Munis weaker, UST yields rise in mostly quiet session


Outside a few pockets of buying, there was a dull tone to start the last week of summer in the municipal market, as triple-A benchmarks were weaker Monday. U.S. Treasuries yields rose and equities ended down.

“The market is obviously weaker today and I think it is still digesting what happened … with the Fed and Powell’s speech in Jackson Hole,” one New York trader said Monday afternoon.

Fed Chair Jerome Powell said Friday the Fed will continue to raise rates for “as long as it takes to wring inflation out of the economy,” said Nuveen strategists Anders S. Persson and John V. Miller.

“Fixed income markets experienced modest increases in rates following the statements, but investors appear to be in a wait-and-see mode,” they said.

Powell signaled the U.S. central bank would “not reverse course any time soon,” despite the market expecting rate cuts next year, said Jason Wong, vice president of municipals at AmeriVet Securities.

This, he said, should bode well for munis and they should become even more attractive.

The two- and three-year muni-UST ratios are around 66% to 68%. The five-year was at 71%, the 10-year at 83% and the 30-year at 100%, according to Refinitiv MMD’s 3 p.m. read. ICE Data Services had the five at 72%, the 10 at 89% and the 30 at 101% at a 4 p.m. read.

Wong said these ratios could “go even higher as the Fed continues to combat inflation by keeping a 75-basis point rate hike on the table.”

Moreover, commentary from Powell last week “offered a clear sign to investors that rates are going up and will be higher for the foreseeable future,” said Eric Kazatsky, head of municipal strategy at Bloomberg Intelligence.

“Powell said the inflation battle ‘will likely require maintaining a restrictive policy stance for some time’ and cautioned against loosening policy too soon,” he said.

“At face value, this makes the moves in munis during the previous two weeks appear somewhat prescient, though price adjustments were sorely needed,” according to Kazatsky.

The long end of the curve, he noted, “held up somewhat better, but last week’s performance of 30-year munis had the widest margin of underperformance across the curve, which could persist unless liquidity meaningfully returns.”

The New York trader said the statement on rates is mixing with seasonal factors to give the market a “weird” vibe.

“There is a limited calendar, you have a holiday next Monday, and we are certainly seeing the results of the market angst waiting for the Fed all week last week,” he said.

Overall, he noted, the municipal market was down “close to five basis points” on Monday and it was impacting the retail crowd in different ways — with some being eager to buy this week’s new issues and others carefully waiting on the sidelines for even cheaper prices ahead.

The market is currently offering “prime” levels for retail investors with 4% coupons priced at 4.30% yields — and many new issues are being structured with higher coupons to attract their attention, the trader said.

Still, while he described overall demand as high, some careful and defensive investors wait on the sidelines.

“I think there is some pent-up demand for new issues, but the bigger picture is that many customers are going to be more patient and wait for more of a calendar with cheaper prices,” the trader said.

“Right now the market has got to get cheaper before a lot more people start caring,” he added. 

The ratio of municipals to Treasuries at 100% on the long end of the curve is encouraging investors, according to the trader.

“We are slowly starting to see some people coming back to the market, but I still think the market has to get a little weaker,” he added.

This last week of summer brings only $6 billion to the primary market, led by a $1 billion Chicago O’Hare International Airport offering.

“The bonds will come at cheap levels and fair prices for customers who have been patient,” he said. “I don’t foresee any problem this week getting deals done.”

This week also marks “the final week of the summer doldrums, and investors appear to be putting off major decisions until after Labor Day,” said Nuveen strategists. Munis, they noted, should remain well bid after Labor Day. 

“We could see periodic tactical sell offs due to large new issues coming to market, as often happens in the fourth quarter,” they said.

However, they noted, “heavy demand from institutions should persist through yearend as portfolio rebalancing continues.”

Secondary trading
NYC TFA 5s of 2023 at 2.24% versus 2.21%-2.23% Friday and 2.26% Thursday. Ohio 5s of 2024 at 2.28%.

Minnesota 5s of 2026 at 2.52%-2.36%. North Carolina 5s of 2027 at 2.30%-2.29%.

Maryland 5s of 2031 at 2.62%. DC 5s of 2032 at 2.79%. Montgomery County, Maryland, 5s of 2034 at 2.90% versus 2.86% Thursday and 2.76% Tuesday.

California 5s of 2042 at 3.48%-3.45% versus 3.37% Thursday and 3.27% on 8/22. LA DWP 5s of 2042 at 3.39% versus 3.00% on 8/8. Washington 5s of 2044 at 3.59% versus 3.44% on 8/22 and 3.18% on 8/12.

AAA scales
Refinitiv MMD’s scale saw cuts outside of one-year at the 3 p.m. read: the one-year at 2.19% (unch) and 2.26% (+5) in two years. The five-year at 2.32% (+6), the 10-year at 2.59% (+5) and the 30-year at 3.26% (+3).

