Munis little changed to start week, USTs weaker

Municipals were little changed to start the week, while U.S. Treasuries were weaker and equities ended the session down.

The two-year muni-to-Treasury ratio Monday was at 63%, the three-year was at 64%, the five-year at 65%, 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 64%, the three-year at 65%, the five-year at 65%, the 10-year at 69% and the 30-year at 91% at 4 p.m.

The first unofficial full post-summer trading week kicked off with both a somber mood — yet brisk interest from investors, according to sources.

Despite pauses to remember loved ones and co-workers lost on Sept. 11, the market behaved in its typical seasonal pattern, according to a Wisconsin source. 

“Market engagement typically increases as we enter a busier season of the year, such as September to November,” after the end of summer and holidays, he said.

Trading volumes and issuance are both expected to pick up as fall gets underway.

But munis started September slowly, “being down roughly 0.25% for the first week … bringing year-to-date returns to 1.34%,” said Jason Wong, vice president of municipals at AmeriVet Securities.

This is unsurprising, given that September is historically difficult for munis, he said. The last time September saw positive returns was 2015.

“With the muni market continuing to see volatility and munis continuing to be expensive, it’s starting to get difficult to have a positive tone until we start to see ratios come back to normal levels,” he said.

“September so far is continuing the trend toward higher bond yields as the [Federal Open Market Committee meeting] nears, and while the losses continue to mount,” said Jeff Lipton, managing director of credit research at Oppenheimer Inc.

For the first week of September, “muni yields rose with yields on 10-year notes rising by 3.8 basis points to 2.91%,” Wong said.

While muni yields rose, they were still able to outperform USTs as “10-year munis are now yielding 68.31%, compared to the prior week when the ratio was at 68.70%,” he said.

Investors pulled $798 million from muni bond funds last week after inflows of $407 million the week prior, according to Refinitiv Lipper.

Last week, secondary trading totaled more than $29.3 billion with 54% of trades being dealer sells, Wong said.

There was about $5.3 billion out for the bid during the holiday-shortened week, with all four days having over $1 billion of bids-wanted, according to Bloomberg data.

Given tapering reinvestment needs, the summertime technicals have become “less constructive,” Lipton said.

The net 30-day supply is at negative $7.885 billion, according to Bloomberg, “which may not be enough of a supply deficit to help with relative performance throughout the month,” Lipton said.

Ratios, though, “have moved somewhat closer to fair value and this adds to the attraction of the muni asset class,” Lipton said.

There has not be flow conviction, but Lipton said this has more to do with investor hesitation rather than a lack of available cash.

“While the muni market may not be chock full of excitement today, the stars seem to be aligned to capture deployable cash,” he said.

That cash will be met with a new-issue calendar that will “need to be priced to sell to pique investor interest,” said Anders Persson, Nuveen’s chief investment officer for global fixed income, and Dan Close, Nuveen’s head of municipals.

The new-issue calendar will be led by the Dormitory Authority of the State of New York, which will bring nearly $1 billion of personal income tax revenue bonds, beginning with a retail offering Tuesday, which should provide some price discovery for high-grades — or at least New York paper.

Ohio State University (Aa1/AA/AA+/) is bringing $696 million of general receipt bonds in four series.

The Central Plains Energy Project (Aa2///) will showcase more than $621 million of Project No. 4 taxable gas project revenue refunding bonds, set to price Tuesday.

Montgomery County, Maryland, (Aaa/AAA/AAA/) is set to sell $280 million of consolidated public improvement bonds in the competitive market Thursday, providing triple-A yield curves with direction.

Looking forward, the Federal Open Market Committee will Sept. 19-20, with Wall Street believing the Fed will pause rate increases, said Edward Moya, senior market analyst for the Americas at OANDA.

However, whether the Fed opts to raise rates will be less significant than the impact of Fed Chairman Jerome Powell’s post-meeting press conference, Lipton noted.

“Timing the Fed’s end game for tightening is quite challenging, but we are of the opinion that we are close to peak rates during the current cycle,” he said.

However, he noted, “there are a number of factors that can catalyze higher rates and impede fund deposits, ranging from a resurgence of inflationary conditions to governmental and political acrimony, particularly as we enter the general election cycle.”

“Here the message would be to dust off sidelined cash and be prepared to deploy capital opportunistically,” Lipton said. “Given the confluence of favorable technical and credit muni market conditions, there is a price to be paid for inaction.”

Secondary trading
California 5s of 2024 at 3.23%. Washington 5s of 2024 at 3.33%-3.30%. Connecticut 5s of 2025 at 3.23% versus 3.27% on 8/30 and 3.31% on 8/25.

LA DWP 5s of 2027 at 2.81%-2.77%. North Carolina 5s of 2028 at 2.98%.

University of Texas System 5s of 2033 at 3.17%. University of California 5s of 2035 at 3.01% versus 3.00% Thursday and 2.91%-3.00% Wednesday. Georgia 5s of 2035 at 3.19%-3.18% versus 3.21% Thursday.

NYC TFA 5s of 2046 at 4.25%-4.24% versus 4.29%-4.18% on 8/30 and 4.31% original on 8/24. Washington 5s of 2046 at 4.11%-4.10% versus 4.05% on 8/30 and 4.06% on 8/29. NY State Environmental Facilities Corp. 5s of 2053 at 4.19%-4.14% versus 4.17% on 8/29.

AAA scales
Refinitiv MMD’s scale was unchanged: The one-year was at 3.25% and 3.13% in two years. The five-year was at 2.88%, the 10-year at 2.98% and the 30-year at 3.92% at 3 p.m.

