New Jersey COVID-19 general obligation bonds broke free to trade in the secondary market richer by as much as 45 basis points, swings that when compared to Monday's price talk equate to 75 basis points lower, as the broader market saw yields fall.
In large blocks, New Jersey's 10-year with a 4% coupon traded as low as 1.64%, down from the 2.08% original yield while 4s of 2032 traded as low as 1.80% from 2.25% original pricing levels. GOs in 2032 with 3 handles traded nearly as low to 1.84% from 2.25%. The 5-year with a 5% coupon traded below 1% from the original 1.27% yield.
Spreads to triple-A benchmarks fell below 100 basis points on the state's 10-year. The state, rated A3/BBB+/A-/A, is the second lowest-rated below Illinois.
Massachusetts GOs were also trading up in the secondary by 4 to 5 basis points, though nowhere near the Garden State. Massachusetts' long bond, 5s of 2050, traded at 1.64% from 1.68% originals.
The municipal market strengthened, following U.S. Treasuries, on Thursday with yields on top-quality bonds fell as much as five basis points on the AAA scales as more news surrounding COVID's surge pushed investors to a flight-to-quality bias.
"Treasury yields go lower once again, stocks take a stand-by approach and munis show a positive bias once again with leadership from Treasuries and an insatiable demand that saw $4.6 billion of bonds (New Jersey and Massachusetts) gobbled up like a turkey dinner," said Peter Franks, senior market analyst at Refinitiv MMD.
"The Jersey trades showed not only the demand for yield in the muni space but also the stark contrast of how the market is handling the coronavirus effects this time," compared to March, a New York trader said. "COVID is just not as large a shock to the system as it was when it first hit. Not to say it isn't real. I think participants are better prepared for the psychological effects.
"It also shows that combined with inflows, this market has money to put to work," the trader said.
Investors continued to pour cash back into tax-exempt mutual funds, with Refinitiv Lipper reporting Thursday that muni bond funds saw over $1.3 billion of inflows in the latest reporting week after $1 billion-plus of inflows in the prior week.
Primary market
BofA Securities priced the Port of Oakland, Calif.’s $527 million deal consisting of $343.77 million of Series 2020R (A1/A+/A+/NR) taxable senior lien refunding revenue bonds and $183.185 million of Series 2021H (A2/A/A/NR) forward delivery intermediate lien refunding revenue bonds, subject to the alternative minimum tax.
The Series 2020R taxables were priced at par to yield from 0.669% in 2022 to 2.349% in 2033. The Series 2021H forward delivery bonds were priced as 5s to yield from 0.66% in 2022 to 1.43% in 2029.
BofA also priced Hawaii’s (Aa3/NR/AA-/NR) $268.945 million of harbor system revenue bonds, consisting of Series 2020A AMT bonds, Series 2020B taxables and Series 2020C non-AMT bonds.
The $148.985 million of Series 2020A AMT bonds were priced to yield 0.57% with a 5% coupon in 2021 and to yield from 0.70% with a 5% coupon in 2024 to 2.06% with a 4% coupon in 2037. The $15.695 million of Series 2020B taxables were priced at par to yield from 0.60% in 2021 to 1.15% in 2024. The $104.265 million of Series 2020C non-AMT bonds were priced to yield from 0.87% with a 5% coupon in 2028 to 1.88% with a 4% coupon in 2040.
In the competitive arena, Richmond, Va., (Aa1/AA+/AA+/) sold $155.09 million of general obligation bonds in two offerings. Piper Sandler won the $103.54 million of Series 2020A public improvement and refunding GOs with a true interest cost of 1.4195%. Raymond James & Associates won the $51.55 million of Series 2020B taxable public improvement refunding bonds with a TIC of 1.4908%. Davenport & Co. was the financial advisor. Orrick Herrington and Lewis Munday Harrell were the bond counsel.
Oppenheimer & Co. received the written award on the National Finance Authority’s (A3/NR/NR/NR) $135 million of Series 2020 taxable federal lease revenue bonds issued for the VA Butler Health Care Center Project. The bonds were priced at par to yield 3.278% in 2037 with an average life of 14.87 years.
On Wednesday, Siebert Williams Shank priced California’s (Aa1:VMIG1/AAA:A1+/AA:F1+/NR) $100 million of Series 2020A variable-rate general obligation bonds. The bonds were priced at par to yield 0.11% in 2048 with a weekly reset mode that will be determined by the Clarity BidRate Alternative Trading System.
