Municipals were a touch firmer in the belly of the curve in light trading on Tuesday while the focus was on an active primary ahead of the FOMC meeting Wednesday.
Triple-A benchmarks were bumped by a basis point while U.S. Treasuries were better and equities rallied.
Municipal-to-UST ratios saw the 5-year at 57%, the 10-year at 78% and the 30-year at 86%, according to Refinitiv MMD. ICE Data Services had the 5-year muni-to-UST ratio at 54%, the 10-year at 77% and the 30 at 86%.
Secondary trading did point to firmer trades on bonds 10 years and out, but the focus Tuesday was the primary.
High-grade Washington sold $133.665 million of unlimited tax general obligation bonds to Wells Fargo Investment & Corporate Banking. Bonds in 2/2023 with a 5% coupon yield 0.25%, 5s of 2027 at 0.73%, 5s of 2031 at 1.25%, 4s of 2036 at 1.83% and 4s of 2037 at 1.57%, callable Feb. 1, 2032.
The state (Aaa/AA+/AA+) also sold $134.545 million of motor vehicle fuel tax general obligation refunding bonds to J.P. Morgan Securities LLC. Bonds in 2/2026 with a 5% coupon yield 0.60%, 5s of 2031 at 1.25%, 4s of 2036 at 1.55% and 4s of 2041 at 1.74%.
BofA Securities priced and repriced for institutions the State Public Works Board of the state of California's (Aa3/A+/AA-/) $574.46 million of lease revenue bonds, with some bumps on the green bonds from Monday's retail offering. The deal consists of $475.245 million of Department of General Services climate bond certified green bonds. Bonds 11/2022 with a 5% coupon yield 0.19%, 5s of 2026 at 0.72% (-1), 5s of 2031 at 1.36% (-1), 4s of 2036 at 1.80% (-5), 4s of 2041 at 1.93% (-7), 4s of 2046 at 2.05%, and 5s of 2046 at 1.93% (-7), callable Nov. 1, 2031.
The second tranche, $99.215 million of various capital projects lease revenue bonds, with 5s of 11/2022 at 0.21%, 4s of 2026 at 0.74% (+1), 4s of 2031 at 1.38% (+1), 4s of 2036 at 1.83%, 4s of 2041 at 1.96% and 5s of 2046 at 1.96%, callable Nov. 1, 2031.
J.P. Morgan Securities priced for the Idaho Health Facilities Authority (A3/A//) $221.325 million of revenue bonds, Series 2021A (St. Luke’s Health System Project). Bonds in 3/2026 with a 5% coupon yields 0.82%, 5s of 2031 at 1.54%, 4s of 2035 at 2.04%, 4s of 2041 at 2.24%, 4s of 2046 at 2.34%, 4s of 2051 at 2.41% and 3s of 2051 at 3%, callable March 1, 2032.
BofA Securities priced for the Montana Facilities Finance Authority (/AA-/AA-/) $150 million of taxable Billings Clinic Obligated Group revenue bonds. Bonds priced at par at 0.862% in 8/2023, 1.598% in 2026, 2.444% in 2031, 2.894% in 2036, 2.946% in 2041 and 2.996% in 2051, subject to a make whole call Feb. 15, 2051.
RBC Capital Markets priced for the Montana Facilities Finance Authority (/AA-/AA-/) $49.795 million of exempt Billings Clinic Obligated Group revenue bonds. Bonds in 8/2023 with a 5% coupon yield 0.64%, 5s of 2026 at 1.10%, 5s of 2031 at 1.81%, 4s of 2036 at 2.30% and 4s of 2037 at 2.35%, callable Aug. 15, 2032.
Loop Capital Markets priced for the Regents of the University of Colorado (Aa1//AA+/) $125 million of university enterprise refunding revenue bonds. The first tranche, $65 million, Series 2021C-3A (term rate bonds) (green bonds), saw bonds maturing in 6/2051 with a 2% coupon yields 0.7%, a mandatory put date on Oct. 15, 2025.
