Municipals were slightly firmer in spots Friday while U.S. Treasuries saw losses, snapping a two-day rally, following stronger-than-estimated consumer sentiment data. Equities were mixed.
Municipals largely ignored the moves in Treasuries after underperforming the rally throughout the week.
Some of the outperformance municipals have shown over the past few weeks is due to a dearth of new-issue supply. The new-issue calendar for next week, though, grows to well over $8 billion, led by a $1 billion-plus New York City Transitional Finance Authority future tax-secured subordinate deal. Supply is ramping up as Bond Buyer 30-day visible sits at $13.42 billion, which may test investor appetite.
However, macroeconomic data and Fed policy uncertainty have been the main drivers of both UST and muni performance. The Fed’s hawkishness in recent weeks has affected the macro market, according to BofA Securities’ analysts, “with Treasury rates breaking briefly above their 1H23 ranges.” Muni AAA rates are still within their 1H23 ranges, BofA analysts wrote.
Treasury rates came under pressure during the first week of July “due to hawkish Fed commentary, which suggested that there will be more hikes in the coming months,” said Barclays strategists Mikhail Foux, Clare Pickering and Mayur Patel said.
The Fed’s hawkish posture has likely been a response to “resilient GDP growth and a slower-than-expected decline of inflation,” BofA analysts wrote.
In the aftermath, Barclays strategists noted investors looked for signs of inflation easing as they shifted their focus to this week’s consumer price index and producer price index prints.
With both economic indications coming in softer than expected, they said investors were rewarded.
“Overall, we view it as a positive development, even though a good chunk of this slowing came from only three line items (large declines in airfares, lodging and used car prices), while the remaining services categories have not slowed meaningfully as of yet,” they said.
Investors responded positively to these releases, as UST rates “rallied hard across the curve, recouping all of July’s losses and more in just two trading sessions,” they said.
The market has almost fully priced in a 25 basis point rate hike when the Federal Open Market Committee meets later this month, with Barclays strategists expecting another rate hike this fall. The market, though, has not priced this in yet.
“A lot will depend on whether inflation is in check, and if the US economy is slowing down meaningfully enough,” they said. ”If rates remain largely range-bound, as we expect, tax-exempts will perform mostly in line with rates.”
In the first half of the year, market yields repeatedly approached their lower bounds in response to speculation of a recession, BofA analysts wrote — although the speculation has always been unfounded.
This week, yields are responding to the “more pleasant downside surprise of CPI,” and, BofA wrote, “this is confirmed by other inflation measures, yields should move again to those lower bounds from 1H23.”
If these positive economic conditions persist, BofA analysts predicted, investors may also see muni credit spreads narrow “more than we have expected since the end of 2022.”
The result of munis’ performance during the first half of the year led to “ratios dropping well below our year-end projections,” Barclays strategists said.
Therefore, it’s unsurprising that AAA-UST ratios “lagged this week’s rally in USTs, especially in the front end, as the Treasury yield curve steepened,” according to Barclays strategists. Even with muni ratios underperforming this week, they said ratios are “they are still somewhat rich versus fair value, and we do not see tax-exempts outperforming Treasuries much near term, despite supportive technicals.”
The two-year muni-to-Treasury ratio Friday was at 61%, the three-year at 64%, the five-year at 64%, the 10-year at 68% and the 30-year at 90%, according to Refinitiv MMD’s 3 p.m. read. ICE Data Services had the two-year at 63%, the three-year at 65%, the five-year at 64%, the 10-year at 68% and the 30-year at 91% at 4 p.m.
In the taxable world, taxable munis performed well in sympathy this week as corporate spreads continued to tighten, they said.
With the earning season about to commence, there will likely be “a good deal of volatility and possibly more corporate supply, which should affect corporates,” according to Barclays strategists. Taxable munis, they said, will likely move in sympathy.
Calendar stands at $8.6B
For the coming week, investors will be greeted with a new-issue calendar estimated at $8.625 billion.
There are $7.841 billion of negotiated deals on tap and $783.7 million on the competitive calendar.
The new-issue calendar is led by $1.08 billion of future tax-secured subordinate bonds from the New York City Transitional Finance Authority in two deals. The liquid, high-grade name should provide yield curves direction. The last time the issuer priced was in March amidst the Silicon Valley Bank failure.
