Municipals were weaker in spots amid an active primary market that saw a billion-dollar-plus retail order from the
The two-year muni-to-Treasury ratio Tuesday was at 62%, the three-year at 63%, the five-year at 61%, the 10-year at 59% and the 30-year at 83%, according to Refinitiv Municipal Market Data's 3 p.m. EST read. ICE Data Services had the two-year at 65%, the three-year at 64%, the five-year at 62%, the 10-year at 61% and the 30-year at 84% at 3:30 p.m.
In the primary market Tuesday, Jefferies held a one-day retail order for $1.246 billion of general revenue bonds from the Regents of the University of California (Aa2/AA/AA/). The first tranche, $1.046 billion of 2024 Series BS, saw 5s of 5/2024 at 2.90%, 5s of 2029 at 2.40%, 5s of 2034 at 2.52%, 5s of 2039 at 3.06% and 5s of 2044 at 3.49%, callable 5/15/2034.
The second tranche, $200.005 million of 2024 Series BT, saw 5s of 5/2026 at 2.66%, noncall.
J.P. Morgan priced for JEA, Florida, (Aa2/AA+/AA+/) $504.535 million of water and sewer system revenue refunding bonds, 2024 Series A, with 5s of 10/2024 at 3.08%, 5s of 2029 at 2.56%, 5s of 2034 at 2.77%, 5s of 2039 at 3.24%, 5s of 2044 at 3.68%, 5.25s of 2049 at 3.95% and 5.5s of 2054 at 4.00%, callable 10/1/2033.
J.P. Morgan priced for the Florida Development Finance Corp. ( /A-/A/) $283.275 million of Tampa General Hospital Project healthcare facilities revenue bonds. The first tranche, $208.275 million of fixed mode bonds, Series 2024A, saw 5s of 8/2025 at 3.33%, 5s of 2029 at 3.04%, 5s of 2034 at 3.17%, 5s of 2039 at 3.76%, 5s of 2044 at 4.04, 5.25s of 2049 at 4.34%, 5.25s of 2055 at 4.44% and 4.5s of 2055 at 4.71%, callable 2/1/2032.
The second tranche, $75 million of term mode bonds, Series 2024B, saw 5s of 8//2056 with a mandatory put date of 10/1/2031 at 3.38%, callable 10/1/2030.
Piper Sandler priced for the Wylie Independent School District, Texas, (Aaa///) $182.340 million of PSF-insured unlimited tax school building bonds, Series 2024, with 5s of 2/2025 at 3.19%, 5s of 2029 at 2.71%, 5s of 2034 at 2.78%, 5s of 2039 at 3.28%, 5s of 2044 at 3.65%, 5s of 2049 at 3.94%, 4s of 2049 at 4.24% and 4.25s of 2054 at 4.40%, callable 2/15/2033.
Wells Fargo Bank priced for the Mississippi State University Educational Building Corp. (Aa2//AA/) $130.970 million. The first tranche, $82.645 million of New Residence Hall and Facilities Refinancing revenue and refunding bonds, Series 2024A, saw 5s of 8/2026 at 2.84%, 5s of 2029 at 2.66%, 5s of 2034 at 2.80%, 5s of 2039 at 3.37%, 5s of 2044 at 3.77%, 4s of 2049 at 4.32% and 5s of 2053 at 4.18%, callable 8/1/2034.
The second tranche, $48.325 million of forward-delivery bonds, Series 2024B, saw 5s of 8/2025 at 3.29%, 5s of 2029 at 2.85%, 5s of 2034 at 2.98%, 5s of 2039 at 3.54% and 5s of 2043 at 3.87%, callable 8/1/2034.
BofA Securities priced Kansas City, Missouri, (Aa2/AA//) $113.120 million of sanitary sewer system improvement revenue bonds, Series 2024A, with 5s of 1/2025 at 2.88%, 5s of 2029 at 2.61%, 5s of 2034 at 2.71%, 5s of 2039 at 3.23%, 5s of 2044 at 3.66% and 4s of 2049 at 4.19%, callable 1/1/2034.