The ICE AAA yield curve was cut five to six basis points: 2.26% (+5) in 2023 and 2.30% (+6) in 2024. The five-year at 2.34% (+6), the 10-year was at 2.68% (+6) and the 30-year yield was at 3.26% (+5) at a 4 p.m. read.

The IHS Markit municipal curve was cut three to six basis points two years and out: 2.19% (unch) in 2023 and 2.27% (+5) in 2024. The five-year was at 2.31% (+6), the 10-year was at 2.58% (+5) and the 30-year yield was at 3.26% (+3) at a 3 p.m. read.

Bloomberg BVAL was cut two to five basis points: 2.25% (+2) in 2023 and 2.27% (+4) in 2024. The five-year at 2.28% (+5), the 10-year at 2.57% (+4) and the 30-year at 3.26% (+2) at 4 p.m.

Treasuries were weaker.

The two-year UST was yielding 3.425% (+3), the three-year was at 3.445% (+5), the five-year at 3.257% (+5), the seven-year 3.209% (+7), the 10-year yielding 3.105% (+6), the 20-year at 3.499% (+7) and the 30-year Treasury was yielding 3.245% (+5) at 4 p.m.

Primary to come:
The Chicago O’Hare International Airport (/A+/A+/A+/) is set to price Tuesday $1.768 billion of general airport senior lien revenue and revenue refunding bonds, consisting of $1.115 billion of AMT bonds, Series 2022A; $145.930 million of non-AMT bonds, Series 2022B; $165.850 million of AMT bonds, Series 2022C and $341.090 million of non-AMT bonds, Series 2022D. J.P. Morgan Securities.

The Oklahoma Development Finance Authority (/AAA/AAA/) is set to price Tuesday $696.920 million of taxable Public Service Company of Oklahoma ratepayer-backed bonds, Series 2022, serials 2033 and 2044. RBC Capital Markets.

The New Jersey Housing and Mortgage Finance Agency (Aa2/AA//) is set to price Wednesday $315.730 million of non-AMT social single family housing revenue bonds, 2022 Series I, serials 2023-2034, terms 2037, 2042, 2046 and 2053. Citigroup Global Markets.

The San Antonio Housing Trust Public Facilities Corp., Texas, (Aa2/AA+/AA/) is set to price Tuesday $284.765 million of lease revenue refunding and improvement bonds, Series 2022. Piper Sandler & Co.

Washington County, Ohio, is set to price Tuesday $279.760 million of Memorial Health System Obligated Group hospital facilities revenue bonds, Series 2022. Piper Sandler & Co.

The South Jersey Transportation Authority (Baa2/BBB+/BBB+/) is set to price Wednesday $225 million of transportation system revenue bonds, 2022 Series A, serials 2036-2042, terms 2047 and 2052. Citigroup Global Markets.

Manatee County, Florida, (Aa1//AA+/) is set to sell Tuesday $212.025 million of revenue improvement and refunding bonds, Series 2022, serials 2023-2042, terms 2047 and 2052. Wells Fargo Bank.

The Great Lakes Water Authority, Michigan, is set to price Tuesday $208.570 million of sewage disposal system revenue bonds, consisting of $101.495 million of senior lien bonds (A1/AA-/A+/), Series 2022A, serials 2025-2042, terms 2047 and 2052; $96.445 million of second lien bonds (A2/A+/A/), Series 2022B, serials 2025-2042, terms 2047 and 2052 and $10.630 million of refunding senior lien bonds (A1/AA-/A+/), Series 2022C, serial 2023. Siebert Williams Shank & Co.

The authority is also set to price Tuesday $205.465 million of water supply system revenue bonds, consisting of $121.845 million of senior lien bonds (A1/AA-/A+/), Series 2022A, serials 2025-2042, terms 2047 and 2052 and $83.620 million of second lien bonds (A2/A+/A/), Series 2022B, serials 2025-2042, terms 2047 and 2052. Siebert Williams Shank & Co.

The Palm Beach County School Board, Florida, (Aa3//AA-/) is set to price Tuesday $187.130 million of certificates of participation, Series 2022B, serials 2023-2034 and 2040. Citigroup Global Markets.

The North Orange County Community College District, California, (Aa1/AA+//) is set to sell Tuesday $150 million of Election of 2014 general obligation bonds, Series C. Piper Sandler & Co.

The Las Vegas Convention and Visitors Authority, Nevada, (Aa3/A//) is set to price Wednesday $150 million of convention center expansion and renovation revenue bonds, consisting of $135.460 million of tax-exempts, Series 2022B, serials 2026-2038, term 2049 and $14.540 million of taxables, Series 2022C, serials 2023-2025. RBC Capital Markets.

Laredo, Texas, (Aa3///) is set to sell Tuesday $118.585 million of waterworks and sewer system revenue bonds, New Series 2022, serials 2023-2024,2027-2042, terms 2047 and 2052. Huntington Securities.

The Arlington Heights School District No. 25, Illinois, is set to sell $58.880 million of general obligation school bonds, Series 2022, at 11 a.m. eastern Tuesday.

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