Municipals ended the week steady even as U.S. Treasuries lost ground and equities rallied on better consumer data and corporate earnings.
Triple-A benchmark yields were left unchanged as the 10-year UST rose six basis points while the 30-year climbed three.
Ratios fell on the day's moves, with the 10-year municipal-to-UST ratio at 74% and the 30-year at 82%, according to Refinitiv MMD. ICE Data Services had the 10-year at 73% and the 30 at 83%.
The aggressive flattening of the Treasury yield curve this week was led by investors viewing tapering as imminent and concerns of tightening financial conditions, along with the potential for a rate hike through the second and third quarters of 2022, noted Barclays strategists Mikhail Foux, Clare Pickering and Mayur Patel in a weekly report.
Tax-exempt yields were mostly steady, largely ignoring the swings in the Treasury market. As the front end of the UST curve sold off and the long end rallied, short-dated municipal to UST ratios declined.
As supply grows — 30-day visible tax-exempt supply is nearing recent highs at $14.59B — the steadiness in rates has given some support to the market, which appears to have stabilized mutual fund flows.
The total potential volume in the coming week is $9.489 billion with $7.591 billion of negotiated deals and $1.898 billion of competitive loans. The total includes a large amount of green, sustainability and social bonds. The calendar also includes corporate CUSIP deals, and taxable refundings continue to see an uptick. Several non-rated healthcare deals should give yield-seekers options.
The two largest deals are an $874.83 million of green bonds from the Central Puget Sound Regional Transit Authority and a $600 million corporate CUSIP bullet deal from OhioHealth Corp. Banner Health is also selling a large corporate CUSIP deal.
“Although the muni market is not out of the woods yet, historically it does relatively well starting in November or December, which is just around the corner,” the strategists said.
“It might be somewhat different this time around, given the uncertain path of the debt ceiling negotiations coupled with the passage of the Build Back Better plan, which could have a profound effect on the asset class. However, the muni market will likely start performing soon, in our view.”
Secondary trading
Washington 5s of 2022 at 0.14%-0.11%. New York Dorm PIT 5s of 2022 at 0.10%. Los Angeles Department of Water and Power 5s of 2024 at 0.28%. Anne Arundel, Maryland, 5s of 2025 at 0.44%.
Prince George's County 5s of 2027 at 0.70%. Maryland 5s of 2027 at 0.74%.
King County, Washington, 5s of 2031 at 1.27%. Montgomery County, Maryland, 5s of 2031 at 1.28%. Austin, Texas, ISD 4s of 2032 at 1.40%.
Hennepin County, Minnesota, 5s of 2038 at 1.46%-1.43%. Charleston County, South Carolina, 2s of 2040 at 2.09%-2.00% (original 2.11%).
AAA scales
According to Refinitiv MMD, short yields were steady at 0.12% in 2022 and at 0.18% in 2023. The yield on the 10-year was steady at 1.17% and the yield on the 30-year sat at 1.68%.
The ICE municipal yield curve showed bonds steady at 0.12% in 2022 and 0.17% in 2023. The 10-year maturity sat at 1.13% and the 30-year yield was steady at 1.71%.
The IHS Markit municipal analytics curve showed short yields unchanged at 0.12% in 2022 and 0.18% in 2023. The 10-year yield sat at 1.15% and the 30-year yield was steady at 1.68%.
The Bloomberg BVAL curve showed short yields steady at 0.16% in 2022 and 0.17% in 2023. The 10-year yield sat at 1.15% and the 30-year was steady at 1.70%.
In late trading, Treasuries were weaker as equities were better on the day.
The 10-year Treasury was yielding 1.571% and the 30-year Treasury was yielding 2.044% near the close. The Dow Jones Industrial Average gained 392 points, or 1.13%, the S&P rose 0.72% while the Nasdaq gained 0.44%.
It’s still all about inflation
Friday’s data suggested that inflation remains a problem, as the voices calling for Federal Reserve action increase.
Former Treasury Secretary Lawrence Summers said he was “alarmed” by the spread of inflation to more goods and said on Bloomberg TV Friday the Fed “should taper faster than they’re talking about.”
