Municipals were slightly firmer Friday ahead of a larger new-issue calendar with bellwether names, as U.S. Treasuries were stronger to close out the week while equities ended in the red.
The $6.9 billion new-issue calendar features several high-grade deals, including nearly $1 billion of refunding general obligation bonds from Massachusetts, $886 million of GOs from Georgia in four competitive deals and a $743 million Battery Park City Authority tax-exempt, taxable and sustainable bond deal. The competitive calendar also features other frequently traded issuers: $131 million from King County, Washington; $200 million from the Clark County School District, Nevada; and $340 million from the Clark County Water District, Nevada.
These deals will help guide AAA yields and provide some price discovery for the market.
Tax-exempts have outperformed slightly for the majority of the week, while municipal to UST ratios "have been largely moving sideways for most of the week," noted Barclays strategists Mikhail Foux, Clare Pickering and Mayur Patel in a weekly report.
The two-year muni-to-Treasury ratio Friday was at 61%, the three-year at 64%, the five-year at 65%, the 10-year at 68% and the 30-year at 91%, according to Refinitiv MMD's 3 p.m. read. ICE Data Services had the two-year at 61%, the three-year at 63%, the five-year at 63%, the 10-year at 67% and the 30-year at 91% at 4 p.m.
BofA strategists had expected triple-A rates to "gradually migrate towards the lower bounds during the June-July timeline," but so far, they said "muni rates have moved down only slightly."
BofA strategists said they are still convinced muni rates will move toward the lower bounds of the January to May ranges.
"Renewed Fed hawkishness has not impacted 5+ year Treasury rates; they stayed in their range bound patterns as well," they said.
Meanwhile, the 30-year UST yield fell 18 basis points from its recent high of 4.0%, BofA strategists said.
USTs two years and in "did respond to the Fed's renewed hawkish stance more than other maturities, causing the 2s10s Treasury slope to fall to 100bp for the second round during this Fed tightening cycle," they said.
The "combination of moves in the two markets since early June resulted in a steepened" muni-UST ratio curve, making short-end munis richer and long-end munis slightly cheaper, noting the 30-year ratio was at 91% Friday, according to Refinitiv MMD, which is very close to the second quarter's high of 92.3%.
BofA strategists "believe further flattening of the muni curve is more likely to come from a back-end rally."
High-grade munis have produced solid returns month-to-date, with the index up 0.9%, and the long-end has outperformed (+1.5%) as the yield curve continues to flatten, Barclays strategists said.
"Meanwhile, investors that are focusing on the short end will note that, after this week's selloff, the SIFMA index is trading on top of the long-dated IG municipal index," they said.
Barclays strategists believe this market dislocation to be short-lived once more, something that has happened a few times since December.
"Higher SIFMA levels should attract investors, forcing [variable-rate demand note] rates to decline; in the meantime, they will likely prevent long-dated yields from rallying much further," they said.
Taxable muni spreads have continued to slowly grind tighter in "sympathy with corporates, which have also performed well this month," Barclays strategists.
Lower-rated credits are that have "outperformed the most, and their spreads still have some room to tighten in slow trading over the course of the summer, as investors will likely be reaching for yield," they said.
In the secondary market, taxable activity has been slow, but Barclays strategists said greater interest in taxable could come from foreign investors, "if they think that UST rates have started to stabilize."
Overall, they "are becoming a little more cautious on the municipal market outlook after solid returns in June."
Barclays strategists said credit spreads and muni ratios should perform well if rates remain range-bound as expected but noted there will likely be solid rather than outsized returns.
Calendar stands at $6.9B
For the coming week, investors will be greeted with a new-issue calendar estimated at $6.900 billion.
There are $4.327 billion of negotiated deals on tap and $2.573 billion on the competitive calendar.
The negotiated calendar is led by $1.491 billion of 2023 tax and revenue anticipation notes from Los Angeles, followed by $993 million of refunding bonds from Massachusetts and $744 million of senior revenue bonds from the Battery Park City Authority, New York.
