati said. “Should the opportunity present for rates to back-up from current levels, I would expect that would represent a good buying opportunity at relatively attractive yields.”

On June reinvestment, Matt Fabian, a partner at Municipal Market Analytics, said last Thursday and Friday each saw more than $6 billion of net customer buying. This is “the largest two-day start to a monthly reinvestment push” since $13 billion on the first two days of December 2021.

Plus, he said, “that demand seemed to reflect a healthy mix of retail and institutional buyers, which is perhaps more important than usual noting the near dearth of interest, either positive or negative, lately being shown by the mutual funds.

He said suggesting that it is other institutional investors taking down what was around $10 billion in net supply — the primary calendar plus fund outflows.

“Assuming that at least some of these will not be permanent holders of those positions, our market may be relying on continuing positive momentum or be at risk of correction,” according to Fabian.

If the Fed decides “to hold off additional tightening as has been expected,” that could create some positive momentum, he said.

But any rally “will need to endure multiple points of event risk — including rising bank capital requirements (bad for municipals) and higher insurance company premiums (good for municipals),” he said.

In the primary market Tuesday,  Citigroup Global Markets priced for the Indiana Finance Authority (Aa2/AA/AA/) on behalf of Indiana University Health $693.320 million of health system revenue bonds. The first tranche, $282.335 million of fixed-rate bonds, Series 2023A, saw 5s of 10/2041 at 3.89%, 5s of 2043 at 3.98%, 5s of 2046 at 4.11% and 5s of 2053 at 4.25%, callable 10/1/2033.

The second tranche, $185.685 million of long-term rate bonds, Series 2023B-1, saw 5s of 10/2062 with a mandatory tender date of 7/2028 at 3.20%, callable 7/1/2027.

The third tranche, $139.100 million of long-term rate bonds, Series 2023B-2, saw 5s of 10/2060 with a mandatory tender date of 7/2030 at 3.28%, callable 7/1/2029.

The fourth tranche, $86.200 million of long-term rate bonds, Series 2023B-3, saw 5s of 10/2055 with a mandatory tender date of 7/2032 at 3.32%, callable 7/1/2031.

J.P. Morgan priced for the Colorado Health Facilities Authority (Aa2/AA/AA/) on behalf of the AdventHealth Obligated Group $286.445 million of hospital revenue bonds. The first tranche, $116.435 million of Series 2023A-1, saw 5s of 11/2058 with a mandatory tender date of 11/2028 at 3.20%, callable 11/15/2027.

The second tranche, $111.095 million of Series 2023A-2, saw 5s of 11/2057 with a mandatory tender date of 11/2033 at 3.39%, callable 11/15/2032.

The third tranche, $58.915 million of Series 2023 B delayed delivery bonds, saw 5s of 11/2036 with a mandatory tender date of 11/2030 at 3.33%, callable 11/15/2029.

J.P. Morgan priced for the Orlando Utilities Commission (Aa2/AA/AA/) $251.175 million of utility system revenue bonds, Series 2023A, with 5s of 10/2028 at 2.69%, 5s of 2033 at 2.79%, 5s of 2038 at 3.35%, 5s of 2043 at 3.66% and 5s of 2048 at 3.85%, callable 10/1/2033.

Citigroup Global Markets priced for the Port Authority of New York and New Jersey (Aa3/AA-/AA-/) $249.170 million of AMT consolidated bonds, Two Hundred Thirty-Eight Series, with 5s of 5s of 7/2034 at 3.65%, 5s of 2038 at 4.02% and 5s of 2040 at 4.10%, callable 7/15/2033.

Barclays priced for the Texas Department of Housing and Community Affairs (Aaa/AA+//) $200 million of non-AMT single-family mortgage revenue bonds, Series 2023A, with 5.5s of 9/2024 at 3.22%, 5.5s of 3/2028 at 3.22%, 5.5s of 9/2028 at 3.26%, 3.9s of 3/2033 at par, 3.95s of 9/2033 at par, 4.35s of 9/2038 at par, 4.6s of 9/2043 at par, 5.125s of 9/2048 at 4.75%, 5.25s of 9/2053 at 4.80% and 5.75s of 3/2054 at 4.14%, callable 9/1/2032.

