Municipals were lightly traded and little changed Friday ahead of a much smaller calendar and the Federal Open Market Committee meeting during which the first rate cut in four years is expected. U.S. Treasuries and equities closed out a volatile week in the black.
Triple-A muni yields barely budged across the yield curve while USTs made the largest gains up front.
"Action over the last week suggests that the bond market is viewing the August employment report like a bottle half empty, pressing the Treasury curve into a grinding bull steepening rally," noted BofA Global Research strategists. "The 2s10s Treasury curve steepened to positive, and
This suggests the market "has taken the path of faster yield declines," BofA's Yingchen Li and Ian Rogow said. "We now expect that any bump the Fed meeting offers will likely be smaller than previously anticipated, and that September should see a quite smooth bond market rally."
Municipals have underperformed USTs and corporate counterparts, but still have done well with the Bloomberg Municipal Index is at positive 0.66% so far in September and 1.97% year-to-date.
"The market tone has markedly improved, allowing investors to deal with heavy supply without major problems," noted Barclays strategists Mikhail Foux and Clare Pickering. "It does help that fund flows have finally turned positive, after investors realized that rate cuts are just around the corner, and we have been
Foux and Pickering said they suggested that going into the second half of 2024 the muni curve would start to steepen, following USTs "when investors become certain that a rate-cutting cycle is just around the corner."
"Indeed, the 3s5s and the 5s10s curves have steepened to some of their highest levels in recent history; the long end is still relatively flat, and at some point in the near future investors might want to consider extending their duration," they said.
Muni ratios "have been generally well-behaved thus far in September, followed with little relative cheapening this week," Li and Rogow said.
The two-year muni-to-Treasury ratio Friday was at 66%, the three-year at 68%, the five-year at 68%, the 10-year at 72% and the 30-year at 88%, 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 66%, the five-year at 67%, the 10-year at 71% and the 30-year at 88% at 4 p.m.
"These levels are fair to slightly cheap based on data ranges since last November when the market rally started," Li and Rogow said. "In our view, further cheapening would represent a good opportunity for muni investors, especially for the long end of the curve."
While supply will fall in the September 16 week as "investors await their first rate cut in a long while," it should pick up after that, Foux and Pickering said, adding the 30-day visible pipeline "is at relatively manageable levels at the moment." Bond Buyer 30-day visible supply is at $10.09 billion.
Issuance is expected to come in at $5.377 billion with $3.642 billion of negotiated deals and $1.734 billion in the competitive market.
The negotiated calendar is led by the JEA, Florida,
Illinois leads the competitive slate with $600 million of tax-exempt and taxable general obligation bonds in three deals Thursday.
"At the moment, the market is set relatively well for its annual year-end run, as ratios have become more attractive," Barclays said. "In our view, a 'red wave' in November is pretty much the only real threat to tax-exempts at this point — hence, investors will likely remain cautious near-term, although the probability of a 'red wave' has declined somewhat after the presidential debate this week, according to PredictIt."
AAA scales
Refinitiv MMD's scale was left unchanged: The one-year was at 2.50% and 2.35% in two years. The five-year was at 2.34%, the 10-year at 2.63% and the 30-year at 3.52% at 3 p.m.
The ICE AAA yield curve was slightly weaker on the one-year: 2.52% (+2) in 2025 and 2.38% (unch) in 2026. The five-year was at 2.34% (unch), the 10-year was at 2.58% (unch) and the 30-year was at 3.49% (unch) at 4 p.m.
The S&P Global Market Intelligence municipal curve was little changed: The one-year was at 2.45% (unch) in 2025 and 2.36% (unch) in 2026. The five-year was at 2.35% (unch), the 10-year was at 2.58% (unch) and the 30-year yield was at 3.50% (unch) at 3 p.m.
Bloomberg BVAL was unchanged: 2.44% in 2025 and 2.38% in 2026. The five-year at 2.36%, the 10-year at 2.61% and the 30-year at 3.50% at 4 p.m.
Treasuries were better.