Georgia leads the competitive calendar with $886 million of GOs in four deals, followed by $379 million of bonds from the Klein Independent School District, Texas, in three deals.
Secondary trading
DC 5s of 2024 at 3.05%. California 5s of 2025 at 2.89%. Washington 5s of 2026 at 2.96%.
Maryland 5s of 2028 at 2.66% versus 2.70% on 6/14. NYC 5s of 2029 at 2.81% versus 2.85%-2.84% Thursday and 2.89% on 6/15. North Carolina 5s of 2030 at 2.63%-2.61% versus 2.62% Thursday and 2.65% on 6/15.
Georgia 5s of 2033 at 2.53% versus 2.58% Thursday and 2.63% on 6/15. Washington 5s of 2033 at 2.69%-2.68% versus 2.71% Thursday. Board of Regents of the University of Texas System 5s of 2034 at 2.72%-2.71% versus 2.74%-2.71% Wednesday and 2.85%-2.90% original on 6/7.
Texas Water Development Board 5s of 2047 at 3.62% versus 3.65%-3.62% Wednesday and 3.68%-3.69% on 6/1. Massachusetts 5s of 2052 at 3.55%-3.67% versus 3.75% Wednesday and 3.82% on 6/13.
AAA scales
Refinitiv MMD's scale was bumped up to two basis points: The one-year was at 3.03% (unch) and 2.91% (unch) in two years. The five-year was at 2.60% (-2), the 10-year at 2.53% (-2) and the 30-year at 3.46% (-2) at 3 p.m.
The ICE AAA yield curve was bumped one to three basis points: 3.02% (-3) in 2024 and 2.94% (-1) in 2025. The five-year was at 2.59% (-1), the 10-year was at 2.55% (-1) and the 30-year was at 3.52% (-1) at 4 p.m.
The IHS Markit municipal curve was unchanged: 3.03% in 2024 and 2.91% in 2025. The five-year was at 2.62%, the 10-year was at 2.55% and the 30-year yield was at 3.48%, according to a 4 p.m. read.
Bloomberg BVAL was bumped one to two basis points: 2.99% (-1) in 2024 and 2.89% (-1) in 2025. The five-year at 2.58% (-1), the 10-year at 2.51% (-2) and the 30-year at 3.49% (-2) at 4 p.m.
Treasuries were firmer.
The two-year UST was yielding 4.749% (-4), the three-year was at 4.330% (-5), the five-year at 3.994% (-5), the 10-year at 3.735% (-7), the 20-year at 4.010% (-6) and the 30-year Treasury was yielding 3.811% (-7) at 4 p.m.
Primary to come:
Los Angeles is set to price Wednesday $1.491 billion of 2023 tax and revenue anticipation notes, term 2024. UBS Financial Services.
Massachusetts (Aa1/AA+/AA+/) is set to price Wednesday $993.465 million of general obligation refunding bonds, consisting of $720 million of Series 2023A and $273.465 Series 2023B. J.P. Morgan Securities.
The Battery Park City Authority, New York, (Aaa//AAA/) is set to price Wednesday $743.710 million of senior revenue bonds, consisting of $341.700 million of sustainability bonds, Series 2023A; $392.805 million of bonds, Series 2023B; and $9.205 million of taxable bonds, Series 2023C. Morgan Stanley.
Springdale, Arkansas, (/AA//) is set to price Tuesday $312.440 million of Build America Mutual-insured sales and use tax refunding and improvement bonds, consisting of $168.720 million of refunding taxable bonds, Series 2023A, serials 2024-2040, terms 2042, 2046, and $145.720 million of new-issue bonds, Series 2023B, serials 2024-2038, terms 2048, 2053 Crews & Associates.
The Middlesex County Improvement Authority, New Jersey, (Aa3/A+//) is set to price Wednesday on behalf of Rutgers University t $307.405 million of GO lease revenue bonds for the New Jersey Health + Life Science Exchange — H-1 Project, consisting of $193.655 million of tax-exempts, Series 2023A, serial 2053 and $113.750 million of taxables, Series 2023B, serials 2027-2036. Citigroup Global Markets. Citigroup Global Markets.
