A firm tone and hearty appetite from investors was evident Wednesday as the municipal market prepared for a shortened week due to the Thanksgiving holiday. U.S. Treasuries were mixed and equities were better.
The two-year muni-to-Treasury ratio Wednesday was at 63%, the three-year at 64%, the five-year at 65%, the 10-year at 67% and the 30-year at 88%, according to Refinitiv Municipal Market Data’s 3 p.m., ET, read. ICE Data Services had the two-year at 63%, the three-year at 64%, the five-year at 64%, the 10-year at 67% and the 30-year at 86% at 3 p.m.
Municipal mutual fund losses continued last week as the Investment Company Institute Wednesday reported investors pulled $1.116 billion from the funds in the week ending Nov. 15 after $1.531 billion of outflows the previous week.
Exchange-traded funds saw another week of inflows to the tune of $773 million after inflows of $1.876 billion the week prior, according to ICI.
“The market has had a solid tone to it recently even with the strong rally seen this month,” Roberto Roffo, managing director and portfolio manager at SWBC Investment Management, said of the Nov. 10 rally where municipal yields in 10 years fell by as much as 40 basis points.
And Wednesday was no exception as investors warm to the idea that rate volatility is over for the near term.
“It seems as though investors are coming to terms that the Federal Reserve may be done raising interest rates and that the economy will slow going into next year, potentially forcing the Fed to start lowering interest rates at some point,” Roffo said.
With ratios dropping last week, Roffo said he expects next week and the remainder of the year will see cautious buying “as investors adjust to longer durations in anticipation of lower rates next year.”
Others agreed mom-and-pop investors are actively pursuing municipals in the current market and eager to gobble up paper ahead of year-end.
“We are still seeing strength in the muni market and interest from retail investors at these current yield levels,” Bill Walsh, president of Hennion & Walsh, said on Wednesday.
“Friday will most likely be a light trading day, and we fully expect most retail investors not to be overly active until after the long Thanksgiving holiday weekend,” Walsh added.
Market activity may remain muted for the remainder of the year, said Tom Kozlik, managing director and head of public policy and municipal strategy at HilltopSecurities.
“We have an actual Fed meeting, we’ve got holidays,” he said.
Possible deals slated for November and December already pricing, being pulled forward in October, he said.
“There were folks toward the end of the summer or the beginning of the fall who were targeting pricings potentially in the middle to the end of the fourth quarter,” Kozlik said.
However, the dynamic in October was such that “folks saw that rates were rising, and they wanted to lock in rates as they were concerned rates would continue to rise in November and December,” he said.
But at the start of November, rates started to fall, prompting investors who were planning on pricing next week or into December to pull issuance forward.
“They were looking at the market and saying, ‘Okay, let’s get it done. Let’s get it done right now,'” Kozlik said.
Elsewhere, the typical strategy of tax loss harvesting — selling investments at a loss to offset capital gains elsewhere — is in full swing in the municipal market.
Although the recent decline in Treasury yields has reduced the available losses for some investors, tax loss harvesting is still the catalyst for a fair amount of the trading volumes in the current municipal market, according to Greg Shuman, partner and portfolio manager at Lord Abbett.
“Demand and investor interest seems to be increasing, as investors are increasingly confident that the Federal reserve interest-rate hiking cycle is over for now,” Shuman said on Wednesday.
“The recent decline in yields has not occurred evenly throughout the market, and several issuers on the lower-quality part of the market have lagged and not seen as large a decline in yields as the high-quality market,” he noted.
Looking forward to next week and beyond, Shuman cast a positive light on the municipals.
“The focus of the market will be on the remaining new-issue supply through year-end, and the positive technical environment from coupon income, maturities, and limited supply that typically exist in January,” he added.
New-issue calendar
The new-issue muni calendar is estimated at $7.33 billion next week billion with $5.435 billion of negotiated deals on tap and $1.895 billion on the competitive calendar, according to Ipreo and The Bond Buyer.
The New York Transportation Development Corp. leads the negotiated calendar with $1.5 billion of green AMT John F. Kennedy International Airport New Terminal One Project special facilities revenue bonds, followed by $575 million of tax-exempt GOs from the Los Angeles Community College District and $505 million of commonwealth mortgage bonds from the Virginia Housing Development Authority.
Illinois leads the competitive calendar with $875 million of GOs in three deals, followed by Alexandria, Virginia, with $254 million of GO capital improvement bonds.
Secondary trading
California 5s of 2024 at 3.17% versus 3.20% Tuesday and 3.36% on 11/10. Richmond, Virginia, 5s of 2024 at 3.24% versus 3.27% Tuesday. Bexar County, Texas, 5s of 2025 at 3.21%.
Washington 5s of 2028 at 2.94% versus 2.99% Tuesday and 3.10%-3.05% original on 11/15. Delaware 5s of 2029 at 2.89%-2.87% versus 2.91% Monday and 3.11% on 11/9. San Antonio, Texas, 5s of 2030 at 3.02%.
California 5s of 2032 at 2.94%-2.93% versus 2.98% Tuesday and 3.00% Monday. NYC 5s of 2037 at 3.60%-3.59%.
Austin Electric Utility System, Texas, 5s of 2048 at 4.23%. Massachusetts 5s of 2053 at 4.27%-4.25% versus 4.31% Tuesday and 4.31% Monday.
AAA scales
Refinitiv MMD’s scale was bumped two to five basis points: The one-year was at 3.21% (-2) and 3.09% (-2) in two years. The five-year was at 2.87% (-2), the 10-year at 2.94% (-5) and the 30-year at 4.00% (-5) at 3 p.m.
