Muni rout pauses as primary focus returns

Bonds

Municipals were slightly weaker outside of five years Wednesday, with triple-A benchmarks cutting levels by a basis point or two, after four days of a correction to higher yields not seen since February and March of this year.

U.S. Treasuries pulled back from Tuesday’s losses earlier in the morning, but yields rose into the afternoon and then fell again near the close to settle at 1.528% in 10-years and 2.075% in 30.

Ratios were in line with the moves, with the 10-year municipal to UST ratio at 73% and the 30-year at 80%, according to Refinitiv MMD. The 10-year ratio was at 72% while the 30-year was at 80%, according to ICE Data Services.

Another round of large inflows was reported from the Investment Company Institute for the 29th consecutive week. ICI reported $1.814 billion of inflows for the week ending Sept. 22, following $1.42 billion of inflows the prior week.

It brings the total inflows to $76 billion year-to-date. Exchange-traded funds saw $233 million of inflows after $510 million a week prior.

Tax-exempt municipal money market fund assets fell for another week, this time by $219 million.

“We’ve definitely seen a correction to these higher yields driven by volatility in govies and stocks, and I see it as more opportunistic, month/quarter-end selling by participants tired of grossly low yields,” a New York trader said. “By that I mean other than taper coming and inflation concerns, not much else has changed in the municipal market fundamentally. Look at fund flows — massive again.

“Perhaps some sectors are too rich (i.e. transportation and healthcare) because COVID concerns are still here and the rebound there might not be as swift,” he said. “Everybody wants higher yields, save for the issuers. This was a welcomed correction.”

Spreads were wider in primary issues, with competitive Maryland Department of Transportation short call bonds well above triple-A benchmarks. Philadelphia’s 10-year with a 5% coupon saw a +25 basis point spread to triple-As.

In the largest deal of the week, BofA Securities priced for Hawaii (Aa2/AA+/AA//) $1.883 billion of taxable general obligation bonds and taxable general obligation refunding bonds in multiple series ranging from minus-5 basis points to UST on the one year to plus-79 basis points to UST on its longest maturity due in 2041. Bonds maturing in 10/2022, 8/2022 and 2/2022 all yield 0.247% at par, at 1.283% in 2026, 2.042% in 2031, 2.642% in 2036 and 2.87% in 2041.

Ramirez & Co., Inc. priced and repriced for Philadelphia (A1/A+/A+/) $231.93 million of water and wastewater revenue bonds, Series 2021C with some cuts to longer bonds: 5s of 10/2023 at 0.22%, 5s of 2026 at 0.63%, 5s of 2031 at 1.36%, 4s of 2036 at 1.83% (+5), 4s of 2041 at 2.00% (+3), 5s of 2046 at 2.00% and 4s of 2051 at 2.20% and 2.75s of 2051 at par, callable 10/1/2031.

The Maryland Department of Transportation (Aa1/AAA/AA+) sold $295 million of consolidated transportation bonds, Series 2021A to BofA Securities. Bonds in 10/2024 with a 5% coupon yield 0.30%, 5s of 2026 at 0.57%, 3s of 2031 at 1.40%, and 2.125s of 2036 at par, callable in 10/1/2029.

The Maryland Department of Transportation also sold $138.415 million of consolidated transportation bonds to Morgan Stanley. Bonds in 12/2022 with a 5% coupon yield 0.13%, 5s of 2026 at 0.59% and 5s of 2028 at 0.95%, noncall.

The Illinois Regional Transportation Authority (/AA//) sold $89.21 million of taxable revenue bonds to R.W. Baird. Bonds in 6/2022 with a 3% coupon yield 0.25%, 3s of 2026 at 1.40%, 3s of 2031 at 2.20%, 2.8s of 2036 at 2.70%, 3s of 2041 at par and 3.05s of 2044 at 3.10%, callable in 6/1/2031.

Supply slows in September
Preliminary supply figures for September show $33.8 billion of total debt as of Wednesday, a 36.7% drop year-over-year. Taxables fell a whopping 68.7% in September as did refundings by 66.8%.

Wednesday’s issuance is not included, which will bring the figures down some but a 30% drop is still significant. But September 2020 had some COVID-distorted issuance (as did most months in 2020) and some pre-election growth (as did October 2020).

Taxable volume is growing with several new issues lining up with billion-plus deals including $1.5 billion from the Alabama Federal Aid Highway Finance Authority and nearly $500 million of taxable green bonds for the San Diego Unified School District, among others.

