Larger supply to test buyers’ market

Bonds

Municipals were steady to weaker in spots Friday ahead of a large new-issue calendar, while U.S. Treasuries were mixed and equities sold off upward of 2.5%.

Investors will be greeted Monday with a big uptick in supply, with the new-issue calendar reaching $9.251 billion with $6.572 billion of negotiated deals and $2.679 billion of competitive loans. Thirty-day visible supply grows to $17.45 billion, per Bond Buyer data.

The primary calendar is led by $3 billion of medical center pooled revenue bonds from the Regents of the University of California. The Michigan Finance Authority will come with $1.2 billion of Beaumont-Spectrum Consolidation hospital revenue refunding bonds.

Bellwether Washington is expected to come with $1.35 billion in four deals to lead the competitive calendar, along with Clark County, Nevada, with $200 million.

Another week of rising UST with municipals following along has led to compelling ratios out long.

Muni-UST ratios were at 82% in five years, 92% in 10 years and 103% in 30, according to Refinitiv MMD’s 3 p.m. read. ICE Data Services had the five at 82%, the 10 at 93% and the 30 at 104% at a 4 p.m. read.

While the front end continued to sell off as investors sold bonds to obtain cash, Barclays strategists Mikhail Foux, Clare Pickering and Mayur Patel said intermediate- and long-term yields underperformed the most in absolute terms, with 10-year and 30-year MMD yields both rising about 20 basis points. Munis also underperformed on a relative basis, with ratios across the board cheapening four to five points week over week.

“As the front end comes under pressure and yields rise, they could become quite attractive, although investors should be prepared to hold these bonds until maturity or their call dates,” they said.

After-tax yields for short-dated bonds are at their highest in 10 years, while the 3s10s and 3s5s have flattened substantially, they said.

Barclays strategists said triple-A yields have risen quickly this year, owing in part to the high valuations at the start of the year. Year-to-date muni yield increases have been the worst on record, with 10-year Refinitiv MMD rates up more than 160 basis points.

Barclays noted that during previous periods of rising rates, 10-year MMD yields have rallied by a median of 27 basis points in the following four months.

“However, for munis to follow that trajectory this year, rates would need to stabilize, which would also stem fund outflows,” they said. “We hope that will happen in the not-so-distant future, but inflation pressures would need partially to subside.”

They said the current weakening in munis has resulted in some of the worst weekly fund outflows in history, with year-to-date outflows exceeding $25.8 billion, according to Refinitiv Lipper, making this one of the most active outflow periods in recent memory. However, outflows now accounting for only 4% of total assets under management are still below levels seen during the 2013 taper tantrum and other outflow periods, they said.

“Moreover, mutual fund cash buffers remain healthy, although just a handful of muni funds have reported their cash balances as of the first quarter,” Barclays strategists said.

If the bullish turnaround in Treasuries this week holds and progresses, tax-exempt munis should follow suit, said BofA Global Research strategists Yingchen Li and Ian Rogow.

“Low redemptions and mutual fund outflows are two negative factors, but high muni ratios may attract crossover buyers and bottom fishing,” they said.

In April, BofA analysts are neutral, but from May to August, they are bullish. Despite the current weak supply/demand picture, they said munis do not need to wait until May if Treasury market rallies continue through the rest of April.

However, while tax-exempt munis are beginning to glimpse the light at the end of the tunnel, they said taxable munis would fare far better if the Treasury market were to turn bullish.

Taxable munis followed the Treasury’s strong rally in lockstep on Wednesday, with no spread widening.

“By now, spreads widened to 2018/2019 ranges while general credit conditions of muni issuers is stronger than in those years,” BofA strategists said. “Further spread widening should be very limited unless the economy deteriorates faster than expected.”

Secondary trading
Boston, Massachusetts 5s of 2023 at 2.15%-2.12%. Montgomery County, Maryland 5s of 2023 at 2.10% versus 2.12%-2.09%. Maryland 5s of 2024 at 2.23% versus 2.27% on 4/21. LA DWP 5s of 2025 at 2.44%.

