Municipals were little changed Monday as U.S. Treasuries were mixed and equities were in the black.
As the market awaits the onslaught of new-issuance, muni underperformance to USTs continues from last week's moves.
"As USTs were rallying, dealers noted slightly better volumes but continued to report a slow grind as accounts are eyeing the heavy slate of issuance expected to come over the next few weeks as deals are pulled forward ahead of the election," noted Birch Creek Capital strategists.
Munis have been improving in September as the month sees gains of 0.16%, bringing year-to-date returns to 1.81%, noted Jason Wong, vice president of municipals at AmeriVet Securities said, but added they have cheapened to USTs as traders and investors "gear up" for a Fed rate cut.
The two-year muni-to-Treasury ratio Monday was at 64%, the three-year at 67%, the five-year at 67%, the 10-year at 71% 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 67%, the five-year at 67%, the 10-year at 71% and the 30-year at 88% at 3:30 p.m.
Long-term ratios remain near year highs and "despite the underperformance of tax-exempt yields last week, we could see some more pressure on both spreads and ratios due to the heavy supply calendar," said Vikram Rai, head of municipal markets strategy at Wells Fargo.
"The added rate volatility and the end of positive summer technicals will add to the headwinds," he said.
"Since the middle of June of this year, when talk of a Fed rate cut started to gain traction, the five-year muni-to-Treasury ratio has risen about 0.45 percentage points to 68.68%," Wong said.
The cheapening is "more prevalent" in the belly of the curve as the 10-year ratio has risen by over 3.8 percentage points and the 30-year ratio by over 2.1 percentage points, he said.
"Muni buyers shouldn't continue to wait too much longer for the curve to cheapen as since the beginning of May of this year, muni yields have fallen about 75 basis points in the front end of the curve," he said.
Yields have fallen by around 44 basis points and 40 basis points in the belly and long end of the curve, respectively, Wong said.
"With a disappointing employment report last Friday and the July revision of non-farm payroll growth, the Fed has been put into a position to cut rates by possibly 50 basis points," potentially pushing muni yields even lower and ratios back to their average levels, he said.
Last week, there was an 11% increase in secondary customer purchases, "with most of the focus being on longer-duration bonds where ratios are the most attractive and the inflows are more concentrated," Birch Creek strategists said, citing J.P. Morgan.
Given the "buildup" in cash, there were lighter bids wanteds volumes as J.P. Morgan reported a 32% decrease compared to recent averages, they said.
The investment-grade market is expected to struggle to outperform "given the onslaught of primary issuance and the slowdown in reinvestment cash in the fall," Birch Creek strategists said.
However, opportunities exist for those with "an eye" toward the end of 2024, they said.
"We have seen several AAA deals coming behind 100% of treasuries and expect those spreads will revert to more normal levels after the technical environment shifts more favorably," Birch Creek strategists said.
In the primary market Monday, RBC Capital Markets held a one-day retail order for
AAA scales
Refinitiv MMD's scale was unchanged: The one-year was at 2.44% and 2.37% 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 mixed: 2.44% (-3) in 2025 and 2.39% (-2) in 2026. The five-year was at 2.37% (unch), the 10-year was at 2.61% (+2) and the 30-year was at 3.52% (-1) at 3:30 p.m.
The S&P Global Market Intelligence municipal curve was little changed: The one-year was at 2.42% (-2) in 2025 and 2.38% (unch) in 2026. The five-year was at 2.35% (unch), the 10-year was at 2.59% (unch) and the 30-year yield was at 3.51% (unch) at 3 p.m.
Bloomberg BVAL was little changed: 2.45% (unch) in 2025 and 2.40% (unch) in 2026. The five-year at 2.38% (unch), the 10-year at 2.61% (unch) and the 30-year at 3.50% (-1) at 3:30 p.m.
Treasuries were better.
The two-year UST was yielding 3.675% (+1), the three-year was at 3.541% (flat), the five-year at 3.489% (-2), the 10-year at 3.699% (-2), the 20-year at 4.076% (-3) and the 30-year at 4.000% (-3) at 3:30 p.m.
Primary to come:
The District of Columbia (Aaa/AA+/AA+/) is set to price Tuesday
The New York City Transitional Finance Authority (Aa1/AAA/AAA/) is set to price Wednesday $1.5 billion of tax-exempt future tax-secured subordinate bonds, Fiscal 2025 Series C, Subseries C-1. J.P. Morgan.
The Texas Transportation Commission (Aaa/AAA//) is set to price Tuesday $878.275 million of GO Mobility Fund refunding bonds, Series 2024, serials 2025-2035, 2039, 2041-2044. BofA Securities.
The City and County of Honolulu is set to price Wednesday $628.355 million of wastewater system revenue bonds, consisting of $292.95 million of First Bond Resolution senior green bonds, Series 2024A, (/AA+/AA/), serials 2041-2044, terms 2049, 2054; $46.395 million of First Bond Resolution senior refunding bonds, Series 2024B, (/AA+/AA/), serial 2040; $164.94 million of First Bond Resolution forward refunding bonds, Series 2025A, (/AA+/AA/), serials 2034-2038; $57.92 million of Second Bond Resolution junior refunding bonds, Series 2024A, (/AA+/AA-/) serial 2039; and $66.15 million of Second Bond Resolution junior forward refunding bonds, Series 2025A, (/AA+/AA-/), serials 2032-2034. BofA Securities.
