A flurry of diverse credits in the primary helped to guide the secondary with the 10-year falling below 1% on both Bloomberg BVAL and IHS Markit as municipals continue to grind lower.
One-year municipal debt has fallen to record lows with benchmark yield curves at 0.05%.
The yield currently on the 30-year municipal triple-A hovers at or just below the 10-year U.S. Treasury.
New deals in both the competitive and negotiated markets were oversubscribed and in some cases, well through benchmark yields. San Diego green water bonds repriced to sub 1% in 10-years and a short (2021-2025) Metropolitan Council of Minnesota (Aaa/AAA//) sold to J.P. Morgan helped move the short- and intermediate-portions of the curve to lower yields.
Secondary trading showed stronger prints on high-grades and specialty states such as New York and California bonds rallied more on the continued expectation of higher taxes but also simply on overall higher demand.
Triple-A benchmarks fell two to three basis points on all curves.
On Refinitiv MMD’s AAA benchmark scale, short yields fell two basis points to 0.05% in 2022 (a record behind the previous of 0.06% reached in February of this year) and 0.11% in 2023. The yield on the 10-year fell two to 1.01% and as did the 30-year at 1.64%.
The ICE AAA municipal yield curve showed yields lower at 0.06% in 2022 and 0.10% in 2023. The 10-year maturity fell two to 1.00% while the 30-year fell to 1.63%.
The IHS Markit municipal analytics AAA curve showed yields at 0.05% in 2022 and 0.10% in 2023, the 10-year fell to 0.98% and the 30-year to 1.62%.
The Bloomberg BVAL AAA curve showed yields at 0.05% in 2022 and 0.08% in 2023, while the 10-year fell two to 0.97%, and the 30-year yield fell to 1.62%.
The three-month Treasury note was yielding 0.03%, the 10-year Treasury was yielding 1.62% and the 30-year Treasury was yielding 2.31% near the close. Equities were mixed with the Dow down 65 points, the S&P 500 rose 0.31% and the Nasdaq gained 0.99% near the close.
Municipal to UST ratios closed at 62% in 10-years and 70% in 30-years on Tuesday, according to Refinitiv MMD while ICE Data Services had the 10-year at 62% and the 30 at 71%.
The below average supply is helping to support the market, according to Anthony Valeri, director of investment management at Zions Bancorp in San Diego.
“Considering a stronger than expected CPI release and a supply surge in the Treasury market, municipal bonds are holding in very well,” Valeri said on Tuesday. “The resilience of the municipal bond market is an indication that the rise in yields may have run its course for now."
The yield comparison is one of the contrasts between the second and first quarter, according to Valeri.
“Municipal bonds were relatively resilient during the first quarter, but bond investors were generally on the defensive as prices weakened in response to steadily rising Treasury yields,” he said. “The current period of stability, which started in mid-March, is welcome and the higher absolute yields, although still low on a historical basis, is drawing in some buyers.”
“Although I believe most investors anticipate still higher yields, there is sentiment that the worst may have passed,” he added.
Valeri said investors are realizing the scope of the potential tax increases after the recent passage of President Biden’s $2 trillion infrastructure package, which is not yet fully priced into the stock or bond markets.
“The announcement of the recent infrastructure bill is going to be largely funded with higher taxes and to a much greater degree than anticipated in Q1,” he said.
He pointed out that although The Bond Buyer 30-day visible supply is elevated for 2021, it is below the one-year average.
In the primary Tuesday, Loop Capital Markets priced for retail investors $359.1 million of lease revenue bonds, 2021 Series B for the State Public Works Board of the State of California (Aa3/A+/AA-/). Bonds in 2022 with a 5% coupon yield 0.12%, 5s of 2026 at 0.59%, 5s of 2031 at 1.23%, 4s of 2036 at 1.71%, 4s of 2040 at 1.89%. Bonds in 2037-2039 and 2041, 2046 were not offered to retail.
Citigroup Global Markets Inc. repriced to lower yields $272.5 million of water revenue refunding green bonds, Series 2021B for the San Diego County Water Authority (Aa2/AAA/AA+/). Bonds in 2030 with a 5% coupon landed at 0.88%, nine basis points lower than initial wires, 5s of 2031 at 0.97%, 4s of 2036 at 1.36% and 4s of 2038 at 1.50%.
In the competitive market, the Metropolitan Council of Minnesota sold $185.8 million of Series 2021B GO grant anticipation notes and $204.1 million of Series 2021C grant anticipation notes both to J.P. Morgan Securities LLC. Bonds in the first series, had 5s of 2021 at 0.05%, 5s of 2022 at 0.06%, 5s of 2023 at 0.15%, 5s of 2024 at 0.24% and 5s of 2025 at 0.36%. The second series had 5s of 2026 at 0.47%, 5s of 2027 at 0.63%, 5s of 2028 at 0.77% and 5s of 2029 at 0.89%.
