Municipals improve on flight-to-quality trade

Municipals improved Tuesday following a flight-to-quality rally in U.S. Treasuries while the new-issue calendar got underway led by a retail offering for New York City. Equities ended down following Moody’s Investors Service downgrades of several mid-sized U.S. banks.

Triple-A yields fell by three to six basis points while USTs fell the same.

The two-year muni-to-Treasury ratio Tuesday was at 67%, the three-year at 68%, the five-year at 67%, the 10-year at 67% and the 30-year at 88%, according to Refinitiv MMD’s 3 p.m. read. ICE Data Services had the two-year at 66%, the three-year at 67%, the five-year at 67%, the 10-year at 67% and the 30-year at 87% at 4 p.m.

The fixed income market is experiencing a paradigm shift, according to Nuveen. 

“Investors still believe the Fed will win its battle against inflation, but some also see the U.S. dodging a hard landing,” Nuveen said. “If the U.S. avoids a recession, long-term yields may be higher in 2024.”

Munis sold off along the curve last week, “which is not surprising since munis have been expensive to Treasuries recently,” Nuveen said. “However, we think munis should remain well bid, as a good portion of the $46 billion of summer reinvestment money has yet to be deployed.”

Municipal Market Analytics’ valuation measures showed “a near complete capitulation of the municipal offered side last week,” which was to be expected amid simultaneous factors including, “a 20-plus basis point yield rise on inflation expectations, the heaviest new-issue calendar in five months, and “still dreadful cross-market correlations that denigrate hedging economics.” 

All spots on the curve read both cheap and cheapening on Monday, which MMA said was “an opportunity for patient buyers not relying on a near-term momentum turn to justify purchases.”

More on the Fitch downgrade
Nuveen noted that while it agreed with certain reasons behind Fitch’s U.S. credit rating downgrade, the AAA rating “has never significantly driven investors’ allocations into Treasuries.”

“Instead, the market’s size, depth, and liquidity — none of which will be affected by the downgrade —play a greater role,” the firm said. “Government-sponsored enterprises and municipal bonds are also unlikely to be materially influenced.”

Nuveen said healthy U.S. economic growth and greater net Treasury supply have fueled the latest upswing in Treasury yields.

“Incoming data has been broadly positive, with second-quarter GDP growth topping forecasts and jobless claims falling toward recent lows,” the firm said. “And last week, the U.S. Treasury announced that it will increase nominal security auction sizes, which lifted yields across the curve. These dynamics should affect U.S. debt markets more than Fitch’s decision.”

The primary was active Tuesday and new issues saw good demand and repriced to lower yields. This was somewhat expected as last week new-issue supply “was priced to sell, and most deals were well received,” Nuveen said.

“This week’s new issue calendar will still need to be priced to sell to pique investor interest,” Nuveen said.

Loop Capital Markets priced for retail investors for New York City (Aa2/AA/AA/AA+) $1.017 billion of GOs. The first tranche, $950 million of Series Fiscal 2024A, saw 5s of 8/2025 at 3.27%, 5s of 2028 at 3.03%, 5s of 2033 at 3.17%, 5s of 2038 at 3.72%, 5s of 2043 at 4.05%, 5s of 2048 at 4.22%, and 4.25s of 2053 at 4.5%. Callable 8/1/2033. The second tranche, $67.425 million of reoffering Series 2012G, subseries G-5, saw 5s of 4/2028 at 3.04%, 5s of 2033 at 3.16%, 5s of 2038 at 3.72%, and 5s of 2041 at 3.95%. Callable 10/1/2033.

Morgan Stanley priced for the Port of Houston Authority of Harris County, Texas, (Aa3/AA+//) $394.390 million of first lien revenue bonds, Series 2023, with 5s of 10/2024 at 3.48%, 5s of 2028 at 3.12%, 5s of 2033 at 3.18%, 5s of 2038 at 3.62%, 5s of 2043 at 4%, 5s of 2048 at 4.2%, and 5s of 2053 at 4.28%. Callable 10/1/2033.

Siebert Williams Shank & Co. priced and repriced for the Triborough Bridge and Tunnel Authority (Aa3/AA-/AA-/AA) $370.2 million of general revenue bonds, Series 2023. The first tranche, $300 million of Subseries 2023B-1, saw 5s of 11/2034 at 3.14% (-4 bps), 5s of 2038 at 3.58% (-5), 5s of 2043 at 3.95% (-5), 5s of 2048 at 4.11% (-6), and 5.25s of 2053 at 4.10% (-5). Callable 11/15/2033. The second tranche, $70.2 million of refunding bonds, Subseries 2023B-2, saw 5s of 11/2024 at 3.30% (-5), 5s of 2028 at 2.90% (-5), and 5s of 2030 at 2.92% (-4).

