Munis weaker to start the week ahead of Jackson Hole speech

Municipals were weaker to start the week, while U.S. Treasuries saw more losses as investors continue to see a stronger-than-expected U.S. economy challenge Federal Reserve policy efforts. Equities ended mixed.

Triple-A yield curves were cut up to five basis points, depending on the scale, while UST yields rose six to nine basis points, pushing the five-, 10-, 20- and 30-year USTs to multi-year highs.

Continued pressure on the UST market coupled with the end of the summer reinvest may begin to test new issues as investors are able to be more selective.

Blowing past the mid-way point of August behind, “munis continue to struggle for the most part as many take their summer vacations,” said Jason Wong, vice president of municipals at AmeriVet Securities.

During the first half of the month, munis lost around 1.41%, “bringing the year-to-date gains to 1.63% which is still higher than where we were last year which was a loss of 7.49%,” he said. While “we are down for the month of August, ratios continue to be rich as the front-end average ratio is at 65%,” Wong said.

The two-year muni-to-Treasury ratio Monday was at 63%, the three-year at 64%, the five-year at 65%, the 10-year at 67% 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 66%, the five-year at 65%, the 10-year at 67% and the 30-year at 88% at 4 p.m.

With supply down around 9% year-over-year, he said “many municipalities are holding off on issuing as the Fed’s interest-rate hikes pushed yields higher.”

With lower new issuance, munis have mostly outperformed Treasuries as “investors and portfolio managers hold onto their bonds rather than sell, driving muni performance even higher,” Wong said.

Throughout the first half of half week, “munis held relatively steady amidst the Treasury selloff which deepened their unattractiveness relative to taxable alternatives,” said Birch Creek Capital strategists.

At the start, the new-issue calendar with several large deals was the focus. The Dallas Fort Worth Airport deal, for instance, “came at a concession seeing strong demand and 12x oversubscribed,” they said.

Liquidity was challenged, according to dealers, “but participants had no real need or reason to react to the rising rate environment and hit down bids,” they noted.

There were also reports of “accounts shifting their focus from inside of 10 years to longer duration bonds as many believed yields had reached their peak,” they said.

However, to Birch Creek strategists this seems “to have been mainly led by retail accounts that are comfortable locking in higher yields and holding on for long time horizons.”

Conversely, they noted “institutional participation was very thin, as fund managers largely stood on the sidelines waiting around for cheap new issues and eschewing the unattractive ratios.” Triple-A yield curves “saw a large adjustment on Thursday as well as an increase in bonds for sale,” they said.

Helped by the large cuts seen on Thursday, muni yields rose on the week, with the “10-year notes rising by 12.1 basis points to finish the week at 2.82%,” Wong said.

With munis yields rising, munis underperformed “slightly compared to Treasuries as 10-year notes are now yielding 66.51% of Treasuries compared to the prior week when the ratio was at 65.12%.”

With munis weaker last week, outflows from muni bond funds returned with investors pulling $264.046 million from muni bond funds, according to Refinitiv Lipper.

Until there is more stability in muni market, Wong said there “should continue to see a see-saw battle of inflows and outflows into and out of into muni funds.”

Secondary trading
North Carolina 5s of 2024 at 3.32% versus 3.32% Friday and 3.34%-3.32% Thursday. Dorm PIT 5s of 2025 at 3.25%-3.23%. Connecticut 5s of 2026 at 3.07%-3.11% versus 3.11%-3.09% Friday.

Tennessee 5s of 2028 at 3.03% versus 2.92% original on Wednesday. Minnesota 5s of 2028 at 2.89%. California 5s of 2031 at 2.76%-2.75% versus 2.58% on 8/10 and 2.71%-2.70% on 8/7.

Washington 5s of 2033 at 3.09%-3.05%. Triborough Bridge and Tunnel Authority 5s of 2034 at 3.24%-3.22%. University of California 5s of 2035 at 2.97%.

California 5s of 2045 at 3.77% versus 3.54%-3.53% on 8/9 and 3.57%-3.56% on 8/8. Washington 5s of 2046 at 4.07% versus 4.06%-4.05% Friday and 4.03% Thursday.

AAA scales
Refinitiv MMD’s scale was cut up to five basis points: The one-year was at 3.25% (unch) and 3.15% (unch) in two years. The five-year was at 2.88% (+4), the 10-year at 2.89% (+5) and the 30-year at 3.85% (+3) at 3 p.m.

The ICE AAA yield curve was cut two to three basis points: 3.27% (+2) in 2024 and 3.19% (+2) in 2025. The five-year was at 2.86% (+2), the 10-year was at 2.83% (+3) and the 30-year was at 3.86% (+2) at 4 p.m.