California State Treasurer Fiona Ma said the bonds, which are secured by an irrevocable direct-pay letter of credit from State Street Bank and Trust Co., will fund projects authorized by the state’s Water Quality, Supply, and Infrastructure Improvement Act.
“I strongly support Clarity’s goals to democratize the variable rate market by creating an investor controlled marketplace that maximizes transparency, leverages technology, and helps to promote a broader and deeper distribution of bonds which could lead to improving overall risk for issuers and investors alike,” Ma said.
Refinitiv Lipper reports $1.3B inflow
In the week ended Nov. 18, weekly reporting tax-exempt mutual funds saw $1.328 billion of inflows. It followed an inflow of $1.167 billion in the previous week.
Exchange-traded muni funds reported inflows of $558.107 million, after inflows of $617.748 million in the previous week. Ex-ETFs, muni funds saw inflows of $769.931 million after inflows of $548.860 million in the prior week.
The four-week moving average remained positive at $530.749 million, after being in the green at $350.497 billion in the previous week.
Long-term muni bond funds had inflows of $959.868 million in the latest week after inflows of $911.719 million in the previous week. Intermediate-term funds had inflows of $6.401 million after outflows of $73.234 million in the prior week.
National funds had inflows of $1.234 billion after inflows of $1.130 billion while high-yield muni funds reported inflows of $369.196 million in the latest week, after inflows of $526.256 million the previous week.
Informa: Money market muni funds fell $546M
Tax-exempt municipal money market fund assets fell $545.5 million, bringing total net assets to $110.28 billion in the week ended Nov. 16, according to the Money Fund Report, a publication of Informa Financial Intelligence. In the prior week, assets fell $1.27 billion to $110.82 billion.
The average seven-day simple yield for the 186 tax-free and municipal money-market funds remained at 0.01% from the previous week.
Taxable money-fund assets increased $3.24 billion in the week ended Nov. 17, bringing total net assets to $4.154 trillion.
The average, seven-day simple yield for the 778 taxable reporting funds remained at 0.02% from the prior week.
Overall, the combined total net assets of the 964 reporting money funds rose $2.7 billion in the week ended Nov. 17.
Secondary market
High-grade municipals were stronger Thursday, according to final readings on Refinitiv MMD’s AAA benchmark scale. Short yields fell one basis point to 0.14% in 2021 and 0.15% in 2022. The yield on the 10-year muni dropped four basis points to 0.73% while the yield on the 30-year fell five basis points to 1.43%.
The 10-year muni-to-Treasury ratio was calculated at 85.8% while the 30-year muni-to-Treasury ratio stood at 90.8%, according to MMD.
The ICE AAA municipal yield curve showed short maturities dropping one basis point to 0.14% in 2021 and 0.15% in 2022. The 10-year maturity fell four basis points to 0.72% and the 30-year yield fell five basis points to 1.44%.
The 10-year muni-to-Treasury ratio was calculated at 85% while the 30-year muni-to-Treasury ratio stood at 91%, according to ICE.
Muni to Treasury ratios are becoming more relevant with the current rally and flattening curve, said Kim Olsan, senior vice president at FHN Financial. She noted that the one- to 30-year slope is 139 basis points compared to 157 basis points at the end of October.
“On a technical level, the recent push to lower yields and outperformance to USTs has pushed cross-market AAA/UST ratios much lower,” Olsan said. “The only spot where fair value exists is in the one-year rate, where the ratio is 142%. This range is where strong bids wanteds flows exist so supply is of less concern.”
She noted that in the two- to three-year range, defensive demand has pushed ratios lower, although two-year high-grades are trading above 90% to their UST counterpart. In the five- to seven-year part of the curve, the advantage goes to sellers, where ratios are now below 70%.
Olsan said both the 10- and 30-year AAA spots are trading at three-month average lows.
“While these are well away from the annual lows (72% 10-year and 86% 30-year in January), real rates are lower by about 50 basis points,” she said.
The IHS Markit municipal analytics AAA curve showed short yields falling to 0.13% and 0.14% in 2021 and 2022, respectively, and the 10-year dropping to 0.72% as the 30-year yield fell to 1.46%.
The BVAL AAA curve showed the yield on the 2021 maturity unchanged at 0.15% and 0.16% in 2021 and 2022,
while the 10-year dropped three basis points to 0.73% and the 30-year fell four basis points to 1.48%.
Treasuries were stronger as stock prices traded up.
The three-month Treasury note was yielding 0.08%, the 10-year Treasury was yielding 0.85% and the 30-year Treasury was yielding 1.58%. The Dow rose 0.10%, the S&P 500 increased 0.30% and the Nasdaq gained 0.90%.