A day earlier, Morgan Stanley CEO James Gorman told Bloomberg not all inflation will prove to be transitory and the Fed will need to be more aggressive to stop it. Other major financial firm CEOs have also gone on record about inflation lingering at least into next year or longer.
“Inflation is running very hot — [personal consumption expenditures are] at a 30-year high — and the ‘transitory’ (the Fed’s word, not ours) nature of recent price increases don’t seem so transitory,” said Robert Ostrowski, chief investment officer of the global fixed income group at Federated Hermes.
The Fed hasn’t said when inflation would stop being transitory, if it continues, he noted. “The reality is the Fed can keep moving the goal posts, meaning if you’re in the non-transitory camp, you may never win the ‘how long?’ discussion.”
The bond market, Ostrowski asserted, “isn’t priced” for inflation of 2.25% to 2.5% through next year. “Inflation and bonds don’t typically go together.”
The Fed could start tapering next month, the minutes from its latest meeting suggests, “and with negative real yields almost across the curve, it’s hard not to worry that flows at some point could turn negative,” he said. “It is possible the economy stumbles, causing a sell-off in the risk markets that gives bonds a boost.” But that is not Federated Hermes’ base case.
Inflation made a read of the September retail sales report difficult.
“A better-than-expected September retail sales report says as much about the higher prices that come with supply shortages as it does about the resilience of consumer spending,” said Wells Fargo Securities Senior Economist Tim Quinlan and Economist Shannon Seery.
Retail sales rose 0.7% in September after a 0.9% increase a month earlier, while excluding autos sales gained 0.8% after a 2.0% jump a month before. Economists polled by IFR Markets expected sales to drop 0.2% and ex-autos to grow 0.5%.
“Vehicle sales actually fell after adjusting for inflation; spending on food in grocery stores and at restaurants did, too,” said Grant Thornton Economist Yelena Maleyev.
While the impact of “the Delta-induced lull in the third quarter” is waning, she said, the economy is “facing much higher inflation and goods shortages, which will constrain spending for the fourth quarter.”
Supply issues will continue into the holiday shopping season, leaving the Fed “no choice but to taper its purchases of Treasuries and mortgage-backed securities starting in November.”
But Morgan Stanley researchers said consumers have been “resilient,” despite supply shortages. “The increase in food services throughout the Delta wave suggests households are better equipped to manage around COVID flare-ups.”
Also released Friday, the University of Michigan consumer sentiment index fell to 71.4 in the preliminary October read from 72.8 in the final September report, while current conditions slid to 77.9 from 80.1 and expectations dropped to 67.2 from 68.1.
Economists expected the headline figure to be 73.8, current conditions at 82.0 and expectations at 70.3.
Contrasting retail sales with consumer sentiment, Quinlan and Seery said, “the broad-based strength is a reminder that gloomy sentiment measures are often at odds with actual spending patterns.”
It’s possible retailers will see a “banner year” of holiday sales, they said, “if stores can keep merchandise in stock ... though that is a big ‘if’ this year.”
Earlier, the Empire State Manufacturing Survey’s general business conditions index dropped to 19.8 in October from 34.3 in September. Economists expected a smaller drop to 27.0.
The prices paid index rose while the prices received declined, with both remaining near record highs, according to the release. The number of employees index also dropped.
Primary to come
The Central Puget Sound Regional Transit Authority (Aa1/AAA///) is set to price Tuesday $874.83 million of sales tax and motor vehicle excise tax improvement and refunding green bonds, Series 2021S-1. J.P. Morgan Securities.
OhioHealth Corp. (Aa2/AA+/AA+/) is set to price Tuesday $600 million of taxable corporate CUSIP bonds, Series 2021. $300 million bullet due on 11/15/2031 and $300 million bullet due 11/15/2041. Barclays Capital Inc.
California Community Choice Financing Authority (A2///) is set to price $564.315 million of Climate Bond certified green clean energy project revenue bonds, Series 2021A, serials 2023-2027, term 2052. Goldman Sachs & Co.