The authority is also set to price Wednesday on behalf of Middlesex County $111.35 million for the New Jersey Health + Life Science Exchange — H-1 Project, consisting of $42.380 million of taxable guaranteed lease revenue and revenue bonds, Series 2023B, serials 2027-2033, terms 2038, 2047; $25.610 million of taxable guaranteed revenue bonds, Series 2023D, serials 2027-2036; $25.135 million of guaranteed lease revenue and revenue bonds, Series 2023A, terms 2049, 2053; and $18.225 million of guaranteed revenue bonds, Series 2023C, serials 2027-2036. Citigroup Global Markets.
Collin County, Texas, (Aaa/AAA//) is set to price Wednesday $245.445 million of limited tax permanent improvement bonds, Series 2023, serials 2024-2043. Jefferies.
The Tennessee Housing Development Agency (Aa1/AA+//) is set to price Tuesday $235 million of social residential finance program bonds, consisting of $135 million of non-AMT bonds, Issue 2023-2A, serials 2024-2035, terms 2038, 2043, 2053, 2054, and $100 million of taxables, Issue 2023-2B, serials 2025-2033, terms 2038, 2043, 2053, 2054. RBC Capital Markets.
The California Statewide Communities Development Authority is set to price Thursday $220.355 million of taxable sustainability Open Properly Assessed Clean Energy program limited obligation improvement bonds, Series 2023. KeyBanc Capital Markets.
The Williamsburg Economic Development Authority, Virginia, (/AA//) is set to price Wednesday on behalf of the Provident Group — Williamsburg Properties — Williams & Mary Project $208.975 million of student housing revenue bonds, Series 2023A, serials 2027-2043, terms 2048, 2053, 2058, 2063, insured by Assured Guaranty. RBC Capital Markets.
The Chula Vista Elementary School District, California, (/AA-//), is set to price Thursday $162.500 million of bonds, consisting of $100 million of Series A, serials 2024-2025, 2028-2044, and $62.500 million of Series B, serials 2024-2038. Loop Capital Markets.
Corpus Christi, Texas, is set to price Thursday $150.780 million of utility system senior lien revenue improvement and refunding bonds, Series 2023, serials 2024-2043, terms 2048, 2053. Jefferies.
Competitive
King County, Washington, (Aa1/AA+//), is set to sell $131.480 million of sewer revenue bonds, Series 2023A, at 11:30 a.m. eastern Monday.
Georgia is set to (Aaa/AAA/AAA/) $201.390 million of $201.390 million of GOs, Series 2023A, Bidding Group 2, at 11:15 a.m. eastern Tuesday; $220.120 million of GOs, Series 2023A, Bidding Group 1, at 10:45 a.m. Tuesday; $203.600 million of taxable GOs, Series 2023B, at 12:15 p.m. Tuesday; and $261.050 million of refunding GOs, Series 2023C, at 11:45 a.m. Tuesday.
The Klein Intermediate School District, Texas, (Aaa/AAA//) is set to sell $326.480 million of PSF-insured unlimited tax schoolhouse bonds, Series 2023, at 11:00 a.m. eastern Tuesday, $41.060 million of PSF-insured unlimited tax refunding bonds, Series 2023A, at 11 a.m. Tuesday; and $11.280 million of non-PSF-insured unlimited tax refunding bonds, Series 2023B, at 11 a.m. Tuesday. RBC Capital Markets.
The Clark County School District, Nevada (A1/AA-//), is set to sell $200 million of limited tax GO building bonds, Series 2023A, at 11:30 a.m. eastern Wednesday.
The Clark County Water District, Nevada (A1/AA-//), is set to sell $340 million of limited tax GO water reclamation bonds, Series 2023, at 11:30 a.m. eastern Thursday.
Christina Baker contributed to this report.
