Municipal supply is set to top $16 billion next week, a high not seen since December 2021 when issuance topped $19 billion, just as yields have hit year-to-date highs and relative value has improved.
While participants expect some pressure ahead in the near-term, they also say the current yield and ratio levels offer investors opportunity.
The hefty primary next week offers a diverse slate, with several high-grade general obligation deals, healthcare, public power, water and sewer, airports and housing deals. Highly rated issuers will test the competitive market's appetite with issuers from Maryland, Virginia, South Carolina and Seattle on tap.
J.P. Morgan strategists said they expect the substantial June reinvestment — about $36 billion — to help digest the crowded calendar, but "there is still considerable supply overhang and we see more choppy supply weeks ahead, given the Fed Meeting/CPI, and the Juneteenth holiday."
J.P. Morgan noted that next week also marks the fifth week of $11.8 billion-plus tax-exempt issuance in the past seven. Bond Buyer 30-day visible supply sits at $19.59 billion.
"The sizable calendar, with rates at fresh YTD highs after the May selloff, offers another opportunity for investors to find cheaper primary and secondary market bonds than we believe will generally be available in the heaviest reinvestment months of July ($38 billion) and August ($43 billion) and leaner issuance months in November and December," J.P. Morgan said. "We suggest that investors add duration and discount structure while the supply glut persists."
Barclays PLC strategists said June's redemptions "might not help enough" and the market might weaken further.
"We think this might actually present a tactical buying opportunity, as supply might be light during the FOMC week and the holiday-shortened week after that," they said. "Even though we have not changed our cautious medium-term outlook, investors with shorter time horizons might want to consider adding next week if tax-exempts become more attractive."
Yields at "the two wings of the muni AAA curve are retesting their respective peaks this year, while the belly of the curve is making newer highs," noted BofA Global Research strategists Ying-Chen Li and Ian Rogow. "We think the backup of Treasury rates is the main driver for the muni AAA moves."
U.S. Treasuries were better Friday, while municipals were little changed, and the recent moves have pushed ratios higher.
The two-year muni-to-Treasury ratio Friday was at 69%, the three-year at 68%, the five-year at 69%, the 10-year at 69% and the 30-year at 85%, according to Refinitiv Municipal Market Data's 3 p.m. EST read. ICE Data Services had the two-year at 67%, the three-year at 68%, the five-year at 69%, the 10-year at 69% and the 30-year at 84% at 3:30 p.m.
"The low ratios that persisted through the better part of the year made muni AAA rates more susceptible to moving higher with Treasuries," BofA said. "At this point, despite the sharp selloff this week, we consider Treasury's rally since late April as still valid. A resumption of the Treasury market rally would help munis."
But "after last week's sell-off, muni investors have been waiting for any signs that the muni correction is over, but there have been few thus far," Barclays strategists Mikhail Foux and Clare Pickering said. Despite yields moving slightly higher, tax-exempts have slightly underperformed, and more so in the belly of the curve.
"As typically happens in rapid sell-offs, they have been mostly centered around high-quality tax-exempts, with lower-rated bonds continuing to outperform throughout the selloff," Barclays said, adding that credit spreads "are already tight, but might continue to tighten in the near term.
"And high-yield will likely outperform: not only is there very little issuance, but high yield continues to see inflows unlike its high grade counterpart," they said.
BofA strategists said they believe the larger primary calendars in May were "less impactful" than Treasury's selloff, though they did help to push muni AAA yields higher.
May issuance totaled about $43 billion,
BofA expects new muni issuance in June to be $44 billion, while redemption and coupon payment should total to $65 billion.
"If new issuance volume surprises again, it has little chance to overwhelm redemptions and coupon payments in June," they said, adding that assessment is the same for July and August.
"We remain convinced of a summer market rally due to the large imbalance of supply and demand in munis," BofA said. "The large amount of time spent this year so far on rising yields, although quite sizeable, still have overall characteristics of a counter-trend phenomenon. Investors should take advantage of these yield levels. 4% coupons in the long end of the curve remain our favorite buys. The risks to our view is some unexpected geopolitical breakdown."
AAA scales
Refinitiv MMD's scale was unchanged: The one-year was at 3.41% (unch) and 3.35% (unch) in two years. The five-year was at 3.14% (unch), the 10-year at 3.11% (unch) and the 30-year at 3.96% (unch) at 3 p.m.
The ICE AAA yield curve was little changed: 3.41% (unch) in 2025 and 3.34% (unch) in 2026. The five-year was at 3.14% (unch), the 10-year was at 3.11% (unch) and the 30-year was at 3.92% (-1) at 3:30 p.m.
The S&P Global Market Intelligence municipal curve little changed: The one-year was at 3.42% in 2025 and 3.34% in 2026. The five-year was at 3.13%, the 10-year was at 3.09% and the 30-year yield was at 3.95%, according to a 3 p.m. read.