The second tranche, $60 million of Series 2021C-3B (term rate bonds) (green bonds) saw bonds maturing in 6/2051 with a 2% coupon yields 0.91%, a mandatory put date on Oct. 15, 2026.
A small Puerto Rico credit was priced with spreads of plus-40 to plus-65 to generic triple-A benchmarks.
J.P. Morgan Securities priced for the Puerto Rico Industrial, Tourist, Educational, Medical And Environmental Control Facilities Financing Authority (/BBB+//) $57.165 million of hospital revenue and refunding revenue bonds, Series 2021 (Hospital Auxilio Mutuo Obligated Group Project). Bonds in 7/2022 with a 5% coupon yields 0.59% , 5s of 2026 at 1.26%, 5s of 2031 at 1.85%, 4s of 2036 at 2.35% and 4s of 2041 at 2.49%, callable July 1, 2031.
Secondary trading
New York City 5s of 2022 at 0.16%. Wake County 5s of 2022 at 0.13%.
Minnesota 4s of 2024 at 0.37%. Monmouth County, New Jersey, 5s of 2024 at 0.31%. Georgia 5s of 2024 at 0.31%.
Montgomery County, Maryland, 5s of 2025 at 0.52%. Georgia 5s of 2026 at 0.61%. Maryland 5s of 2028 at 0.96%.
Ohio 5s of 2031 at 1.27%-1.26% versus 1.33% original. Maryland 5s of 2031 at 1.22%-1.20% versus 1.28% Wednesday. Georgia 5s of 2032 at 1.24%-1.23% versus 1.23%-1.22% Friday. Maryland 5s of 2033 at 1.28% versus 1.29% Friday. Denver City and County 5s of 2033 at 1.30% versus 1.35% a week ago.
Texas water 5s of 2034 at 1.40% versus 1.42% Monday. Indiana Finance green bond 5s of 2034 at 1.40% versus 1.44% original. Princeton 2s of 2039 at 2.35%-2.30%.
Austin water 5s of 2046 at 1.78%-1.72% versus 1.81%-1.78% Friday and 1.88% original. Los Angeles DWP 5s of 2051 at 1.80%
AAA scales
According to Refinitiv MMD, yields were steady on the short end with the one-year at 0.16% in 2022 and at 0.25% in 2023, the 10-year fell one to 1.21% and the yield on the 30-year sat at 1.69%.
The ICE municipal yield curve showed bonds steady at 0.17% in 2022 and at 0.25% in 2023. The 10-year maturity fell one to 1.17% and the 30-year yield also fell one to 1.68%.
The IHS Markit municipal analytics curve showed short yields steady at 0.16% in 2022 and at 0.23% in 2023. The 10-year yield was at 1.20% and the 30-year yield down one to 1.69%.
The Bloomberg BVAL curve showed short yields steady at 0.17% in 2022 and at 0.21% in 2023. The 10-year yield fell one basis point to 1.20% and the 30-year also was down one at 1.71%.
In late trading, Treasuries were better and equities were up near the close.
The 5-year Treasury was yielding 1.144%, 10-year Treasury was yielding 1.541%, the 20-year at 1.968% and the 30-year Treasury was yielding 1.944%. The Dow Jones Industrial Average rose 139 points, or 0.39%, the S&P was up 0.34% while the Nasdaq gained 0.21%.
Rate hike talk
The markets are beginning to price in rate increases for next year as yield curves flatten and with a taper announcement expected Wednesday.
“Beyond tapering, we don’t expect many policy pronouncements,” said Scott Ruesterholz, a portfolio manager at Insight Investment. Inflation is running at “unacceptable” levels and seven million fewer workers are on payrolls than before the pandemic began.
“Balancing these divergences is a delicate matter for the Fed; hiking too soon could cause a slower employment rebound while waiting too long could further entrench the inflation overshoot,” he said. “The picture is even murkier because the receding of the pandemic and end of unemployment benefits could speed the employment recovery in coming months while gradually loosening supply chain pressures may reduce inflation.”
Since so many uncertainties remain, “we do not expect the Fed to offer meaningful revisions to its interest rate guidance,” Ruesterholz added. “In fact, these uncertainties have made tapering all the more valuable policy tool.”