Other large deals include $907 million of systemwide revenue bonds from the Trustees of the California State University; $574 million of sales tax revenue refunding bonds from the Santa Clara Valley Transportation Authority, California; and $517 of PSF-insured unlimited tax schoolhouse bonds from the Lamar Consolidated Independent School District, Texas.
Secondary trading
Georgia 5s of 2024 at 3.07%. Wisconsin 5s of 2025 at 2.89%. California 5s of 2026 at 2.72%.
Maryland 5s of 2028 at 2.60% versus 2.63% Thursday. Washington 5s of 2029 at 2.67%. NYC 5s of 2029 at 2.78% versus 2.82% on 7/6 and 2.81% on 7/5.
Board of Regents of the University of Texas System 5s of 2034 at 2.77%-2.76% versus 2.73%-2.76% on 7/5 and 2.73% on 7/3. California 5s of 2035 at 2.76% versus 2.76%-2.75% Thursday and 2.83%-2.80% Wednesday. NYC TFA 5s of 2037 at 3.17% versus 3.17% Thursday.
Tennessee State School Board Authority 5s of 2047 at 3.65%. Massachusetts 5s of 2053 at 3.81% versus 3.86%-3.84% Thursday and 3.90% Wednesday.
AAA scales
Refinitiv MMD’s scale was bumped up to two basis points: The one-year was at 3.03% (unch) and 2.90% (unch) in two years. The five-year was at 2.58% (-2), the 10-year at 2.59% (unch) and the 30-year at 3.51% (unch) at 3 p.m.
The ICE AAA yield curve was bumped two basis points: 3.02% (-2) in 2024 and 2.93% (-2) in 2025. The five-year was at 2.57% (-2), the 10-year was at 2.55% (-2) and the 30-year was at 3.54% (-2) at 4 p.m.
The IHS Markit municipal curve was bumped up to three basis points: 3.03% (unch) in 2024 and 2.91% (unch) in 2025. The five-year was at 2.57% (-3), the 10-year was at 2.59% (unch) and the 30-year yield was at 3.51% (unch), according to a 3 p.m. read.
Bloomberg BVAL was bumped up to one basis point: 2.98% (-1) in 2024 and 2.88% (-1) in 2025. The five-year at 2.58% (-1), the 10-year at 2.53% (-1) and the 30-year at 3.51% (-1) at 4 p.m.
Treasuries were weaker.
The two-year UST was yielding 4.762% (+14), the three-year was at 4.372% (+14), the five-year at 4.043% (+10), the 10-year at 3.827% (+6), the 20-year at 4.112% (+3) and the 30-year Treasury was yielding 3.929% (+2) near the close.
Primary to come:
The New York City Transitional Finance Authority (Aa1/AAA/AAA/) is set to price Wednesday $950 million of tax-exempt future tax-secured subordinate bonds, Fiscal 2024 Series A, Subseries A-1. J.P. Morgan Securities.
The Trustees of the California State University (Aa2/AA-//) is set to price Wednesday $906.529 million of systemwide revenue bonds, consisting of $343.945 million of tax-exempts, Series 2023A, serials 2024-2043, terms 2048, 2053; $462.575 million of taxables, Series 2023B, serials 2024-2039, term 2053; and $100 million of tax-exempts, Series 2016B-3, term 2051. Barclays.
The Santa Clara Valley Transportation Authority, California (Aa2/AAA//), is set to price Tuesday $574.130 million of 2000 Measure A sales tax revenue refunding bonds, Series 2023A, serials 2024-2036. Wells Fargo Bank.
The Lamar Consolidated Independent School District, Texas (Aaa/AAA//), is set to price Thursday $516.925 million of PSF-insured unlimited tax schoolhouse bonds, Series 2023A. Jefferies.
Salt Lake City (A2/A+//AA) is set to price Wednesday $429.110 million of AMT airport revenue bonds, Series 2023A, serials 2025-2043, terms 2048, 2053, on behalf of Salt Lake City International Airport. BofA Securities.
The Arkansas Development Finance Authority is set to price next week $330 million of Hybar Steel Project industrial development revenue bonds, consisting of $110 million of tax-exempts, Series 2023A, and $220 million taxable, convertible to tax-exempt, green bonds, Series 2023B. Goldman Sachs.