The Tampa Bay Water (Aa1/AA+//) is set to price Tuesday $557.29 million of utility system revenue bonds, consisting of $409.085 million of Series 2024A bonds, serials 2039-2044, terms 2049, 2054; $93.94 million of refunding Series 2024B bonds, serials 2033-2044; and $54.715 million of taxable refunding Series 2024C bonds, serials 2028-2033. Raymond James.
Philadelphia (A3/A/A-/) is set to price Thursday $446.875 million of gas works revenue bonds Seventeenth Series, consisting of $336.74 million of new-issue bonds, Series 2024A, and $110.135 million of refunding bonds, Series 2024B. J.P. Morgan.
The North Carolina Housing Finance Agency (Aa1/AA+//) is set to price Tuesday $420 million of non-AMT home ownership revenue bonds, consisting of $220 million of Series 55-A, serials 2026-2036, terms 2039, 2044, 2055, and $200 million of Series 55-C, term 2056. BofA Securities.
The Public Finance Authority is set to price Wednesday $400 million of taxable TEP Government Holdings LLC Portfolio federal lease revenue bonds, term 2029. Huntington Securities.
The Harris County Cultural Education Facilities Finance Corp. (Aa2/AA-/AA-/) is set to price Thursday $224.88 million of Texas Children's Hospital hospital revenue refunding bonds, Series 2024A, serials 2029, 2031, 2034. RBC Capital Markets.
The Los Angeles Harbor Department (Aa2/AA+/AA/) is set to price Wednesday $217.785 million of refunding revenue bonds, consisting of $104.275 million of AMT bonds, 2024 Series A-1; $27.09 million of green AMT bonds, 2024 Series A-2; $34.705 million of non-AMT exempt facility bonds, 2024 Series B-1; $23.065 million of green non-AMT exempt facility bonds, 2024 Series B-2; and $28.65 million of non-AMT governmental bonds, 2024 Series C. Jefferies.
The National Finance Authority is set to price Thursday $194 million of non-rated Bridgeland Water and Utility Districts 490, 491, AND 158 special revenue bonds, Series 2024, term 2035. Wells Fargo.
Westminster, Colorado, (/AAA/AA+/) is set to price Tuesday $188.715 million of water and wastewater utility enterprise water and wastewater revenue bonds, Series 2024. Piper Sandler.
The Connecticut Housing Finance Authority (Aaa/AAA//) is set to price Tuesday $188.415 mllion of Housing Mortgage Finance Program bonds, 2024 Series E, consisting of $173.155 million of taxable social bonds, Subseries E-1; $3.25 million of sustainability bonds, Subseries E-2; and $12.01 million term rate sustainability bonds, Subseries E-3. J.P. Morgan.
The Village Community Development District No. 15, Florida, is set to price Tuesday $163 million of non-rated special assessment revenue bonds, Series 2024, terms 2029, 2034, 2039, 2044, 2055. Jefferies.
The IPS Multi-School Building Corp., Indiana, (Aa2/AA+//) is set to price Tuesday $158.795 million of social unlimited ad valorem property tax first mortgage bonds, Series 2024, serials : 2025, 2030-2044, insured by the Indiana State Aid Intercept Program. Stifel.
The Massachusetts Housing Finance Agency (Aa1/AA+//) is set to price Tuesday $124.06 million of taxable social single-family housing revenue bonds, Series 238. Morgan Stanley.
North Thurston Public Schools, Washington, (Aaa/AA+//) is set to price Tuesday $110.82 million of unlimited tax GO and refunding bonds, Series 2024, insured by the Washington School District Credit Enhancement Program. Piper Sandler.
The Arizona Water Infrastructure Finance Authority (/AAA/AAA/) is set to price Tuesday $110.265 million of water quality revenue refunding bonds, Series 2024, serials 2025-2027. BofA Securities.
The Clark County Public Utility District No. 1, Washington, (Aa3/A+/AA/) is set to price Wednesday $109.375 million of electric system revenue and refunding bonds, Series 2024, serials 2026-2045. BofA Securities.
The Ohio Air Quality Development Authority (Baa2/BBB//) is set to price Tuesday $100.9 million of AMT American Electric Power Company Project air quality development revenue refunding bonds, consisting of $50.45 million of Series 2005B, serial 2028, and $50.45 million of Series 2005C, serial 2028. Barclays.
Competitive:
The Santa Clara Valley Water District, California, (Aa1//AA+/) is set to sell $201.63 million of water system refunding revenue bonds at 10:30 a.m. Tuesday and $115.385 million of water system refunding revenue bonds at 11:15 a.m. Tuesday.
Wakefield, Massachusetts, (/AAA//) is set to sell $102.275 million of GO Municipal Purpose Loan of 2024 bonds at 11 a.m. Tuesday.
Hennepin County, Minnesota, (/AAA/AAA/) is set to sell $200 million of GOs, Series 2024A, at 10:45 a.m. Tuesday.
The South Carolina Transportation Infrastructure Bank (Aa2//AA-/) is set to sell $151.87 million of revenue refunding bonds, Series 2024A, at 10 a.m. Tuesday.
Wisconsin is set to sell $269.99 million of GOs, Series C, at 10:45 a.m. Tuesday.
The New York City Transitional Finance Authority is set to sell $300 million of taxable future tax-secured subordinate bonds, Fiscal 2025 Series C, Subseries C-2, at 10:45 a.m. Wednesday.
Tulsa, Oklahoma, is set to sell $108.64 million of GOs, 2024 Series C, at 11:30 a.m. Wednesday and $53.74 million of GOs, 2024 Series D, at noon Wednesday.
The Board of Trustees of the University of Alabama is set to sell $210.82 million of general revenue bonds, Series 2024-B, at 11 a.m. Thursday.