BofA Securities priced for the Sacramento Municipal Utility District (/AA-/AA/) $200 million of green/climate-certified electric revenue bonds, 2023 Series K, with 5s of 8/2037 at 3.04%, 5s of 2038 at 3.15%, 5s of 2043 at 3.51%, 5s of 2048 at 3.73% and 5s of 2053 at 3.82%, callable 8/15/2033.

Barclays priced for the Sacramento Municipal Utility District (/AA-/AA/) $100 million of subordinated electric revenue refunding bonds, 2023 Series D, with 5s of 8/2049 with a put date of 10/2030 at 2.80%, callable 4/15/2030.

Barclays also priced for the Sacramento Municipal Utility District $61.895 million of electric revenue refunding bonds, 2023 Series L, with 5s of 8/2024 at 3.01%, 5s of 2028 at 2.57% and 5s of 2033 at 2.59%, callable 8/15/2032.

Barclays priced for the Lower Colorado River Authority (/A/AA-/) $137.265 million of revenue refunding bonds. The first tranche, $29.450 million of Series 2023A, saw 5s of 5/2024 at 3.38% and 5s of 2027 at 3.05%, noncall.

The second tranche, $107.815 million of Series 2023B put bonds, saw 5s of 5/2039 with a mandatory tender date of 5/15/2028 at 3.35%, callable 2/15/2028.

Secondary trading
DC 5s of 2024 at 3.01%-3.15%. North Carolina 5s of 2024 at 3.07%. Washington 5s of 2025 at 3.05%.

Connecticut 5s of 2028 at 2.84% versus 2.99% original on Thursday. California 5s of 2028 at 2.61%. Maryland 5s of 2029 at 2.68% versus 2.70%-2.68% Thursday.

Massachusetts 5s of 2033 at 2.69%-2.65%. Maryland Stadium Authority 5s of 2034 at 3.07%-3.05% versus 3.09%-3.05% original on Friday. NYC 5s of 2035 at 3.11%-3.10% versus 3.19%-3.12% Monday and 3.27% original on Friday.

Raleigh, North Carolina, 5s of 2048 at 3.59% versus 3.63%-3.60% original on Friday. Illinois Finance Authority 5s of 2051 at 4.32%-4.30% versus 4.35%-4.33% on 5/31 and 4.44% on 5/22. Massachusetts Bay Transportation Authority 5s of 2052 at 3.79% versus 3.76% on 5/31.

AAA scales
Refinitiv MMD’s scale was bumped up to four basis points: The one-year was at 3.09% (-4) and 2.97% (-2) in two years. The five-year was at 2.66% (unch), the 10-year at 2.59% (unch) and the 30-year at 3.50% (unch) at 3 p.m.

The ICE AAA yield curve was bumped up to five basis points: 3.10% (-5) in 2024 and 2.98% (-2) in 2025. The five-year was at 2.63% (-3), the 10-year was at 2.58% (-1) and the 30-year was at 3.56% (flat) at 4 p.m.

The IHS Markit municipal curve was bumped up to four basis points: 3.08% (-4) in 2024 and 2.97% (-2) in 2025. The five-year was at 2.66% (unch), the 10-year was at 2.58% (unch) and the 30-year yield was at 3.49% (unch), according to a 4 p.m. read.

Bloomberg BVAL was bumped up to two basis points: 3.03% (-2) in 2024 and 2.93% (-1) in 2025. The five-year at 2.62% (-1), the 10-year at 2.55% (-1) and the 30-year at 3.52% (-1) at 4 p.m.

Treasuries were mixed.

The two-year UST was yielding 4.525% (+4), the three-year was at 4.168% (+4), the five-year at 3.854% (+3), the 10-year at 3.694% (unch), the 20-year at 4.025% (-2) and the 30-year Treasury was yielding 3.865% (-3) at 4 p.m.

Primary to come

Los Angeles County, California, is slated to price $700 million of tax and revenue anticipation notes 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 Wednesday. Serials 2026 to 2035; terms 2038, 2043, 2048, 2053, 2058, and 2063. Barclays Capital.

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 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 Wednesday. Piper Sandler & Co.

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 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 Wednesday. Serial bonds 2026 to 2035. HilltopSecurities.

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. 

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.

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