Palm Beach County, Fla., (/AA+//) sold $166.865 million of bonds in three offerings. The deals consist of $68.795 million of Series 2021C taxable public improvement revenue refunding bonds for the Professional Sports Franchise Facility project that went to Wells Fargo Securities
Hilltop Securities won $53.2 million of Series 2021A tax-exempt public improvement revenue bonds for the Supervisor of Elections Operations building project
PNC Capital Markets won $44.87 million of Series 2021B taxable public improvement revenue refunding bonds.
Piper Sandler & Co. priced $195 million of general obligation bonds for the Deschutes Public Library District, Deschutes County, Oregon (Aa2///). Bonds in 2022 with a 4% coupon yield 0.12%, 4s of 2026 at 0.60%, 4s of 2031 at 1.22%, 2s of 2036 at 1.89% and 3s of 2041 at 1.84%.
Citigroup Global Markets Inc. priced $109.9 million of taxable Oregon State lottery revenue refunding bonds. Bonds all priced at par, in 2023 at 0.311%, 1.119% in 2026, 2.105% in 2031, and 2.255% in 2033. A $14 million exempt series had bonds in 2023 with a 5% coupon at 0.15%, 5s of 2026 at 0.53% and 5s of 2031 at 1.15%.
Investors await gilt-edged bellwether Delaware and its $293.1 million of GO bonds going competitively Wednesday.
Secondary market trading
Maryland 5s of 2022 traded at 0.08% versus 0.09% Monday. New York City 5s of 2022 at 0.15% versus 0.18% Friday.
Georgia 5s of 2027 at 0.64%. Georgia 5s of 2028 at 0.76%-0.74%. Wake County, North Carolina 5s of 2028 at 0.73%-0.72%. California 5s of 2030 at 1.02%. Forsyth County 4s of 2031 traded at 1.04% versus 1.09% Thursday.
Louisiana 5s of 2037 traded at 1.47%. Louisiana 5s of 2040 at 1.59%. New York City TFA 4s of 2038 at 1.85% versus 1.92% Wednesday. University of Texas 3s of 2041 at 1.76%-1.75% versus 1.80% original.
New York City 5s of 2050 at 2.09%-2.05% versus 2.13%-2.11% Thursday.
Muni CUSIPs rise again
The aggregate total of all municipal securities, including municipal bonds, long-term and short-term notes, and commercial paper, rose 19.5% versus February totals. On an annualized basis, municipal CUSIP identifier request volumes were up 10% through March. For muni bonds specifically, there was an increase in request volumes of 18.3% month-over-month and an increase of 12.6% on a year-over-year basis
Corporate CUSIP requests for the broad category of U.S. and Canadian corporate equity and debt rose 15.5% in March from February. The monthly increase was driven largely by U.S. corporate equity identifier requests, which increased by 22.7%. On a year-over-year basis, corporate CUSIP requests were down 18.7%, reflecting a significant year-over-year decline in January of 2021.
"CUSIP request volumes have been climbing alongside interest rates for the last two months," Gerard Faulkner, director of operations for CUSIP Global Services said. "While we expect to see continued volatility in these numbers over the course of the year, it appears issuers are still taking advantage of the current low rate environment to secure financing now."
Inflation questions remain
The March consumer price index came in “a bit hotter” than expected as fuel prices surged but offered no hints as to whether gains will be short-lived or signal true inflationary pressures.
CPI jumped 0.6% while the core rose 0.3%. Economists polled by IFR expected a 0.5% rise in the headline number, and core gaining 0.2%.
In February CPI grew 0.4% and the core rate increased 0.1%. Compared to a year ago, CPI soared 2.6% while the core rose 1.6%.
Economists predicted a yearly gain of 2.5% in the headline number and 1.5% at the core.
CPI came in “a bit hotter” than expected, as energy prices jumped 5%, as gasoline prices surged, while the core increase was fueled by gains in transportation services, particularly rental car rates, according to Scott Ruesterholz, portfolio manager at Insight Investment.
“This is a prime example of how pent-up demand in COVID-sensitive sectors can push up prices as the economy reopens, though whether it is sustained after the initial jump higher is still very uncertain.” He pointed to the 0,3% climb in shelter prices, “the highest reading since February 2020.”
Despite this rise, year-over-year the 1.7% increase in shelter was “sluggish.”
Given that shelter prices are the largest component of CPI, “rising shelter inflation is likely a necessary component of a sustained inflation overshoot,” Ruesterholz said. “The outlook remains highly uncertain, but March is the first month we are seeing signs that shelter is beginning to turn a corner.”
The year-over-year increase “is its highest since 2018,” noted David Page, senior economist and head of macro research at AXA Investment Managers. The climb “reflected an unwind of the base effects from the impact of the pandemic this time last year,” he said, and it’s expected to continue “over the coming months.”
While services showed “some signs of normalization” — growing 0.3% in the month, broadly in line with its annual average — goods inflation jumped 1.3% after 0.9% gains in the previous two months — “far in excess” of average “suggesting more inflationary pressure than just the base effect.”