The ICE AAA yield curve was bumped one to four basis points: 3.21% (-1) in 2024 and 3.09% (-1) in 2025. The five-year was at 2.87% (-2), the 10-year was at 2.94% (-4) and the 30-year was at 3.94% (-4) at 3 p.m.
The S&P Global Market Intelligence municipal curve was bumped four basis points: The one-year was at 3.17% (-4) in 2024 and 3.04% (-4) in 2025. The five-year was at 2.90% (-4), the 10-year was at 2.97% (-4) and the 30-year yield was at 3.98% (-4), according to a 3 p.m. read.
Bloomberg BVAL was bumped three to four basis points: 3.15% (-3) in 2024 and 3.08% (-4) in 2025. The five-year at 2.85% (-4), the 10-year at 2.94% (-3) and the 30-year at 3.96% (-4) at 3 p.m.
Treasuries were mixed.
The two-year UST was yielding 4.911% (+3), the three-year was at 4.629% (+3), the five-year at 4.441% (+3), the 10-year at 4.417% (+1), the 20-year at 4.741% (-1) and the 30-year Treasury was yielding 4.546% (-2) at 3 p.m.
Primary to come:
The New York Transportation Development Corp. (Baa3//BBB-/BBB-) is set to price Wednesday $1.5 billion of green AMT John F. Kennedy International Airport New Terminal One Project special facilities revenue bonds, Series 2023, serials 2038-2044, terms 2049, 2054, 2060. Citigroup Global Markets.
The Los Angeles Community College District (Aaa/AA+//) is set to price Thursday $575 million of tax-exempt GOs, consisting of $174 million of Series M, serials 2024-2038, and $400 million of Series D, serials 2024-2030. BofA Securities.
The Virginia Housing Development Authority (Aaa/AAA//) is set to price Tuesday $505 million of commonwealth mortgage bonds, consisting of $50 million of non-AMT bonds, Series 2023C, serials 2025-2035, terms 2038, 2043, 2048, 2054; $100 million of taxables, Series 2023D, serials 2025-2033, terms 2038, 2043, 2048, 2054; $200 million of non-AMT bonds, Series E1, serial 2055; and $155 million of non-AMT bonds, Series 2023E-2, serial 2055. Wells Fargo Bank.
Miami-Dade County, Florida (A3//A/), is set to price Thursday $455.110 million of taxable seaport revenue bonds, Series 2023, serials 2026-2038, term 2055. Stifel, Nicolaus & Co.
The Massachusetts Development Finance Agency (A3/A//) is set to price Tuesday $400 million of Beth Israel Lahey Health issue revenue bonds, consisting of $200 million of Series M-1 and $200 million of Series M-2. Goldman Sachs.
The Ohio Water Development Authority is set to price Wednesday $300 million of green Water Pollution Control Loan Fund revenue bonds, Series 2023C, serials 2027-2033. Citigroup Global Markets.
The Economic Development Authority of the Isle Of Wight County, Virginia (A1/AA//) is set to price Wednesday $273.075 million of Riverside Health System health system revenue bonds, Series 2023, serials 2026-2033, terms 2043, 2048, 2053, insured by Assured Guaranty Municipal Corp. KeyBanc Capital Markets.
Utah Housing Corp. (Aa2///) is set to price Wednesday $232.380 million of single-family mortgage bonds, consisting of $108.145 million of non-AMT refunding bonds, 2024 Series A, and $124,235 million of taxables, 2024 Series B. Jefferies.
The Idaho Housing And Finance Association (Aa1///) is set to price Wednesday $205.115 million of taxable single family mortgage bonds, 2023 Series E, serials 2024-2033, terms 2039, 2044, 2049, 2054, 2054. Barclays.
Manatee County, Florida (Aaa//AA+/) is set to price Thursday $175 million of revenue improvement bonds, serials 2026-2043, terms 2048, 2053. BofA Securities.
The Palm Beach County School Board, Florida (Aa3//AA-/) is set to price Tuesday $149.525 million of certificates of participation, Series 2023A, serials 2032-2040. BofA Securities.
The Ohio Housing Finance Agency (Aaa///) is set to price Thursday $130 million of taxable social Mortgage-Backed Securities Program residential mortgage revenue bonds, 2023 Series C, J.P. Morgan Securities.
King County, Washington (Aaa/AAA/AAA/) is set to price Wednesday $126.410 million of taxable social limited tax GOs, Series 2023C. Morgan Stanley.
The Fort Bend County Public Facilities Corp., Texas (Aa2//AA/), is set to price Thursday $107.230 million of lease revenue bonds, Series 2023, serials 2025-2053. Raymond James & Associates.
EP Tuscany Zaragosa PFC, Texas (/A+//) is set to price Wednesday $101,005 million of HOME Essential Function Housing Program Project residential development revenue bonds, Series 2023, serial 2033. KeyBanc Capital Markets.
Competitive
Illinois (A3/A-/A-/) is set to sell $175 million of taxable GOs, Series of December 2023A, at 10:15 a.m. eastern Tuesday; $350 million of GOs, Series of December 2023B, at 10:45 a.m. Tuesday; and $350 million of GOs, Series of December 2023C, at 11:15 a.m. Tuesday.
Alexandria, Virginia, (Aaa/AAA//) is set to sell $253.545 million of GO capital improvement bonds at 10:30 a.m. Wednesday.
Westchester County, New York, is set to sell $125.469 million of GOs, 2023 Series A, at 11 a.m. Thursday; $27.468 million of GOs, 2023 Series B1, at 11:15 a.m. Thursday; $34.035 million of taxable GOs, 2023 Series C, at 11:30 a.m. Thursday; and $15.625 million of taxable GOs, 2023 Series D, at 11:45 a.m. Thursday.