Muni outperformance pushes valuations richer

Municipals were lightly traded and mostly steady Monday while U.S. Treasuries saw losses across the curve and equities ended in the black.

Triple-A yield curves saw a mix of small bumps and cuts by a basis point or two, depending on the curve, while Treasuries saw losses of one to seven basis points with the larger cuts on the two- and three-year.

Municipal to UST ratios have richened further on the short end as a result. The two-year muni-to-Treasury ratio Monday was at 62%, the three-year at 63%, the five-year at 64%, the 10-year at 65% and the 30-year at 86%, according to Refinitiv MMD’s 3 p.m. read. ICE Data Services had the two-year at 64%, the three-year at 65%, the five-year at 64%, the 10-year at 66% and the 30-year at 87% at 4 p.m.

Friday capped off a better week for munis, as they outperformed UST losses and supply was well digested, which bodes well with this week’s modest calendar, according to a trader.

While the technical picture has been favorable for munis, “the recent outperformance has valuations nearing stretched levels again,” Birch Creek Capital said in a weekly report. “If USTs reverse the recent trend higher, we would not be surprised to see munis lag during the rally.”

Much attention last week remained on the heavier primary calendar, “where larger deals continue to come at a concession to secondary market levels but are multiple times oversubscribed for,” the report said. “Accounts looked to fund these new issues by selling short duration and short-call bonds. However, high-grade traders reported the most interest from buyers were in spreadier and lower-coupon names, especially deep discount structures.”

There were a fair amount of balances cleaned up from prior deals that were overhanging the market, the trader said.

“The market had an awful lot of [Texas] PSF paper that cheapened up and that started to normalize as supply abated and people bought the cheaper bonds and pushed those spreads tighter,” he said.

New York deals saw good demand, he said, adding they were “bumped and traded up a little when they were free to trade.” 

Going forward this week, the trader said, the primary calendar is manageable at under $7 billion.

“If Treasuries hang in there, our market should do fine,” he said. 

“We are still in the midst of summer and in the midst of angst over inflation,” he added. “There’s been some concern out there that in September there could be a possible resurgence in inflation and that’s got people on the back burner a little bit.”

This week, he said investors should have keen interest in large airport deals.

The deals include a $940 million joint revenue refunding and improvement issue from Dallas and Fort Worth, Texas, for Dallas Fort Worth International Airport, while Atlanta on Tuesday is set to price $696.880 million of airport general revenue bonds, airport passenger facility charge and subordinate lien general revenue bonds, and airport general revenue refunding bonds. Chicago’s O’Hare is also slated for $181.295 million of BAM-insured paper.

“We haven’t seen airport deals in quite a while, so I think they will come at relatively attractive prices and we will see a decent amount of buyers for a little incremental yield,” he said.

Jason Wong, vice president of municipals at AmeriVet Securities, echoed that sentiment saying with the lower supply, the market should expect to see significant interest in new bonds this week.

Municipals are still in the red, but “the second week of August showed much improvement from the first week as we saw month-to-date returns go from -1.25% to -0.83% with a year-to-date return of 2.22%,” Wong said.

Secondary trading
Georgia 5s of 2024 at 3.27%. New York City 5s of 2024 at 3.24%. Maryland 5s of 2024 at 3.22%.

Hawaii 5s of 2026 at 3.05%. Maryland 5s of 2029 at 2.76%. Minnesota 5s of 2029 at 2.78%. Connecticut 5s of 2030 at 2.86%.

Ohio waters 5s of 2037 at 3.23%. Georgia 5s of 2039 at 3.34%. Washington 5s of 2040 at 3.61%.

New York City TFA 5s of 2041 at 3.76%. Triborough Bridge and Tunnel Authority 5s of 2048 at 4.14%.

AAA scales
Refinitiv MMD’s scale was bumped two basis points on the one-year and unchanged thereafter: The one-year was at 3.24% (-2) and 3.10% in two years. The five-year was at 2.77%, the 10-year at 2.70% and the 30-year at 3.69% at 3 p.m.

The ICE AAA yield curve saw small cuts: 3.26% (unch) in 2024 and 3.14% (+2) in 2025. The five-year was at 2.76% (+1), the 10-year was at 2.69% (unch) and the 30-year was at 3.69% (unch) at 4 p.m.

The S&P Global Market Intelligence (formerly IHS Markit) municipal curve was bumped on the one-year and unchanged thereafter: 3.25% (-2) in 2024 and 3.10% in 2025. The five-year was at 2.78%, the 10-year was at 2.72% and the 30-year yield was at 3.68%, according to a 4 p.m. read.