The Hudson Yards Infrastructure Corp. (Aa2/AA-/A+//) is set to price Wednesday $451.985 million of Hudson Yards revenue green bonds, Fiscal 2022 Series A, serials 2026-2047. Goldman Sachs & Co.
Banner Health, Arizona, (/AA-/AA-//) is set to price Thursday $424.2 million of corporate CUSIP taxable bonds, Series 2021A. Morgan Stanley & Co.
Utah Transit Authority is set to price $361.355 million of taxable sales tax revenue refunding bonds, Series 2021 and federally taxable subordinated sales tax revenue refunding bonds, Series 2021, consisting of $344.985 million of Series 21 seniors (Aa2/AA/AA/) and $16.37 million, Series 21 subs (Aa3/AA-/AA/). Wells Fargo Corporate & Investment Banking.
University of Wisconsin Hospitals and Clinics Authority (Aa3/AA-///) is set to price Thursday $350.575 million of revenue bonds, Series 2021B green bonds and taxable revenue refunding bonds, Series 2021C. J.P. Morgan Securities.
Brockton, Massachusetts, (A1/AA-//) is set to price Tuesday $300 million of taxable pension obligation bonds, serials 2022-2035. Stifel, Nicolaus & Company.
The Wisconsin Public Finance Authority is set to price $263.63 million of revenue bonds (Searstone CCRC Project), consisting of: $104.85 million of Series 2021 A (non-rated), $36.31 million of Series 2021 B-1 (non-rated), $32.24 million of Series 2021 B-2 (Caa3////), $5.315 million of Series 2021 C (non-rated), $8.92 million of Series 2022 A (non-rated) and $75.995 million of Series 2023 A (non-rated). HJ Sims & Co.
Southwestern Community College District, San Diego County, California, (Aa2/AA-//) is set to price Wednesday $257.62 million, consisting of $73.62 million of Series 1, $3.05 million of Series 2 and $180.95 million of Series 3. Morgan Stanley & Co.
California Earthquake Authority (non-rated) is set to price Tuesday $250 million of revenue notes, Series 2021A. J.P. Morgan Securities.
Crown Point Multi-School Building Corp. (Lake County, Indiana) (/AA+//) is set to price Thursday $247.015 million of ad valorem property tax first mortgage bonds, Series 2021, insured by Indiana State Aid Intercept Program. Raymond James & Associates.
Dallas, Texas, (/A/A+/) is set to price Tuesday $236.595 million of hotel occupancy tax revenue refunding bonds, Series 2021, serials 2022-2038. Ramirez & Co.
The Virginia Housing Development Authority (Aa1/AA+//) is set to price Wednesday $226.63 million of taxable rental housing bonds, 2021 Series J, serials 2024-2036, terms 2041, 2046, 2051 and 2056. Raymond James & Associates, Inc.
The Indiana Finance Authority (Aaa/AAA/AAA//) is set to price $215.03 million of state revolving fund program green bonds, Series 2021B, serials 2023-2041. Citigroup Global Markets Inc.
The California Statewide Communities Development Authority (Baa1///) is set to price Tuesday $192.06 million of student housing revenue bonds (University of California, Irvine East Campus Apartments, Phase I Refunding & Phase IV-B CHF-Irvine, L.L.C.), Series 2021, serials 2023-2046, terms 2051 and 2054. Jefferies.
The Louisiana Public Facilities Authority (non-rated) is set to price Thursday $184.895 million, consisting of: $182.985 million of revenue and refunding revenue bonds, Series 2021A-1 (CommCare Corp. Project) and $1.91 million of taxable revenue bonds, Series 2021A-2 (CommCare Corp. Project). Piper Sandler & Co.
Carilion Clinic Obligated Group (Aa3/AA-//) is set to price Wednesday $180 million of taxable bonds, Series 2021. Goldman Sachs & Co.