The two-year UST was yielding 3.584% (-6), the three-year was at 3.443% (-3), the five-year at 3.435% (-3), the 10-year at 3.657% (-2), the 20-year at 4.051% (-2) and the 30-year at 3.983% (-1) just before the close.
Primary to come:
The JEA is set to price Tuesday $476.585 million of electric system revenue bonds, consisting of $353.985 million of electric system revenue bonds, Series Three 2024A, (A1/A+/AA/) and $122.6 million of electric system subordinated revenue refunding bonds (A2/A/AA/). J.P. Morgan Securities LLC.
The Allegheny County Sanitary Authority (Aa3/AA-//) is on the day-to-day calendar with $360.46 million of sewer revenue refunding bond, serials 2024-2044, terms 2049, 2055. PNC Capital Markets LLC.
The Washington State Housing Finance Commission (A3///) is set to price Thursday $314.403 million of municipal social certificates, Series 2024-1 Class A. Jefferies LLC.
The Industrial Development Authority of the City of Yuma, Arizona, (/A/A/) is set to price Thursday $299 million of Yuma Regional Medical Center hospital revenue bonds, serials 2025-2044, term 2049, 2054. BofA Securities.
The Public Power Generation Agency (A2//A/) Is set to price Thursday $160 million of Whelan Energy Center Unit 2 revenue refunding bonds, Series A, serials 2026-2041. BofA Securities.
The Baseline Metropolitan District No. 1, Colorado, is set to price Thursday $155.075 million of special revenue refunding and improvement bonds and subordinate special revenue bonds, consisting of $132.575 million of special revenue refunding bonds (/AA//) insured by Assured Guaranty Inc., serials 2024-2039, terms 2044, 2049, 2054; and $22.5 million of unrated subordinated special revenue bonds, terms 2054. Wells Fargo Bank, N.A. Municipal Finance Group.
The New York City Housing Development Corp. (Aa2///) is set to price Thursday $143.39 million of taxable sustainable development housing impact bonds, Series D, serials 2030-2036, terms 2039, 2044, 2049, 2054. BofA Securities.
Lake County, Ohio, (Aa1///) is set to price $120 million of county correctional facilities bonds and notes, consisting of $70 million of bonds, serials 2025-2044, terms 2046, 2050, 2052; and $50 million of notes maturing in 2025. Stifel, Nicolaus & Company, Inc.
The Colorado Housing FInance Authority (Aaa/AAA//) Is set to price $116.035 million of single-family mortgage Class I taxable social bonds, serials 2025-2035, terms 2039, 2043, 2050. BofA Securities.
The Ohio Water Development Authority (Aaa/AAA//) is set to price Tuesday $114.43 million of water development revenue bonds, fresh water revolving fund Series 2024, serials 2025-2027, 2031. Stifel, Nicolaus & Company, Inc.
The Rhode Island Housing and Mortgage Finance Corp. (Aa1/AA+//) is set to price Tuesday $108.315 million of taxable homeownership opportunity bonds, Series 84-T. Morgan Stanley & Co. LLC.
The Missouri Joint Municipal Electric Utility Commission (A3//A/) is set to price $105 million of Plum Point power project revenue refunding bonds, serials 2026-2034. RBC Capital Markets.
Competitive:
Illinois is set to sell $600 million taxable and tax-exempt general obligation bonds in three sales Tuesday, consisting of $150 million taxable GOs, Series October 2024A, at 10:15 a.m. eastern, $150 million of exempts, Series October 2024B, at 10:45 a.m. and $300 million of tax-exempt GOs, Series October 2024C at 11:15 a.m.
The Empire State Development Corp. is set to sell $341.525 million of state sales tax revenue bonds at 10:45 a.m. eastern Thursday.
Greenville County, S.D., (MIG1/A-1+//) is set to sell $155.625 million of general obligation bonds, maturing 6/24/2025, at 1 p.m. Monday.
Clover School District #2, South Carolina, (MIG1///) is set to sell $112.5 million of GO bond anticipation notes at 11 a.m. eastern Thursday.