Bloomberg BVAL was little changed: 3.41% (unch) in 2025 and 3.34% (unch) in 2026. The five-year at 3.12% (unch), the 10-year at 3.09% (unch) and the 30-year at 3.94% (unch) at 3 p.m.
Treasuries were firmer.
The two-year UST was yielding 4.885% (-4), the three-year was at 4.694% (-5), the five-year at 4.518% (-5), the 10-year at 4.506% (-5), the 20-year at 4.727% (-4) and the 30-year at 4.649% (-4) at 3:45 p.m.
Negotiated calendar:
San Antonio, Texas, Electric and Gas Systems (Aa2/AA-/AA-/) is set to price Tuesday $1.039 billion of revenue and revenue refunding bonds in three series, consisting of $445.81 million revenue refunding bonds, New Series 2024A, serials 2035-2044, term 2049; $392.645 million of revenue and refunding bonds, New Series 2024B, serials 2025-2044, terms 2049, 2054; and $200.905 million of revenue refunding bonds, New Series 2024C, serials 2035-2044, terms 2049, 2054. Jefferies LLC.
The Metropolitan Washington Airports Authority (Aa3/AA-/AA-/) is set to price Wednesday $829.51 million of airport system revenue and refunding bonds, Series 2024A AMT, serials 2025-2044, terms 2049, 2054. BofA Securities.
The Bay Area Toll Authority is set to price Wednesday $719.14 million of San Francisco Bay Area toll bridge revenue bonds in three series, consisting of $77.375 million of Series F-1 (/AA/AA/), $250 million of Series F-2 (/AA/AA/) and $391.765 million Series S-11 (/AA-/AA-/). J.P. Morgan Securities LLC.
The Commonwealth of Massachusetts (Aa1/AA+/AA+/) is set to price $705.715 million of general obligation and GO refunding bonds, consisting of $650 million Series 1 and $55.715 million of refunding Series 2. Morgan Stanley & Co. LLC.
The Colorado Health Facilities Authority (Aa1/AA+//) is set to price Tuesday $570.26 million of Intermountain Health revenue refunding bonds, serials 2030-2037, 2042-2045, term 2054. RBC Capital Markets.
The Harris County Cultural Education Facilities Finance Corp. (Aa3/AA-//) is set to price Wednesday $565.385 million of Memorial Hermann Health System hospital revenue bonds. J.P. Morgan Securities LLC.
Charlotte, North Carolina, (Aaa/AAA//) is set to price Wednesday $543.775 million of water and sewer system revenue bonds, serials 2025-2044, terms 2049, 2054. BofA Securities.
The Department of Water and Power of the City of Los Angeles (Aa2/AA-//AA) is set to price Thursday $511.485 million of power system revenue refunding bonds, serials 2025-2044, terms 2049, 2054. RBC Capital Markets.
Connecticut (Aa3/AA-/AA-/AA+) is set to price Tuesday $450 million of tax-exempt and taxable general obligation bonds, consisting of $250 million of taxable general obligation bonds, serials 2025-2034, and $200 million of tax-exempt GOs, serials 2025-2044. BofA Securities.
Hutto, Texas (Williamson County) (/AA//) is set to price Thursday $291.205 million in two series, $15.745 million of Series 2024A, insured by Build America Mutual, serials 2028-2049, and $275.46 million of Series 2024B, serials 2026-2054. Baird.
The Economic Development Authority of the County of Chesterfield (Aa1/AA+/AA+/) is set to price Thursday $285.2 million of county mobility projects revenue bonds, serials 2026-2044, terms 2047, 2050. Wells Fargo Bank, N.A. Municipal Finance Group.
The Illinois Finance Authority is on the day-to-day calender with $284 million of Endeavor Health Credit Group revenue refunding bonds (Aa3/AA-//), serials 2030, 2032. BofA Securities.
Waco, Texas (Aa1/AA+//) is set to price Tuesday $267.35 million, in three series, consisting of $203.43 million of combination tax and revenue certificates of obligation, Series 2024A $43.94 million of combination tax and revenue certificates of obligation, taxable Series 2024B, and $19.98 million of general obligation refunding bonds. Siebert Williams Shank & Co., LLC.
The Connecticut Health and Educational Facilities Authority (Aaa/AAA//) is set to price Tuesday $260 million of Yale University revenue bonds, Series 2015A remarketing, terms 2035. Barclays Capital Inc.
The Lower Colorado River Authority (/A/AA-/) is set to price Thursday $258.91 million of revenue refunding bonds, serials 2025-2045. BofA Securities.
The Massachusetts Housing Finance Agency (Aa2/AA+//) is set to price Tuesday $252.735 million of housing bonds, consisting of $90.385 million of Series A-1 non-AMT sustainability bonds, serials 2027-2036, terms 2039, 2044, 2049, 2054, 2059, 2064, 2067; and $162.35 million of Series A-3 non-AMT sustainability bonds, serials 2026, 2028-2029. BofA Securities.