Maryland 5s of 2026 at 2.42% versus 2.44% on Thursday. California 5s of 2026 at 2.51%. NY Dorm PIT 5s of 2029 at 2.84%-2.80%.

Washington 5s of 2031 at 2.76%. Montgomery County, Maryland 5s of 2031 at 2.76%-2.73%. Virginia Commonwealth Transportation Board 5s of 2032 at 2.89%-2.87% versus 2.96% on Thursday.

Iowa Finance Authority green 5s of 2038 at 3.03%-3.02% versus 3.18% on Tuesday. Iowa Finance Authority green 5s of 2040 at 3.06%-3.05% versus 3.07% on Wednesday. California 5s of 2041 at 3.22%.

NYC TFA 5s of 2047 at 3.78%-3.77% versus 3.42% on 4/14, 3.39% on 4/13 and 3.41% on 4/12. Triborough Bridge and Tunnel Authority 5s of 2051 at 3.75%-3.74% versus 3.73% on 4/21, 3.52%-3.51% on 4/13 and 3.51%-3.52% on 4/12. NYC Municipal Water Finance Authority 5s of 2051 at 3.69% versus 2.64%-3.63% on 4/19 and 3.42%-3.41% on 4/12.

AAA scales
Refinitiv MMD’s scale was cut two basis points 3 p.m. read: the one-year at 1.96% (+2) and 2.22% (+2) in two years. The five-year at 2.41% (+2), the 10-year at 2.68% (+2) and the 30-year at 3.03% (+2).

The ICE municipal yield curve was cut up to two basis points: 1.96% (unch) in 2023 and 2.26% (unch) in 2024. The five-year at 2.43% (+2), the 10-year was at 2.69% (+2) and the 30-year yield was at 3.10% (+2) at 4 p.m.

The IHS Markit municipal curve was cut two basis points: 1.97% (+2) in 2023 and 2.22% (+2) in 2024. The five-year at 2.44% (+2), the 10-year was at 2.66% (+2) and the 30-year yield was at 3.04% (+2) at 4 p.m.

Bloomberg BVAL was cut one to two basis points: 1.94% (+1) in 2023 and 2.19% (+2) in 2024. The five-year at 2.44% (+1), the 10-year at 2.67% (+1) and the 30-year at 2.99% (+1) at the close.

Treasury yields were mixed.

The two-year UST was yielding 2.701% (+1), the three-year was at 2.880% (-1), five-year at 2.941% (-4), the seven-year 2.948% (-3), the 10-year yielding 2.898% (-1), the 20-year at 3.144 (+1) and the 30-year Treasury was yielding 2.945% (+1) at the close.

Primary to come:
The Regents of the University of California (Aa3/AA-/AA-/) is set to price Wednesday $3 billion of medical center pooled revenue bonds, consisting of $1.3 billion of bonds, 2022 Series P and $1.7 billion of taxable bonds, 2022 Series Q. Barclays Capital.

The Michigan Finance Authority (Aa3/AA//) is set to price Thursday $1.181 billion of Beaumont-Spectrum Consolidation hospital revenue refunding bonds, Series 2022, consisting of $1.089 billion of Series 1 and $91.530 million of Series 3. Morgan Stanley.

The Hampton Roads Transportation Accountability Commission, Virginia, (Aa2/AA//) is set to price Wednesday $421.575 million of Hampton Roads Transportation Fund senior-lien revenue bonds, Series 2022A, serials 2023-2042, terms 2047, 2052 and 2057. Wells Fargo Bank.

Austin, Texas, (A1/A+//AA-/) is set to price Tuesday $417.215 million of alternative-minimum tax airport system revenue bonds, Series 2022. Morgan Stanley.

The City and County of San Francisco, California, (Aaa/AAA/AA+/) is set to price Tuesday $326.415 million of general obligation refunding bonds, Series 2022-R1, serials 2023-2034. Wells Fargo Bank.