The ICE AAA yield curve was little changed: 3.27% (+1) in 2024 and 3.18% (unch) in 2025. The five-year was at 2.90% (unch), the 10-year was at 2.94% (unch) and the 30-year was at 3.93% (unch) at 4 p.m.

The S&P Global Market Intelligence (formerly IHS Markit) municipal curve was unchanged: 3.26% in 2024 and 3.14% in 2025. The five-year was at 2.89%, the 10-year was at 2.98% and the 30-year yield was at 3.91%, according to a 3 p.m. read.

Bloomberg BVAL was cut up to a basis point: 3.25% (unch) in 2024 and 3.16% (unch) in 2025. The five-year at 2.88% (unch), the 10-year at 2.90% (+1) and the 30-year at 3.90% (unch) at 4 p.m.

Treasuries were weaker.

The two-year UST was yielding 4.981% (flat), the three-year was at 4.696% (+1), the five-year at 4.406% (+1), the 10-year at 4.287% (+3), the 20-year at 4.562% (+4) and the 30-year Treasury was yielding 4.376% (+5) near the close.

Primary to come
The Dormitory of the State of New York is set to price Wednesday $921 million of general purpose state personal income tax revenue bonds, consisting of $905 million of tax-exempt bonds, Series 2023A, and $16 million of taxable bonds, Series 2023B. BofA Securities

Central Plains Energy Project (Aa2///) is set to price $621.255 million of Project No. 4 taxable gas project revenue refunding bonds. Goldman Sachs.

Ohio State University (Aa1/AA/AA+/) is set to price Tuesday $437.465 million of multiyear debt issuance program II general receipt bonds, consisting of $267.270 million of green new-issue bonds, Series B, serials 2024-2033 and 2035; and $170.195 million of refunding bonds, Series C, serials 2046 and 2056. RBC Capital Markets.

The university (/AAA/AA+/) is also set to price $258.780 million of multiyear debt issuance program II term variable rate general receipts refunding bonds, consisting of $117.630 million of Series D-1, term 2035, and $141.150 million of Series D-2, term 2044. RBC Capital Markets.

Charlotte (Aa3//AA-/) is set to price Thursday $372.115 million of Charlotte Douglas International Airport revenue bonds, consisting of $260.175 million of non-AMT bonds, Series 2023A, serials 2025-2043, terms 2048 and 2053, and $111.940 million of AMT bonds, Series 2023B, serials 2025-2043, terms 2048 and 2053. BofA Securities.

The California Health Facilities Financing Authority (Aa3/AA-/AA/) is set to price Tuesday $261.5 million of Stanford Health Care revenue bonds, Series 2023A. Morgan Stanley & Co.

Austin (/AAA/AA+/) is set to price Tuesday $257.425 million, consisting of $222.825 million of public improvement and refunding bonds, serials 2024-2043; $25.830 million of certificates of obligation, serials 2024-2043; and $8.770 million of public property finance contractual obligations, serials 2024-2030. RBC Capital Markets.

Honolulu (/AA+/AA/) is set to price Wednesday $188.835 million of senior green wastewater system revenue bonds, serials 2028-2043, terms 2048 and 2053. BofA Securities.

The Arlington County Industrial Development Authority, Virginia, (/A+/AA-/) is set to price Tuesday $150 million of revenue bonds. J.P. Morgan Securities.

The Ohio Water Development Authority (Aaa/AAA//) is set to price Thursday $150 million of Ohio Drinking Water Assistance Fund sustainability revenue bonds, Series 2023A. Jefferies.

The Oregon House and Community Services Department (Aa2///) is set to price Tuesday $147.665 million of single-family mortgage program mortgage revenue bonds, consisting of taxable 2023 Series C bonds, and non-AMT 2023 Series D bonds. J.P. Morgan Securities.

The Indiana Public Schools Multi-School Building Corp. (/AA+//) is set to price Wednesday $127.040 million of unlimited ad valorem property tax first mortgage social bonds, serials 2024 and 2029-2043, insured by Indiana State Aid Intercept Program. Stifel, Nicolaus & Co.

Grand Forks, North Dakota, (Baa3//BBB-/) is set to price Tuesday $126.680 million of Altru Health System revenue bonds, serials 2026-2043, terms 2048 and 2053. BofA Securities.

The Colorado Regional Transportation District (Aa2/AAA//) is set to price Tuesday $113.780 million of FasTracks Project sales tax revenue refunding bonds, Series 2023A. Jefferies.

The Arlington Higher Education Finance Corp., Texas, (/AAA//) is slated to price $107.360 million of Trinity Basin Preparatory education revenue bonds, serials 2025-2043, terms 2048 and 2053, insured by the Texas Permanent School Fund Guarantee Program. RBC Capital Markets.

Competitive
Greenville County School District, South Carolina, is set to sell $166.350 million of GO bonds, Series 2023B at 11 a.m. eastern Tuesday.

Minneapolis is set to sell $114.925 million of GO bonds at 11 a.m. Tuesday.

The Las Vegas Valley Water District (Aa1/AA//) is set to sell $184.830 million of general obligation limited tax water bonds at 10:45 a.m. eastern Wednesday.

The Dublin Unified School District, California, is set to sell $145 million of Election of 2020 GOs, Series B, at 12 p.m. Wednesday.

Montgomery County, Maryland, is set to sell $280 million of consolidated public improvement bonds, Series 2023A, at 10 a.m. eastern Thursday.

Wichita, Kansas, is set to sell $113.875 million of GO temporary notes at 10:30 a.m. Thursday.

Christine Albano contributed to this story.

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