Since some sectors suggested inflationary pressure above what would be considered an unwind, “this is maybe evidence of the start of a more sustainable rise in inflation,” Page said. “It will be difficult to differentiate between short-term inflation volatility and a more sustainable medium-term build.”
AXA forecasts inflation to average 2.9% in the second quarter, with headline inflation perhaps exceeding 3% for the first time since 2011 in the coming months, he said. By the third quarter, AXA expects the base effects to ease, with annual pace of inflation declining.
Given base effects, supply chain disruptions, and pent-up demand, Insight’s Ruesterholz said, the economy remains “on track for above target inflation over the next few months” and then a moderation toward 2%.
“However, if today’s shelter reading is a sign of things to come, inflation staying higher for longer is a growing risk,” he said.
In other data released Tuesday, small business optimism improved in March, hitting average level for the first time since November.
The optimism index increased to 98.2 from 95.8 in February, while the uncertainty index rose to 81 from 75 the previous month.
Nearly half of the respondents, 42%, said they had job openings they could not fill. This was the largest percentage to report such conditions.
“Small business owners are competing with the pandemic and increased unemployment benefits that are keeping some workers out of the labor force,” said Bill Dunkelberg, NFIB chief economist.
Primary market to come
The Pennsylvania Economic Development Financing Authority (Aa3//A+/) is set to price $827 million of taxable state system of higher education Act 105 Project revenue bonds on Tuesday. Serials, 2022-2036, term, 2042. Barclays Capital Inc. is bookrunner.
The Public Finance Authority, Wisconsin is set to price $633.5 million of senior secured taxable private activity bonds (Alabama Department of Corrections Facilities Project) on Thursday. Serials, 2025-2036, term, 2041, 2054. Barclays Capital Inc. is lead underwriter.
Summa Health, Ohio (/AA//) is set to price $325 million of taxable corporate CUSIP bonds insured by Assured Guaranty Municipal Corp. on Wednesday. Serials 2051. Barclays Capital Inc. is lead underwriter.
The nonrated Capital Trust Agency is set to price $249 million of (Educational Growth Fund, LLC Charter School Portfolio Projects) Senior Revenue Bonds, Series 2021A-1, Subordinate Revenue Bonds, Series 2021B. Citigroup Global Markets Inc. is bookrunner.
The California Community Housing Agency is set to price $175.8 million of essential housing revenue bonds on Wednesday. Series 2021A (Aster) $116.2 million Senior 2021A-1 bonds, term 2056 and $59.6 million Junior 2021A-2 bonds term, 2043. Jefferies LLC will run the books.
The Idaho Housing and Finance Association (A2//A+/) is set to price $170.7 million of Garvees, Series A 2021, serials 2029-2039. Citigroup Global Markets Inc. is head underwriter.
The Michigan Finance Authority (A1//AA-/) is set to price $140.2 million of hospital revenue refunding bonds (McLaren Health Care) Series 2015D-1 (FRN Rate or Term Rate) Series 2015D-2 (FRN Rate or Term Rate). J.P. Morgan Securities LLC is lead underwriter.
The New York City Housing Development Corporation (Aa2/AA+//) is set to price $124.6 million of taxable multi-family housing revenue sustainable development bonds on Wednesday. Serials, 2022-2032, terms: 2036, 2041, 2046, 2051. Wells Fargo Securities is bookrunner.
The California Infrastructure and Economic Development Bank (Aa1///) is set to price $118.5 million of refunding revenue bonds (The Broad) (Sustainability Bonds), Series 2021A. Morgan Stanley & Co. LLC is head underwriter.
The Board of Regents for the Oklahoma Agricultural and Mechanical Colleges Oklahoma State University (/AA-/AA-/) is set to price $104.3 million of taxable general revenue and refunding bonds, Series 2021B, serials 2021-2036, terms 2041, 2045. RBC Capital Markets is lead underwriter.
Board of Regents for the Oklahoma Agricultural and Mechanical Colleges Oklahoma State University (/AA-/AA-/) is also set to price $76.1 million of tax-exempt general revenue and refunding bonds, serials 2021-2041, terms, 2046, 2051, on Wednesday. RBC Capital Markets will run the books.
The Unified School District No. 475, Geary County, Kansas (Aa3///) is set to price $88 million of taxable general obligation refunding bonds, Series 2021. Piper Sandler & Co. is the lead underwriter.
The Mountain View Whisman School District, Santa Clara County, California (Aaa///) is set to price $84.5 million of taxable general obligation refunding bonds. Serials, 2021-2038, term 2042. RBC Capital Markets is bookrunner.
The Billings School District No. 2 (Yellowstone County), Montana, (/AA-//) is set to price $81.5 million of taxable general obligation refunding bonds. D.A. Davidson & Co. is head underwriter.
Christine Albano contributed to this report.