In the competitive market, Washington (Aaa/AA+/AA+/) sold $325.380 million of various purpose GOs, Series 2024C, Bid Group 1, to BofA Securities, with 5s of 2/2025 at 3.08%, 5s of 2029 at 2.57%, 5s of 2034 at 2.71%, 5s of 2039 at 3.16% and 5s of 2040 at 3.25%, callable 2/1/2034.
The state also sold $328.815 million of various purpose GOs, Series 2024C, Bid Group 2, to BofA Securities, with 5s of 2/2041 at 3.41%, 5s of 2044 at 3.62% and 5s of 2049 at 3.94%, callable 2/1/2034.
Additionally, Washington sold $262.025 million of motor vehicle fuel tax and vehicle-related fees GOs, Series 2024A, to BofA Securities with 5s of 2/2025 at 3.08%, 5s of 2029 at 2.57%, 5s of 2034 at 2.70%, 5s of 2039 at 3.16%, 5s of 2033 at 3.62% and 5s of 2049 at 3.96%, callable 6/1/2034.
After the year-end rally, "2024 bond investors have been reluctant buyers, prices creeping lower perhaps until the data and the Fed's next steps are more clear," said Matt Fabian, a partner at Municipal Market Analytics.
Muni yields have risen 17 to 34 basis points since the start of the month, according to Refinitiv MMD.
Additionally, Fabian said most muni mutual fund and exchange-traded fund NAVs have started 2024 with losses, including 1.5% among high-yield strategies.
"1H January losses are less than typical, but seasonal performance has been less typical lately, and 2024 may continue to buck trends noting the very large scheduled reinvestment for February: larger even than July, typically the third biggest month," he said.
Some cash has returned to traditional mutual funds despite their NAV losses, according to Fabian.
However, he noted "this could be only a strategic reallocation from ETFs to funds but funds receiving any inflows is a rare positive for that sector lately and suggests more aggressive investor positioning, all else being equal."
Last week saw an increase in average lot size for customer purchases, "a needed signal for price discovery (and thus liquidity and performance of fund-preferred structures), even if the overall price trend is a negative one," he said.
Afterward, he said key new issues last week outperformed the market at large.
"These bonds would have been structured for the specific buyers present and thus differentiated from what has been traded lately in the secondary," Fabian said.
Munis will need inflows into mutual funds to continue to "determine a more durable performance direction, otherwise levels are likely to keep floating within recent ranges for an extended period (noting that this also is not the worst near-term outcome)," he said.
Secondary trading
Washington 5s of 2025 at 3.03%. NYC 5s of 2025 at 3.00%. Hawaii 5s of 2026 at 2.83%.
Ohio 5s of 2028 at 2.55%. Maryland 4s of 2029 at 2.54% versus 2.32% on 1/10. California 5s of 2029 at 2.49% versus 2.33% on 1/12 and 2.36%-2.35% on 1/10.
California 5s of 2033 at 2.57%. Triborough Bridge and Tunnel Authority 5s of 2034 at 2.59%-2.58%. New Hampshire 5s of 2035 at 2.63%.
Massachusetts 5s of 2049 at 3.89%-3.84% versus 3.91% Monday and 3.83%-3.84% Thursday. Hillsborough County, Florida, 5s of 2053 at 3.77%-3.62%.
AAA scales
Refinitiv MMD's scale was cut up to two basis points: The one-year was at 3.01% (unch) and 2.73% (unch) in two years. The five-year was at 2.45% (unch), the 10-year at 2.46% (unch) and the 30-year at 3.61% (+2) at 3 p.m.
The ICE AAA yield curve saw small cuts outside of one year: 2.99% (-1) in 2025 and 2.83% (+2) in 2026. The five-year was at 2.52% (+1), the 10-year was at 2.49% (+2) and the 30-year was at 3.60% (+3) at 3:30 p.m.