And, he said, the Fed will want to finish tapering before a rate hike, which then won’t happen before the last half of 2022.
The FOMC will likely take the opportunity to profess its reliance on data to decide liftoff and reiterate the threshold for a rate hike remains higher than for taper.
“We do not expect the Fed to join other central banks in pulling forward rate hike expectations this week,” said Ruesterholz. “Indeed, the fact tapering locks out near-term rate hikes may boost the dovish wing of the committee if inflation begins to moderate by mid-2022 as we expect, which could push off the momentum for rates hike until 2023.”
And pricing in more than two rate increases next year, he said, is “overly aggressive.”
But much can happen before summer. Joe Kalish, chief global macrostrategist at Ned Davis Research and Veneta Dimitrova, senior U.S. economist at NDR, said, “Although the market has pulled rate hikes forward to around midyear of 2022, there is a case to be made for delaying hikes until 2023.”
Should inflation expectations grow too much, the Fed may have a problem, they said. “If inflation expectations were to rise above 2.2%, it would put the FOMC in a very uncomfortable spot, which could result in rate hikes sooner than expected or of greater magnitude.”
But, with wages currently trending higher, they said, “unless compensation trends subside, a rate hike next summer sounds appropriate.”
Primary to come
Main Street Natural Gas (Aa2//AA-/) is on the day-to-day calendar with $750 million of gas supply revenue bonds, Series 2021A, serials 2023-2031, term 2052. RBC Capital Markets.
Beth Israel Lahey Health (A3/A//) is set to price Wednesday $500 million of taxable bonds, Series L (2021). Goldman Sachs & Co.
Allina Health System (Aa3/AA-/AA-//) is set to price Thursday $303.031 million of corporate CUSIP taxable bonds, Series 2021. J.P. Morgan Securities.
The Economic Development Authority of Lynchburg, Virginia, (Baa1/A-/A-/) is set to price Thursday $211.955 million of hospital revenue and refunding bonds (Centra Health Obligated Group), Series 2021, serials 2027-2047 and 2049-2055. Barclays Capital.
Minneapolis, Minnesota, (Aa3/AA-/AA-//) is set to price Thursday $172.135 million of health care system revenue bonds, Series 2021 (Allina Health System). J.P. Morgan Securities.
The North Dakota Housing Finance Agency (Aa1///) is set to price Tuesday $141.3 million of housing finance program bonds (Home Mortgage Finance Program), consisting of $125 million, Series 2021B (non-AMT) (social bonds), serials 2027-2033, terms 2036, 2041, 2043 and 2052 and $16.3 million, Series 2021C (AMT) (social bonds), serials 2022-2027. RBC Capital Markets.
The Fort Bend Grand Parkway Toll Road Authority, Texas, (Aa1//AA+/) is set to price Thursday $137.16 million of limited contract tax and subordinate lien toll road revenue refunding bonds, Series 2021A. Mesirow Financial.
Palm Beach County Health Facilities Authority, Florida, is set to price $128.815 million of revenue refunding bonds (Toby & Leon Cooperman Sinai Residences at Boca Raton), Series 2022 (forward delivery). HJ Sims & Co.
The Successor Agency to the Redevelopment Agency of the City and County of San Francisco (/AA///) is on the day-to-day calendar with $107.34 million of taxable third-lien tax allocation bonds, 2021 Series A (affordable housing projects) (social bonds), serials 2023-2031, insured by Assured Guaranty Municipal Corp. Citigroup Global Markets.
Spartanburg Regional Health Services District, South Carolina, (A3/A//) is set to price Wednesday $101.895 million of hospital revenue refunding bonds, Series 2022 (forward delivery). J.P. Morgan Securities.
Competitive
Miami-Dade County School District (Aa3///) is set to sell $169.08 million of taxable general obligation school refunding bonds, Series 2021 at 10 a.m. eastern Wednesday.
Dallas, Texas (///AA+) is set to sell $235.245 million of unlimited tax general obligation bonds at 10:30 a.m. eastern on Thursday.
Jessica Lerner contributed to this report.