The Wildwood Utility Dependent District, Florida, (/AA//) is set to price Tuesday $167.965 million of utility revenue bonds and subordinate utility revenue bonds, Series 2021 (South Sumter Utility Project), consisting of $146.56 million, Series 2021, serials 2025-2041, terms 2046 and 2051 and $21.405 million, Series 2021B, serials 2025-2041, terms 2046 and 2051. Jefferies.
The Triborough Bridge and Tunnel Authority (Aa3/AA-/AA-/AA) is set to price Thursday $163.245 million of MTA Bridges and Tunnels general revenue bonds, Series 2002F & Subseries 2008B-2 (conversion to fixed rate), consisting of $110.61 million, Series 2021 and $52.635 million, Series 2021B. Jefferies.
The Ohio Water Development Authority (Aaa/AAA//) is set to price Tuesday $150 million of water development revenue bonds, Fresh Water Series 2021. Goldman Sachs & Co.
The Ohio Housing Finance Agency (Aaa///) is set to price Tuesday $149.995 million of residential mortgage revenue bonds (Mortgage-Backed Securities Program), 2021 Series C (Non-AMT) (social bonds). J.P. Morgan Securities.
The Massachusetts Housing Finance Agency (/AA//) is set to price Thursday $149.105 million of housing bonds: consisting of $76.155 million, 2021 Series B-1 (sustainability bonds), serials 2024-2032, terms 2036, 2041, 2046, 2051, 2056, 2061 and 2063; $64.145 million, 2021 Series B-2 (sustainability bonds), serial 2023, terms 2025-2026; and $8.805 million, 2021 Series C, serial 2023. Barclays Capital.
American Municipal Power, Inc. (A1/A///) is set to price Wednesday $141.550 million of
Prairie State Energy Campus project revenue bonds, refunding series 2021A, serials 2032-2034 and 2036-2038. BofA Securities.
Bay Area Water Supply & Conservation Agency (Aa3/AA-//) is set to price Thursday $135.115 million of forward delivery refunding revenue bonds (Capital Cost Recovery Prepayment Program), Series 2023A. Goldman Sachs & Co.
The Wisconsin Public Finance Authority is set to price $133.02 million of non-rated hospital revenue bonds Celina Regional Medical Center, consisting of $106.22 million, Series A-1, terms 2031, 2041, 2051 and 2056 and $26.8 million, Series A-2, term 2040. KeyBanc Capital Markets.
Blue Springs, Missouri, Reorganized School District #4 of Jackson County (/AA+//) is set to price $132.79 million of general obligation school bonds, insured by Missouri Direct Deposit Program, consisting of: $107 million, Series A, serials 2030-2041 and $25.79 million, Series B, serials 2022-2025. Stifel, Nicolaus & Company.
The Successor Agency to the Redevelopment Agency of the City and County of San Francisco is set to price Thursday $130 million of 2021 Series A taxable third-lien tax allocation bonds affordable housing projects social bonds. Citigroup Global Markets Inc.
Clovis Unified School District, Fresno County, California, (/AA//) is set to price Thursday $122.725 million of 2021 taxable refunding general obligation bonds, Series B, serials 2022, 2026 and 2028-2039. Stifel, Nicolaus & Company.
The Georgia Housing and Finance Authority (/AAA//) is set to price Wednesday $101.235 million of single-family mortgage bonds, 2021 Series A (Non-AMT), serials 2022-2033, terms 2036, 2041, 2046 and 2051. Citigroup Global Markets.
Competitive
The North Texas Municipal Water District (Aa1/AAA//) is set to sell $201.835 million of water system revenue refunding bonds, Series 2021A at noon eastern Monday.
Fayetteville, North Carolina, (Aa2/AA/AA/) is set to sell $96.405 million of Public Works Commission revenue bonds, Series 2021 at 11 a.m. eastern Tuesday.
The Virginia Public School Authority (Aa1/AA+/AA+/) is set to sell $150.33 million of school financing bonds (1997 Resolution), Series 2021C at 10:30 a.m. eastern Tuesday.
Tusla, Oklahoma (Aa1/AA//) is set to sell $102.95 million of general obligation bonds, Series 2021 at 11:30 a.m. eastern Wednesday.