The Colorado Health Facilities Authority (Aa2/AA/AA/) is set to price Tuesday $204.26 million of Advent Health Obligated Group hospital revenue bonds. BofA Securities.
The North Dakota Housing FInance Agency (Aa1///) is set to price Thursday $200 million of housing finance program non-AMT social bonds. RBC Capital Markets.
The North Carolina Housing Finance Agency (Aa1/AA+//) is set to price Tuesday $199.5 million of home ownership non-AMT 1998 Trust Agreement revenue bonds, serials 2025-2036, terms 2039, 2044, 2050, 2055, 2055). RBC Capital Markets.
The Metropolitan Water District of South Carolina (/AA+/AA+/) is set to price Wednesday $173.445 million of subordinate water revenue refunding bonds (mandatory PUT bonds). Loop Capital Markets.
The Bremerton School District No. 100-C, Kitsap County, Washington, (Aaa///) is set to price Tuesday $140.8 million of unlimited tax general obligation bonds, insured by Washington School Bond Guarantee Program. D.A. Davison & Co.
The E-470 Public Highway Authority (A1/A+//) is set to price Wednesday $138.64 million of senior revenue SOFR Index term rate bonds, term 2039. Wells Fargo Bank, N.A. Municipal Finance Group.
The Pennsylvania Economic Development Financing Authority (B3/BB-/BB-/) is set to price Thursday $130.57 million of PPL Energy Supply, LLC Project exempt facilities revenue refunding bonds. Morgan Stanley & Co. LLC.
The Hutto Independent School District, Texas (Aaa/AAA//) Is set to price Wednesday $125 million of unlimited tax school building bonds, PSF Guarantee, serials 2026-2054. RBC Capital Markets.
The North Ridgeville City School District, Ohio, (Aa2///) is set to price Tuesday $121.845 million unlimited tax general obligation school improvement bonds, serials 2025-2044, terms 2047, 2049, 2053, 2057, 2061. Stifel, Nicolaus & Company, Inc.
The Colorado Springs School District 11 (A1/AA//) is set to price Tuesday $120 million of certificates of participation, insured by Build America Mutual, serials 2024-2044, term 2048. RBC Capital Markets.
King County, Washington, (Aa2/AA//) is set to price Wednesday $115.58 million of junior lien sewer revenue refunding bonds. Morgan Stanley & Co. LLC.
The Turnpike Authority of Kentucky (Aa3///AA-) is set to price Thursday $109.07 millin of economic development road revenue refunding revitalization projects bonds. Morgan Securities LLC.
The Mississippi Home Corporation (Aaa///) is set to price Tuesday $100 million of single family mortgage revenue bonds, non-AMT, serials 2029-2036, terms 2039, 2044, 2049, 2054. Raymond James & Associates, Inc.
The North Carolina Housing Finance Agency (Aa1/AA+//) of taxable home ownership revenue bonds, serials 2025-2036, terms 2039, 2044, 2049, 2055, 2055. RBC Capital Markets.
Competitive:
The Fayetteville School District No. 1, Arkansas, (Aa2///) is set to sell $177.63 million of construction bonds, at 11 a.m. Tuesday.
Prince George's County, Maryland, (//AAA/) is set to sell $186.61 million of GO consolidated public improvement bonds, Series 2024A, at 10:45 a.m. Tuesday, and $98.36 million of GO consolidated public improvement refunding bonds, Series 2024B, at 11:15 a.m. Tuesday.
The Renewable Water Resources, South Carolina, (Aa1/AAA//) is set to sell $121.085 million of sewer system revenue bonds, Series 2024A, at 11 a.m. Tuesday.
Richmond, Virginia, (Aa1/AA+/AAA/) is set to sell $121.11 million of taxable GOs, at 10:30 a.m. Tuesday.
The Port of Seattle (Aaa/AA/AA-/) is set to sell $94.65 million of limited tax GO refunding bonds, Series 2024A, at 10:45 a.m. Tuesday; $67.53 million of AMT limited tax GOs, Series 2024B, at 10 a.m. Tuesday; and $95.515 million of taxable limited tax GOs, Series 2024C, at 10:15 a.m. Tuesday.
Maryland (Aaa/AAA/AAA/) is set to sell $351.63 million of GO state and local facilities loan of 2024, First Series A, Bidding Group 1, at 10:30 a.m. Wednesday; $300.505 million of GO state and local facilities loan of 2024, First Series A, Bidding Group 2, at 11 a.m. Wednesday; $347.865 million of GO state and local facilities loan of 2024, First Series A, Bidding Group 3, at 11:30 a.m. Wednesday; and $200 million of taxable GO state and local facilities loan of 2024, First Series B, Bidding Group 1, at noon Wednesday.
The Sacramento City Unified School District, California, is set to sell $262.5 million of Election of 2020 (Measure H) GOs, 2024 Series B, at noon Thursday.