Wells Fargo priced for the Washington Metropolitan Area Transit Authority (/AA//AA) $797.800 million of second lien dedicated revenue sustainability climate transition bonds, Series 2023A, with 5s of 7/2024 at 3.42%, 5s of 2028 at 3.07%, 5s of 2033 at 3.15%, 5s of 2038 at 3.70%, 5s of 2043 at 3.97%, 5s of 2048 at 4.17% and 5.25s of 2053 at 4.20%. Callable 7/15/2033.

Secondary trading
Washington 5s of 2026 at 3.15%. Maryland 5s of 2026 at 3.06%. Maryland 5s of 2027 at 2.86%.

Minnesota 5s of 2028 at 2.78%. Wake County 5s of 2029 at 2.76%. New York City 5s of 2029 at 2.99%. Washington 5s of 2029 at 2.88%.

New York Dorm PITs 5s of 2030 at 2.86%. Maryland 5s of 2030 at 2.76%.

California 5s of 2036 at 3.04%.

District of Columbia 5s of 2044 at 3.71%. New York City TFA 5s of 244 at 3.87%. New York City TFA 5s of 2048 at 4.02%.

AAA scales
Refinitiv MMD’s scale was bumped three to five basis points: The one-year was at 3.30% (-3) and 3.14% (-2) in two years. The five-year was at 2.79% (-5), the 10-year at 2.72% (-5) and the 30-year at 3.69% (-4) at 3 p.m.

The ICE AAA yield curve was bumped: 3.29% (-3) in 2024 and 3.16% (-3) in 2025. The five-year was at 2.79% (-3), the 10-year was at 2.73% (-3) and the 30-year was at 3.73% (-3) at 4 p.m.

The S&P Global Market Intelligence (formerly IHS Markit) municipal curve was bumped: 3.31% (-3) in 2024 and 3.14% (-3) in 2025. The five-year was at 2.80% (-4), the 10-year was at 2.74% (-4) and the 30-year yield was at 3.68% (-4), according to a 4 p.m. read.

Bloomberg BVAL was bumped: 3.21% (-3) in 2024 and 3.10% (-3) in 2025. The five-year at 2.78% (-4), the 10-year at 2.71% (-4) and the 30-year at 3.76% (-4) at 4 p.m.

Treasuries were better.

The two-year UST was yielding 4.756% (flat), the three-year was at 4.419% (-3), the five-year at 4.113% (-4), the 10-year at 4.02% (-6), the 20-year at 4.358% (-6) and the 30-year Treasury was yielding 4.20% (-6) at the close.

Primary to come
The Sports Authority of the Metropolitan Government of Nashville & Davidson County (A1/AA//AA+/) is set to price Wednesday $703.860 million of stadium project revenue bonds, consisting of $344.940 million of senior bonds, Series 2023A; $84.925 million of subordinate bonds, Series 2023B; $56.830 million of non-tax revenue pledges, Series 2023C; and $217.365 million of taxable non-tax revenue pledges, Series 2023D.

The Texas Public Finance Authority (/AAA/AAA/) is set to price Wednesday $366.300 million of taxable GO and refunding bonds, Series 2023, serials 2024-2038, term 2043. Ramirez & Co. 

The Pecos-Barstow-Toyah Independent School District, Texas, (/AAA//) is set to price Thursday $300 million of PSF-insured unlimited tax school building bonds, Series 2023, serials 2024-2043. RBC Capital Markets. 

The City and County of Honolulu (/AA+/AA+/) is set to price Wednesday $265.845 million of GOs, consisting of $76.410 million of Series 2023A, serials 2024-2048; $22.890 million of Series 2023B, serials 2024-2032; $26.085 million of Series 2023C, serials 2024-2048; and $140.460 million of Series 2023D, serials 2025-2031. BofA Securities. 

The Oregon Business Development Commission is set to price $141.855 million of non-AMT Intel Corp. project recovery zone facility bonds, Series 232.     

The Washington State Housing Finance Commission (//A-/) is set to price Wednesday $118.175 million of Emerald Heights Project nonprofit housing revenue and refunding revenue bonds, consisting of $88.775 million of Series 2023A, $7 million Series 2023B-1, and $22.400 million of Series 2023B-2. Ziegler. 

The Aledo Independent School District, Texas (/AAA/AAA/), is set to price Wednesday $166.255 million of PSF-insured unlimited tax school building bonds, Series 2023. FHN Financial Capital Markets. 

Oyster Bay, New York, is set to sell $125 million of bond anticipation notes, Series 2023, at 10:45 a.m. Thursday.