Municipals remain near record low levels as two large deals from the Los Angeles Transportation Authority and the state of Minnesota came to market.
Yields on the AAA GO scales were steady for the most part, with some scales showing yields rising as much as one basis point on the long and intermediate ends.
The muni to Treasury ratios on the 10- and 30-year maturities fell below 100%.
The supply/demand imbalance continues to run rampant in the municipal market amid strong technicals and weak fundamentals, said Peter Delahunt, managing director at Raymond James & Associates.
“As COVID stats appear to improve, the equity market trades up and Treasury rates are backing up,” Delahunt said on Tuesday.
While tax-exempt municipals should outperform, they will eventually adjust along with any overall movement in the rate landscape, he added.
“There is quite simply more cash chasing fewer tax-exempt bonds,” he said, so the larger California calendar this week should be well received.”
Delahunt described a “tug-of-war” between the strong technicals versus the weakening fundamentals.
“Currently, the technicals are in control with exempt issue pricings oversubscribed for the most part,” he said. As a result, some yield starved investors are moving out on the curve and down the credit spectrum, resulting in spread tightening.
“Congress has a tug-of-war of their own taking place in regards to aiding or not aiding states and local municipalities,” Delahunt said. “Without ample federal aid, which seems less likely, the fundamental concerns gain weight to their tug.”
Primary market
Wells Fargo Securities priced and repriced the Los Angeles Transportation Authority’s (NR/AA/AA/NR) $1.356 billion of Series 2020A Measure R junior subordinate sales tax revenue refunding green bonds.
The bonds were repriced to yield 0.09% with a 5% coupon in 2023 to 1.14% with a 5% coupon and 1.24% with a 4% coupon in a split 2037 maturity.
The bonds had been tentatively priced to yield 0.14% with a 5% coupon in 2023 to 1.18% with a 5% coupon and 1.36% with a 4% coupon in a split 2037 maturity.
The issue has been “climate bond certified” by First Environment.
Minnesota (Aa1/AAA/AAA/NR) competitively sold $1.204 billion of general obligation bonds in five offerings:
- RBC Capital Markets won the $462 million of Series 2020A various purpose and Series 2020D various purpose refunding GOs with a true interest cost of 1.4864%. The bonds were priced with 5% coupons to yield from 0.08% in 2021 to 1.11% in 2040.
- Morgan Stanley won the $244.485 million of Series 2020C taxable various purpose and Series 2020F taxable refunding bonds with a TIC of 1.0091%. The bonds were priced to yield from 0.24% with a 1% coupon in 2022 to 1.25% with a 1.35% coupon in 2030.
- Wells Fargo won the $180.975 million of Series 2020G taxable highway refunding bonds with a TIC of 0.944%. The bonds were priced to yield from 0.25% with a 0.40% coupon in 2022 to 1.295% with a 1.32% coupon in 2031.
- Morgan Stanley won the $163 million of Series 2020E highway refunding bonds with a TIC of 0.4482%. The bonds were priced to yield from 0.10% with a 2% coupon in 2021 to 0.80% with a 3% coupon in 2030.
- Wells Fargo won the $152.02 million of highway bonds with a TIC of 1.256%. The bonds were priced to yield from 0.12% with a 2% coupon in 2021 to 1.87% with a 1.875% coupon in 2040.
Public Resources Advisory Group is the financial advisor; Kutak Rock is the bond counsel.
Since 2020, the state has sold about $11 billion of debt, with the most issuance occurring in 2020 when it sold $1.8 billion of securities.
On Wednesday, Goldman Sachs is set to price the New York and Presbyterian Hospital’s (Aa2/NR/AA/NR) $750 million of Series 2020 taxable bonds.
Also on Wednesday, RBC Capital Markets is expected to price Pomona, Calif.’s (/AA-/A+/) $219.26 million of Series 2020BJ taxable pension obligations bonds.
On Thursday, Miami-Dade County, Fla., will competitively sell two offerings of transit system sales surtax revenue and refunding bonds totaling $750.71 million. The sales consist of $239.55 million of tax-exempts and $511.16 million of taxables.
Also Thursday, Citigroup is expected to price the San Diego Unified School District’s (Aa2/NR/AAA/AAA) $739.815 million of Series 2020 dedicated unlimited ad valorem property tax GOs.
Secondary market
Trading was relatively stable. San Antonio 5s of 2022 traded at 0.13%-0.14%. Prince George's County 4s of 2022 traded at 0.11% while New York City TFAs 5s of 2022 traded at 0.19%-0.14%. Henrico County, VA 5s of 2027 traded at 0.39%-0.38%. Loudoun County 5s of 2028 traded at 0.47% while University of Texas 5s of 2030 traded at 0.74%-0.71%.
Out longer, Texas waters 4s of 2044 traded at 1.51%-1.50%, Washington GOs 5s of 2033 traded at 0.90%. Humble, Texas ISD 3s of 2050 traded at 1.76%-1.75%.
On Tuesday, municipals were steady, according to the final readings on Refinitiv MMD’s AAA benchmark scale. All of MMD's 5% GO yield levels remain at record low levels since it first began calculating them in 1982.
Yields were steady at 0.08% in the 2021 GO muni and flat at 0.09% in 2023. The yield on the 10-year muni remained at 0.58% while the 30-year yield stayed at 1.27%.
The 10-year muni-to-Treasury ratio was calculated at 87.9% while the 30-year muni-to-Treasury ratio stood at 93.9%, according to MMD.
“Muni bonds are giving some ground today, the first decline in several days, but significantly outperforming a weak Treasury market,” ICE Data Services said. “The muni percentage of Treasury yields are below 100% for almost the entire curve.”
The ICE AAA municipal yield curve showed the 2021 maturity flat at 0.070% and the 2022 maturity steady at 0.080%. The 10-year maturity was up one basis point to 0.571% and the 30-year gained one basis point to 1.313%.
ICE reported the 10-year muni-to-Treasury ratio stood at 90% while the 30-year ratio was at 96%.
The IHS Markit municipal analytics AAA curve showed the 2021 maturity yielding 0.09% and the 2022 maturity at 0.10% while the 10-year muni was at 0.59% and the 30-year stood at 1.28%.
The BVAL AAA curve showed the 2021 maturity yielding 0.06% and the 2022 maturity at 0.07%, both unchanged, while the 10-year muni was at 0.56% plus two, and the 30-year was up 1 at at 1.29%.
Munis were little changed on the MBIS benchmark and AAA scales.
Treasuries were weaker as stock prices traded mixed.
The three-month Treasury note was yielding 0.103%, the 10-year Treasury was yielding 0.655% and the 30-year Treasury was yielding 1.346%.
The Dow rose 0.67%, the S&P 500 increased 0.10% and the Nasdaq lost 0.68%.