Bloomberg BVAL was cut one basis point: 3.20% (unch) in 2024 and 3.09% (unch) in 2025. The five-year at 2.77% (unch), the 10-year at 2.71% (+1) and the 30-year at 3.75% (unch) at 4 p.m.

Treasuries saw losses.

The two-year UST was yielding 4.967% (+7), the three-year was at 4.646% (+7), the five-year at 4.363% (+6), the 10-year at 4.193% (+3), the 20-year at 4.476% (+2) and the 30-year Treasury was yielding 4.294% (+2) at the close.

Primary to come
The cities of Dallas and Fort Worth, Texas, (A1/A+/A+/AA) are set to price Tuesday $699.590 million of Dallas Fort Worth International Airport joint revenue refunding and improvement bonds, Series 2023B. Piper Sandler & Co.

Dallas and Fort Worth are also set to price Wednesday $239.725 million of alternative minimum tax Dallas Fort Worth International Airport joint revenue refunding bonds, Series 2023C, serials 2024-2033. Cabrera Capital Markets. 

Atlanta (Aa3//AA-/AA+) is set to price Tuesday $696.880 million of airport general revenue bonds, airport passenger facility charge and subordinate lien general revenue bonds, and airport general revenue refunding bonds, consisting of $204.010 of Series 2023B-1, serials 2024-2043, terms 2048, 2053, $25.325 million of Series 2023B-2, serials 2024-2043, terms 2048, 2053, $29.470 million of Series 2023-C, serials 2024-2043, terms 2048, 2053, $38.295 million of Series 2023-D, serial 2044, $254.205 million of Series 2023-E, serials 2024, 2030-2044, $86.980 million of Series 2023-F, serials 2025-2033, $58.595 million of Series 2023-G, serials 2025-2030. BofA Securities. 

The Regents of the University of California (Aa2/AA/AA/) is set to price Wednesday $608.160 million of general revenue bonds, Series 2023BQ, serials 2029, 2031, 2033, 2035. Siebert Williams Shank & Co.

The Regents of the University of California is also set to price Wednesday $120.045 million of taxable general revenue bonds, Series 2023BR, serial 2033. Siebert Williams Shank & Co.

The Los Angeles Unified School District (A2//A-/) is set to price Thursday $384.260 million of certificates of participation, sustainability bonds, Series 2023A, serials 2024-2038. BofA Securities. 

The city of Colorado Springs, Colorado, (Aa2/AA+//) is set to price Tuesday $360.905 million of utilities system improvement revenue bonds, consisting of $201.750 million of Series 2023A and $159.155 million of refunding Series 2023B. Goldman Sachs.

The Dormitory Authority of the State of New York (Aa2//AA/) is set to price Thursday $300 million of New York and Presbyterian Hospital Obligated Group revenue bonds, Series 2023A. Goldman Sachs. 

The state of Louisiana (/AA//) is set to price Tuesday $226.240 of grant anticipation revenue bonds, Series 2023, serials 2024-2035. Wells Fargo. 

The city of Chicago (/AA//) is set to price Wednesday $181.295 million of Build America Mutual-insured Chicago O’Hare International Airport customer facility charge senior lien refunding bonds, Series 2023, serials 2028-2043. Barclays. 

The Colorado Housing and Finance Authority (Aaa/AAA//) is set to price Wednesday $180 million of federally taxable single family mortgage class-I bonds, Series 2023 N-1, serials 2026-2033, terms 2038, 2041, 2053. RBC Capital Markets. 

The Idaho Housing and Finance Association (Aa1///) is set to price Tuesday $149.375 million of fixed-rate single family mortgage bonds, Series 2023C, serials 2024-2034, terms 2038, 2043, 2048, 2053, 2053. Barclays. 

The Illinois Finance Authority (A2///) is set to price Tuesday $120 million of theory and computing sciences building trust taxable revenue refunding bonds, Series 2023, serials 2024-2028, term 2033. Fifth Third Securities.  

Competitive:
Wisconsin (Aa1/AA+/AA+/AAA) is set to sell $276.155 million of GOs, Series 2023B, at 10:45 a.m. Eastern Tuesday. 

Tennessee (Aaa/AAA/AAA/) is set to sell $499.420 million of GOs, Series 2023A, at 10:15 a.m. Wednesday.

Tennessee is also set to sell $44.745 million of federally taxable GOs, Series 2023B, at 10:45 a.m. Wednesday.

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