Municipal bonds were little changed and traded lightly with U.S. Treasuries as participants braced for a lighter week of new issuance amid meetings of the Federal Open Market Committee. Stocks were mixed.
“Investor confidence has been boosted by outsized returns not seen in more than a decade,” Daniel Close, Nuveen Municipalities director, and Anders S. Persson, chief investment officer, said in a report released Monday. “At its meeting this week, the Fed must renew its unequivocal commitment to fighting inflation, by raising rates to the yields needed. If the Fed fails to do so, the market will need to reevaluate what constitutes fair value.”
For the municipal market, it “remains orderly” and “institutions continue to reorganize their portfolios and individual buyers are active”, they indicated.
With a tight schedule of new issue issuances ahead of the FOMC, “secondary flows could benefit from greater attention,” said Kim Olsan, senior vice president at FHN Financial.
Olsan said that in the middle of the month, “there is no notable sector and, in terms of duration, only the very short-term sector is very positive,” she said. “On an overall basis, the overall market is down about 25 basis points after the first nine sessions, but GO and most income categories are down 0.20 to 0.40 percent. “
The ratios are still rich in the short term, although their recent weakness in 10 years “has served to reduce the inversion in the 10 years and 2 years.” [Refinitiv] MMD curve,” she noted.
“After reaching a negative slope of 53 basis points in May, the 10-year AAA implied yield of 3.00% is only 13 basis points inverse to the 2-year spot yield,” a- she declared.
And even if generic AAA spots between 2027 and 2032 exceed 3%, most credits can be purchased above that level (excluding California and several Northeast states), Olsan noted .
“Further normalization of the curve should support the range which still features much tighter ratios compared to longer maturities,” she said.
The two-year muni/Treasury ratio was Monday at 62%, the three-year ratio was 63%, the five-year ratio was 66%, the 10-year ratio was 69% and the 30-year ratio was 90%, according to reading of 15 hours of Refinitiv MMD. ICE Data Services had the two-year at 64%, the three-year at 65%, the five-year at 65%, the 10-year at 69% and the 30-year at 90% as of 4 p.m.
“Wider concessions have developed along the credit curve as mismatched fundamentals – around $18 billion in cuts against an estimated supply of $8 billion in the next 30 days – give bidders the edge.” , she said.
Nuveen’s Close and Perssons noted that last week’s new issues were priced to sell and that this trend is expected to continue through the end of the year. As such, they are “constructive on fixed income in general and tax-exempt bonds in particular.”
They noted that the high-yield municipal market – which has outperformed investment grade securities of late – remains “unusually calm.”
“Despite average index returns hovering around 6%, fund flows remain stable, or even slightly negative,” they said. “We believe an important supply constraint is not being addressed. The intricacies of bond structures create a wide dispersion of relative value in this market.”
Secondary trading
Washington 5s from 2024 at 3.40%. North Carolina 5 of 2024 at 3.20%. New York City 5s of 2025 at 3.21%.
Connecticut 5 by 2027 at 3.11%. Montgomery County, Maryland, 2028 5s at 3.00%. North Carolina 5 of 2028 at 2.95%.
Minnesota 5 by 2033 at 3.13%. Dane County, Wisconsin, 5s of 2037 at 3.56%.
Harris County, Texas, 5s of 2048 at 4.21%.
AAA scales
The Refinitiv MMD scale remained unchanged: that over one year was 3.25% and 3.13% over two years. The 5 year was at 2.90%, the 10 year at 3.00% and the 30 year at 3.94% at 3 p.m.
The ICE AAA yield curve was reduced to a basis point: 3.30% (+1) in 2024 and 3.21% (+1) in 2025. The 5-year was at 2.95% (+1) 1), the 10 year was at 2.99% (+1) and the 30 year was at 3.98% (+1) at 4 p.m.
The municipal curve from S&P Global Market Intelligence (formerly IHS Markit) has changed little: 3.26% (unch) in 2024 and 3.14% (unch) in 2025. The 5-year was at 2.94% (unch), the 10-year was at 2.94% (unch) 3.00% (unch) and the 30-year yield was at 3.93% (unch), based on a 4 p.m. reading.
Bloomberg BVAL has changed little: 3.28% (unch) in 2024 and 3.19% (unch) in 2025. The 5-year at 2.93% (unch), the 10-year at 2.95% (unch) and the 30 years at 3.98% (unch) at 4 p.m.
Cash flow was mixed.
The 2 year UST yielded 5.062% (+3), the 3 year was at 4.738% (+1), the 5 year at 4.458% (+1), the 10 year at 4.313% (-1), the 20 year at 4.576% (-2) and the 30 year yielded 4.391% (-2) as the close approached.
Upcoming primary market:
The San Diego Unified School District is expected to assess $670 million in unrestricted, dedicated ad valorem property taxes on Wednesday, including $23.655 million in Election 2018 Taxable Green Bonds (Aa2///), Series G- 1, series 2024; $51.345 million Election 2018 Green Bonds (Aa2//AAA/AAA/), Series G-2, Series 2024-2028; $275 million Election 2018 Green Bonds (Aa2//AAA/AAA/), Series G-3, Series 2024-2043, Terms 2048 and 2053; $16.435 million in taxable sustainability 2022 Bond Election (Aa2///), Series A-1, Series 2024; $8.565 million 2022 Choice Sustainable Bonds (Aa2//AAA/AAA/), Series A-2, Series 2024-2028; and $295 million 2022 Choice Sustainable Bonds (Aa2//AAA/AAA/), Series A-3, Series 2048, Term 2053. Citigroup Global Markets.
Financing agency Patriots Energy Group (A1///) is expected to set $578.720 million in gas supply tax bonds next week, including $567 million in tax-exempt bonds, series 2023A-1 , and $13 million in taxable bonds, series 2023A. -2. Goldman Sachs.
Philadelphia (A1/A+/A+/) is expected to set $575 million in Water and Wastewater Tax Bonds, Series 2023B, on Tuesday. Goldman Sachs.
The Washington State Housing Finance Commission (/BBB//) is expected to price $328.165 million in Partially Tax-Exempt Municipal Social Security Certificates, Series 2023-1, Class X, Series 2037 on Tuesday. Citigroup GlobalMarkets.
The Washington State Housing Finance Commission (/BBB//) is expected to price $328.165 million in Municipal Social Security Certificates, Series 2023-1, Class A, Series 2037 on Tuesday. Citigroup Global Markets.
The New Jersey Educational Facilities Authority (A2/A-/A/) is expected to set $262.765 million in revenue bonds on Monday, including $185.220 million in issuance from the Higher Education Capital Improvement Fund, Series 2023A , series 2024-2043, terms 2048 and 2053. and $77.545 million from the Higher Education Equipment Rental Fund Program, series 2023A, series 2024-2033. Siebert Williams Shank.
The Minneapolis-St. Paul Metropolitan Airports Commission (/A+/A+/) is expected to set $170.925 million in subordinated airport revenue reimbursement bonds on Tuesday, comprised of $162.400 million in government/non-AMT bonds, series 2023A, series 2025-2035 , and $8.525 million in private bonds. activity/AMT obligations, series 2023B, series 2025-2026. Ramírez & Co.
Competitive:
Cape May County, New Jersey (Aa1///) is expected to sell $96 million worth of GO at 11 a.m. ET on Wednesday.