The Maryland Department of Housing and Community Development (Aa1//AA+/) is set to price Wednesday $300 million of social residential million of bonds, consisting of $115 million of tax-exempts Series 2023C, serials 2024-2035, terms 2038, 2043, 2049, 2054; and $185 million of taxables, Series 2023D, serials 2024-2035, terms 2038, 2043, 2047, 2053. RBC Capital Markets.
The Michigan State Building Authority (Aa2/AA-/AA/) is set to price next week $277.310 million of 2023 Facilities Program revenue refunding bonds, Series II, serials 2023-2043, term 2047. Barclays.
The San Francisco Public Utilities Commission (Aa2/AA-//) is set to price Wednesday $273.730 million of San Francisco Water revenue refunding bonds, consisting of $263.370 million of Series 2023C and $10.360 million of Series 2023D. Jefferies.
The Board of Regents of Texas Tech University System (Aa1//AA+/AA+/) is set to price Thursday $253.700 million of revenue financing system bonds, consisting of Series 2023A refunding and improvement bonds and Series 2023B taxable improvement bonds. J.P. Morgan Securities.
The Cities of Dallas and Fort Worth, Texas (A1/A+/A+/AA), is set to price Wednesday $230.230 million of taxable joint revenue refunding bonds, Series 2023A, serials 2023-2037, terms 2042, 2047, on behalf of the Dallas Fort Worth International Airport. Loop Capital Markets.
The Southwest Independent School District, Texas, is set to price Wednesday $200 million of PSF-insured unlimited tax school building bonds, Series 2023, serials 2024-2053. Hilltop Securities.
The South Carolina Jobs – Economic Development Authority is set to price Tuesday $191.625 million of Seafields at Kiawah Island Project retirement community revenue bonds, consisting of $84.165 million of Series 2023A, $41.385 million of Series 2023B-1, $50.915 million of Series 2023B-2 and $15.160 million of Series 2023C. Ziegler.
The Bexar County Hospital District, Texas (Aa1/AA+), is set to price Tuesday $186.865 million of certificates of obligation, Series 2023, serials 2025-2043, terms 2048, 2053. Siebert Williams Shank & Co.
The St. Lucie County School Board, Florida (A1/AA//), is set to price Thursday $185 million of Assured Guaranty Municipal-insured certificates of participation, Series 2023A and 2023B. RBC Capital Markets.
The Forney Independent School District, Texas (/AAA//), is set to price Tuesday $184.905 million of PSF-insured unlimited tax school building bonds, Series 2023. FHN Financial Capital Markets.
The Indiana Finance Authority (Aa3/AA//) is set to price Tuesday $175.370 million of CWA Authority Project forward delivery first lien wastewater utility revenue refunding bonds, Series 2024A, serials 2027-2045. Citigroup Global Markets.
The Rhode Island Housing and Mortgage Finance Corp. (Aa1/AA+//) is set to price Wednesday $160.290 million of homeownership opportunity bonds, consisting of taxable Series 80-T-I and non-AMT social Series 80-A. J.P. Morgan Securities.
The Las Vegas Convention and Visitors Authority (Aa3/AA-//) is set to price Wednesday $150 million of convention center expansion and renovation revenue bonds, consisting of $137.060 million of tax-exempts, serials 2027-2043, term 2049, and $12.940 million of taxables, series 2024-2027. BofA Securities.
The Pasadena Area Community College District, California (Aa1/AA+//), is set to price Tuesday $130 million of 2022 election GOs, consisting of $108.240 million of Series A-1, serials 2025, 2029-2043, terms 2047,2052, $10.690 million of Series A-TXB, serial 2024, and $11.070 million of Series A-2, serial 2024. Raymond James & Associates.
North Dakota (Aa1///) is set to price Tuesday $125 million of non-AMT social North Dakota Housing Finance Agency home mortgage finance program housing finance program bonds, Series 2023D, serials 2024-2035, terms 2038, 2043, 2048, 2054. RBC Capital Markets.
Competitive
The New York City Transportation Finance Authority is set to sell $130 million of taxable future tax-secured subordinate bonds, Fiscal 2024A Series A, Subseries A-2, at 11:15 a.m. eastern Wednesday.
Rochester, New York, is set to sell $105.250 million of bond anticipation notes, Series 2023 II, at 11 a.m. Wednesday.