The S&P Global Market Intelligence municipal curve was cut one to two basis points: The one-year was at 3.01% (+1) in 2025 and 2.77% (+1) in 2026. The five-year was at 2.45% (+1), the 10-year was at 2.47% (+1) and the 30-year yield was at 3.60% (+2), according to a 3 p.m. read.
Bloomberg BVAL was cut up to three basis points: 2.97% (+1) in 2025 and 2.82% (unch) in 2026. The five-year at 2.49% (+2), the 10-year at 2.54% (+2) and the 30-year at 3.62% (+2) at 3:30 p.m.
Treasuries were weaker out long.
The two-year UST was yielding 4.382% (-1), the three-year was at 4.156% (+1), the five-year at 4.048% (+2), the 10-year at 4.139% (), the 20-year at 4.486% (+5) and the 30-year Treasury was yielding 4.373% (+6) at 3:30 p.m.
2024 market outlook
The muni market is "poised for improvement in 2024, depending on how the economy responds to the end of Fed rate hikes," said Daniel J. Close, Nuveen's head of municipals.
While the Fed and others think there is the possibility of a soft landing, he remains unconvinced.
Despite this, Close believes muni credit may help stabilize investment portfolios.
"While the Fed's torrid pace of rate hikes has impacted municipal bond yields, credit fundamentals remain strong," he said.
Following COVID-19 aid, state and local governments remain "flush with cash" and revenues are above pre-pandemic averages, Close said.
Munis should be "well placed to capitalize on these solid fundamentals, with yields starting 2024 at their highest level since 2011," he said.
In this environment, Close said investors "may enjoy attractive total returns from income alone, a dynamic absent for nearly a decade."
Last year was the second straight year of outflows. After outflows topped $120 billion in 2022, outflows continued in 2023 with negative $19 billion in net fund outflows.
However, Close believes demand should be encouraged by attractive absolute and taxable equivalent yield levels once investors sitting on the sidelines believe the Fed is done hiking rates.
"If investor sentiment shifts positively … strengthening demand could absorb secondary market supply and act as a catalyst for spread tightening," Close said.
Primary to come
The Desert Community College District, California, is set to price Wednesday $200 million of Election of 2016 GOs, Series 2024. Raymond James & Associates.
The Massachusetts State College Building Authority (Aa2/AA//) is set to price Wednesday $164.545 million of State University Program project and refunding revenue bonds, Series 2024A, serials 2024-2043, term 2048. BofA Securities.
Rock Hill, South Carolina, (A2/A+//) is set to price Wednesday $162 million of combined utility system revenue bonds, Series 2024A, serials 2025, 2027-2064. Wells Fargo Bank.
The South Carolina State Housing Finance and Development Authority (Aaa///) is set to price Wednesday $150 million of non-AMT mortgage revenue bonds, Series 2024A, serials 2025-2036, terms 2039, 2044, 2049, 2054, 2054. BofA Securities.
Warren County, Kentucky, (/AA-/AA-/) is set to price Wednesday $142.335 million of Bowling Green-Warren County Community Hospital Corp. hospital revenue bonds, Series 2024, serials 2033-2044, terms 2049, 2054. BofA Securities.
The Nebraska Investment Finance Authority (/AAA//) is set to price Wednesday $139.165 million of non-AMT social Series 2024A and taxable Series 2024B single-family housing revenue bonds. J.P. Morgan.
The Maine Governmental Facilities Authority (Aa3/AA-//) is set to price Wednesday $110.550 million of lease rental revenue bonds, consisting of $65.055 million of green Series 2024A bonds, serials 2024-2043; and $45.495 million of Series 2024B bonds, serial 2024. Raymond James & Associates.
The Salado Independent School District, Texas, (/AAA//) is set to price Wednesday $100.725 million of PSF-insured unlimited tax school building bonds, Series 2024. Piper Sandler.
Competitive
Fairfax County, Virginia, (Aaa/AAA/AAA/) is set to sell $323.315 million of public improvement bonds, Series 2024A, at 10:30 a.m. Wednesday.