Total preliminary figures put year to date issuance at $344.016 billion, slightly lower than the $355.01 billion in 2020. Final figures will be released Thursday.

Thirty-day visible supply totals $13.62 billion.

Informa: Money market muni funds fall again
Tax-exempt municipal money market fund assets fell by $219 million, lowering their total to $89.48 billion for the week ending Sept. 28, according to the Money Fund Report, a publication of Informa Financial Intelligence.

The average seven-day simple yield for the 150 tax-free and municipal money-market funds sat at 0.01%, the same as the previous week.

Taxable money-fund assets fell by $52.77 billion, bringing total net assets to $4.382 trillion. The average, seven-day simple yield for the 765 taxable reporting funds sat at 0.02%, same as the prior week.

Secondary trading and scales
Massachusetts 5s of 2022 at 0.16%. Nevada 5s of 2022 at 0.16%. New York City 5s of 2022 at 0.148%. New York EFC 5s of 2022 at 0.148%.

New York City TFA 5s of 2023 at 0.22%. Hennepin County, Minnesota 5s of 2024 at 0.36%.

California 5s of 2026 at 0.62%. Ohio waters 5s of 2026 at 0.50% (0.39% Thursday). Maryland DOT 5s of 2026 at 0.58% (sold at 0.57%).

Fairfax County, Virginia 5s of 2027 at 0.53%. Washington 5s of 2027 at 0.73%. New York Dorm PIT 5s of 2027 at 0.72%.

Delaware 5s of 2031 at 1.13%-1.11% (1.05%-1.04% Monday).

Maryland 5s of 2033 at 1.26%-1.25% (9/10 1.12%). New York City TFA 5s of 2033 at 1.49%-1.48% (1.35%-1.34% on 9/21). Maryland 5s of 2034 at 1.33%-1.34% (1.23%-1.19% on 9/23).

New York City 5s of 2036 at 1.58% (1.50% on 9/9).

Washington 5s of 2041 at 1.67%-1.55% (1.50% a week prior). NYC TFA 4s of 2042 at 2.05%-2.04% (1.87% on 9/3).

NYC waters 5s of 2048 at 2.00%-1.98% versus 1.87% Monday.

According to Refinitiv MMD, short yields were steady at 0.13% and at 0.20% in 2022 and 2023. The yield on the 10-year rose two basis points to 1.13% while the yield on the 30-year moved up two to 1.67%.

The ICE municipal yield curve showed bonds steady in 2022 at 0.15% and at 0.19% in 2023. The 10-year maturity rose one basis point to 1.10% and the 30-year yield increased one basis points to 1.67%.

The IHS Markit municipal analytics curve showed short yields steady at 0.13% and 0.18% in 2022 and 2023, respectively. The 10-year yield rose three to 1.11% and the 30-year yield up two to 1.66%.

The Bloomberg BVAL curve showed short yields steady at 0.15% and 0.16% in 2022 and 2023. The 10-year yield rose two to 1.11% and the 30-year yield rose one to 1.66%.

In late trading, Treasuries were weaker as equities were mixed.

The 10-year Treasury was yielding 1.528% and the 30-year Treasury was yielding 2.075%. The Dow Jones Industrial Average rose 90 points, or 0.27%, the S&P 500 gained 0.16% while the Nasdaq fell 0.24%.

Pending home sales up; Harker voices cautious optimism
The housing market seems to be on the upswing as one indicator of activity released Wednesday surprised to the upside.

Pending home sales rose 8.1% in August, the first increase after two straight months of declines, the National Association of Realtors reported.

Economists surveyed by IFR Markets had expected a gain of only 1.3% last month after pending sales had fallen a revised 2.0% in July, originally reported as a 1.8% drop.

The pending home sales index, which is based on contract signings, increased to 119.5 in August from 110.5 in July. An index of 100 is equal to the level of contract activity in 2001.

“Rising inventory and moderating price conditions are bringing buyers back to the market,” Lawrence Yun, NAR’s chief economist, said in a release. “Affordability, however, remains challenging as home price gains are roughly three times wage growth.”

Each of the four major regions saw month-over-month growth in contract activity, NAR said. However, all reported year-over-year declines as signings dipped 8.3%, with the Northeast being hit hardest.