The S&P Global Market Intelligence (formerly IHS Markit) municipal curve was cut up to four basis points: 3.26% (unch) in 2024 and 3.15% (unch) in 2025. The five-year was at 2.88% (+3), the 10-year was at 2.89% (+4) and the 30-year yield was at 3.83% (+2), according to a 4 p.m. read.

Bloomberg BVAL was cut two to four basis points: 3.27% (+3) in 2024 and 3.17% (+2) in 2025. The five-year at 2.87% (+4), the 10-year at 2.85% (+4) and the 30-year at 3.84% (+4) at 4 p.m.

Treasuries were weaker.

The two-year UST was yielding 4.996% (+6), the three-year was at 4.711% (+7), the five-year at 4.460% (+8), the 10-year at 4.337% (+9), the 20-year at 4.643% (+8) and the 30-year Treasury was yielding 4.448% (+7) at the close.

Primary to come:
Michigan (Aa2/AA+//) is set to price $1.182 billion of Michigan State Trunk Line Fund Rebuilding Michigan Program bonds Tuesday. Wells Fargo Bank.

The New York City Transitional Finance Authority (Aa1/AAA/AAA/) is set to price Wednesday $1 billion of future tax-secured subordinate bonds, Fiscal 2024 Series B, serials 2025-2048, term 2053. Wells Fargo Bank. 

San Antonio, Texas, (Aaa/AAA/AA+/) is set to price Tuesday $529.78 million in several series: $159.51 million of general improvement bonds, Series 2023, serials 2024-2043; $46.605 million of combination tax and revenue certificates of obligation, Series 2023, serials 2024-2033; $23.085 million of general improvement bonds, taxable Series 2023, serial 2024; $30.535 million of tax notes, Series 2023, serials 2024-2025; and $270.045 million of tax notes, taxable Series 2023, serial 2026. Ramirez & Co.

The Pennsylvania Turnpike Commission (Aa3/AA-/AA-/AA-) is set to price Tuesday $400 million of turnpike revenue refunding bonds, Series A of 2023, serials 2024, 2027-2053. PNC Capital Markets LLC.

The Sacramento Transportation Authority (/AAA/AAA/) is set to price Tuesday $308.19 million of limited tax sales tax revenue refunding bonds, serials 2028-2038. BofA Securities.

The Texas Department of Housing and Community Affairs (Aaa/AA+//) is set to price Tuesday $200 million of non-AMT residential mortgage revenue bonds, serials 2025-2035, terms 2038, 2043, 2048, 2053, 2054. Jefferies LLC.

The Wisconsin Housing and Economic Development Authority (Aa2/AA+//) is set to price $185 million of non-AMT home ownership revenue social bonds, serials 2024-2035, terms 2038, 2043, 2049, 2054. RBC Capital Markets.

The Ohio Housing Finance Agency (Aaa///) is set to price Thursday $145 million of non-AMT mortgage-backed securities program residential mortgage revenue social bonds, Series 2023 B, serials 2025-2035, terms 2038, 2043, 2048, 2054, 2055. Citigroup Global Markets Inc.

The South Carolina Jobs-Economic Development Authority (/A+/AA-/) is set to price Tuesday $126.065 million of Anmed Health hospital revenue bonds, serials 2040-2043, terms 2048, 2053. Citigroup Global Markets Inc.

The California Infrastructure and Economic Development Bank (Aa2///) is set to price Thursday $113.215 million of Academy of Motion Pictures Arts and Sciences Obligated Group revenue refunding bonds, Series 2023A, serials 2024-2030, 2033-2041. Wells Fargo Bank.

The Dormitory Authority of the State of New York (Aa3//A+/) is set to price Wednesday $111.355 million of State University of New York Dormitory Facilities Revenue Bonds, Series 2023, Series 2023A (Sustainability Bonds) and Series 2023B (Tender). Serials 2024-2043, terms, 2048, 2053. Siebert Williams Shank & Co.

Celina Independent School District, Texas, (Aaa/AAA//) is set to price Tuesday $100 million of unlimited tax school building bonds, Series 2023, PSF guarantee. Piper Sandler & Co, Minneapolis

The Indiana Finance Authority (Aaa/AAA/AAA/) is set to price Thursday $100 million of state revolving fund program green bonds, Series 2023B, serials 2030-2044. RBC Capital Markets.

The Rosemount-Apple Valley ISD, Minnesota, is set to sell $300 million of general obligation facilities maintenance and school building bonds, Series 2023A, Minnesota School District Credit Enhancement Program) at 10:30 a.m. eastern Tuesday. 

Hennepin County, Minnesota, (//AAA/) is set to sell $100 million of general obligation bonds at 10:45 a.m. Tuesday. 

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