The Beaumont-Spectrum Consolidation, Michigan, (Aa3/AA/) is set to price Thursday $300 million of taxable corporate CUSIP bonds, Series 2022. Morgan Stanley.

The Pennsylvania Housing Finance Agency (Aa1/AA+/) is set to price Tuesday $292.965 million of social non-alternative minimum tax single family mortgage revenue bonds, Series 2022-139, serials 2022-2034, terms 2037, 2042, 2047 and 2052. Jefferies.

The Oregon Facilities Authority (A1/A+//) is set to price Wednesday $289.560 million of Legacy Health Project revenue bonds, consisting of $99.340 million of tax-exempt bonds, 2022 Series A, term 2052; $101.355 million of taxable bonds, 2022 Series B, term 2052; and $88.885 million of tax-exempt bonds, 2022 Series C, serial 2030. RBC Capital Markets.

Gilbert, Arizona, (Aaa/AAA//) is set to price Wednesday $199.785 million of general obligation bonds, Series 2022, serials 2024-2042. Wells Fargo Bank.

The Northwest Independent School District, Texas, (Aaa//AAA/) is set to price Wednesday $193.985 million of unlimited tax school building bonds, Series 2022, serials 2023 and 2026-2047, insured by the Permanent School Fund Guarantee Program. RBC Capital Markets.

The Public Facilities Financing Authority of the City of San Diego, California, (/AA/AA/) is set to price Tuesday $164.920 million of subordinated sewer revenue bonds, Series 2022A, serials 2023-2042, terms 2047 and 2051. Wells Fargo Bank.

The Fort Bend Independent School District, Texas, (/AAA/AAA/) is set to price Tuesday $158.900 million of unlimited tax refunding bonds, Series 2022A, insured by the Permanent School Fund Guarantee Program. Piper Sandler & Co.

The school district is also set to price Tuesday $100 million of variable rate unlimited tax school building bonds, Series 2022B, insured by the Permanent School Fund Guarantee Program. Baird.

Phoenix, Arizona, (Aa1/AA+/AAA/) is set to price Tuesday $143.160 million of general obligation refunding bonds, Series 2022. Piper Sandler & Co.

The Rhode Island Housing and Mortgage Finance Corporation (Aa1/AA+//) is set to price Tuesday $118.095 million of homeownership opportunity bonds, consisting of $98.095 million of social non-alternative minimum tax bonds, Series 77-A and $20 million of taxable bonds, Series 77-T. Morgan Stanley.

The Rhode Island Student Loan Authority (/AA//) is set to price Thursday $105.670 million of senior education loan revenue bonds, consisting of $64.850 million of alternative minimum tax bonds, 2022 Series A, serials 2026-2031 and 2041 and $40.820 million of taxable bonds, Series 2022-1, serials 2025-2029 and 2041. RBC Capital Markets.

Competitive:
The Madison Metro School District, Wisconsin, (/AA+/) is set to sell $106 million of general obligation school building and facility improvement bonds, Series 2022, at 11 a.m. eastern Monday.

Washington (Aaa/AA+/AA+/) is set to sell $217.090 million of motor vehicle fuel tax general obligation bonds, Series R-2022D Bid Group 2 at 11:45 a.m. eastern Tuesday, $279.475 million of motor vehicle fuel tax general obligation bonds, Series R-2022D Bid Group 1 at 11:15 a.m. Tuesday, $407.730 million of various purpose general obligation refunding bonds, Series R-2022C Bid Group 1, at 10:15 a.m Tuesday and $448.565 million of various purpose general obligation refunding bonds, Series R-2022C Bid Group 2, at 10:45 a.m Tuesday.

Clark County, Nevada, is set to sell $200 million of indexed fuel tax and subordinate motor vehicle fuel tax highway revenue bonds, Series 2022, at 11:30 a.m. eastern Wednesday.

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