The Northeast index rose 4.6% to 96.2 in August, but was down 15.8% from a year ago. In the Midwest, the index climbed 10.4% to 115.4, but was down 5.9% from August 2020.

Transactions in the South increased 8.6% to 141.8 and was down 6.3% from last year while the index in the West gained 7.2% last month to 107.0, but was down 9.2% from a year ago.

“The more moderately priced regions of the South and Midwest are experiencing stronger signing of contracts to buy, which is not surprising,” Yun said. “This can be attributed to some employees who have the flexibility to work from anywhere, as they choose to reside in more affordable places.”

Looking at the national economy, Patrick Harker, President of the Federal Reserve Bank of Philadelphia, said he sees some signs of cautious optimism ahead.

“For 2021, I would expect GDP growth to come in at around 6.5%. It will then moderate to about 3.5% in 2022, and 2.5% in 2023. Inflation, meanwhile, should come in around 4% for 2021 — we’re already seeing some moderation there, as prices of used cars finally stabilize,” he said in remarks prepared for delivery to a virtual meeting of the Risk Management Association’s Philadelphia Chapter. “After that, we can expect inflation of a bit over 2% for 2022 and right at 2% in 2023. Unemployment should fall steadily during this period as well.”

He noted that downside risks include supply chain disruptions and possibly another resurgence of the coronavirus. In the short term, he said Congress’ failure to raise the debt ceiling could harm economic growth significantly.

“In terms of monetary policy, I am in the camp that believes it will soon be time to begin slowly and methodically — frankly, boringly — tapering our $120 billion in monthly purchases of Treasury bills and mortgage-backed securities,” he said.

He noted that while asset purchases were necessary to keep financial markets functioning during the height of the pandemic, he said the problem lies on the supply side, not with demand.

“You can’t go into a restaurant or drive down a commercial strip without noticing a sea of ‘Help Wanted’ signs. Asset purchases aren’t doing much — or anything — to ameliorate that,” he said.

Harker added that only after the Fed tapers its asset purchases, it can begin to think about raising the federal funds rate.

“But I wouldn’t expect any hikes to interest rates until late next year or early 2023,” he said.

Primary to come
The Golden State Tobacco Securitization Corp. (Aa3/A+/AA-//) is set to price Thursday $1.843 billion enhanced tobacco settlement asset-backed bonds, Series 2021B (federally taxable), serials 2022-2030, terms 2034, 2042 and 2046. Jefferies LLC.

Texas Water Development Board (/AAA/AAA/) is set to price Thursday $430.36 million of state water implementation revenue fund revenue bonds, Series 2021 (Master Trust), serials 2022-2056. Wells Fargo Corporate & Investment Banking.

Municipal Electric Authority of Georgia (A2/A-/BBB+/) is set to price Thursday $196.04 million, consisting of $137.52 million of project one subordinated bonds, Series 2021A, serials 2023 and 2029-2041, terms 2046 and 2051 and $58.52 million of general resolution projects subordinated bonds, Series 2021A, serials 2023-2036. Barclays Capital Inc.

Municipal Electric Authority of Georgia (A2/A-/BBB+/) is set to price Thursday $132.575 million, Taxable Series 2021B, consisting of $104.58 million of project one subordinated bonds, taxable series 2021B, serials 2023-2036 and $27.995 million of general resolution projects subordinated bonds, Series 2021B, serials 2023-2031. Barclays Capital Inc.

Maryland Health and Higher Educational Facilities Authority (Baa3////) is set to price $213.36 million of revenue bonds, Adventist HealthCare Issue Series 2021B & C, consisting of $143.285 million of Series B and $70.075 million of Series C. Ziegler.

Department of Transportation of Maryland (Aa1/AAA/AA+/) is set to price Thursday $196.32 million of forward delivery consolidated transportation bonds, refunding series 2022A and refunding series 2022B (forward delivery), consisting of $52.565 million of Series 2022A and $143.755 million of Series 2022B. J.P. Morgan Securities LLC.

Competitive deals
New Castle County, Delaware, (Aaa/AAA/AAA) is set to sell $87.305 million of general obligation bonds, Series 2021A at 10:45 a.m. Thursday and $206.7 million of general obligation bonds, Series 2021B (federally taxable) at 11:15 a.m. Thursday.

Greenville County (/A-1+//) is set to sell $152.43 million of general obligation bonds, Series 2021B at 11 a.m. Thursday.

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