Munis continued to see losses following Friday’s selloff as the 30-year triple-A yield topped 4%. U.S. Treasuries ended the session weaker across the curve while equities extended gains.
Triple-A yields rose three to seven basis points, depending on the scale, while Treasuries saw larger losses out long.
The three-year muni to UST ratio on Monday was at 71%, the five-year at 74%, the 10-year at 81% and the 30-year at 93%, according to Refinitiv MMD’s 3 p.m. read. ICE Data Services had the three at 71%, the five at 74%, the 10 at 82% and the 30 at 92% at a 4 p.m. read.
“Municipal market performance has improved, but the bumpy road continues as investors remain uncertain about the interest rate environment,” said Nuveen strategist John Miller.
“Fed members last week suggested short-term rates may have to be increased to 5% for the Fed to get inflation completely under control,” Miller and Nuveen’s Chief Investment Officer and Head of Global Fixed Income, Anders S. Persson, said.
USTs sold off accordingly, with the 10-year yield reaching 4.24%, which had not been seen since October 2008, Miller and Persson said. Munis sold off Friday after being relatively stable for most of the week.
“Many investors believe the Fed is being overly vigilant on inflation, but also that the Fed was too cavalier earlier this year,” Miller and Persson said. “We see signs of a cooling economy, believe rates will crest in early 2023 and anticipate volatility will continue.”
Selling pressure remains elevated due to the volatility in UST.
The total par amount of institutional bid wanteds exceeded $10 billion last week, 87% higher than the one-year weekly average of $5.6 billion, said CreditSights strategists Pat Luby and John Ceffalio.
Last week’s daily average of $2.1 billion was 13% higher than the week prior and 79% above the one-year daily average, they said.
The average daily par amount traded last week was down 10% from the pace of the previous week but was still 16% higher than the one-year daily average, they said.
Jason Wong, vice president of municipals at AmeriVet Securities, noted that secondary trading “continues to be very volatile with over $47.5 billion of secondary volume.”
With yields moving higher, trading volume should continue to be at elevated levels, he said.
Munis should be supported “by an eventual moderation in inflation and the likelihood of a soft U.S. economic landing or mild recession,” Miller said. Interest rate volatility should lessen, “leaving the market at attractive yield levels both on a relative and absolute basis,” he said.
Investors, Miller noted, should be enticed by the value created in the market due to solid fundamentals and healthy issuer credit conditions.
This week, though, Nuveen said the larger new-issue calendar will need to be priced cheaply to pique investor interest.
Secondary trading
Texas Water Development Board 5s of 2023 at 3.17%. Maryland 5s of 2023 at 3.09% versus 2.90%-2.74% Wednesday and 2.97%-2.90% on 10/13. New Mexico 5s of 2025 at 3.24%.
Maryland 6s of 2028 at 3.35%. Triborough Bridge and Tunnel Authority 5s of 2031 at 3.68%-3.66% versus 3.32%-3.29% Wednesday. NYC 5s of 2031 at 3.65% versus 3.38% Thursday.
Austin, Texas, 5s of 2042 at 4.07%. Washington 5s of 2043 at 4.27%-4.25% versus 4.27% Friday and 3.98% Tuesday.
Illinois Finance Authority 5s of 2051 at 5.20% versus 5.05%5.15% Friday and 5.00% Wednesday. NYC Municipal Water Finance Authority 5s of 2052 at 4.75% versus 4.72% Friday and 4.48% Tuesday.
AAA scales
Refinitiv MMD’s scale was cut five to seven basis points: the one-year at 3.14% (+5) and 3.18% (+5) in two years. The five-year at 3.24% (+5), the 10-year at 3.41% (+7) and the 30-year at 4.04% (+5),
The ICE AAA yield curve was cut five to seven basis points: 3.15% (+5) in 2023 and 3.19% (+5) in 2024. The five-year at 3.24% (+7), the 10-year was at 3.45% (+7) and the 30-year yield was at 4.04% (+6) at a 4 p.m. read.
The IHS Markit municipal curve was cut five basis points: 3.14% (+5) in 2023 and 3.18% (+5) in 2024. The five-year was at 3.27% (+5), the 10-year was at 3.41% (+5) and the 30-year yield was at 4.03% (+5) at a 4 p.m. read.
Bloomberg BVAL was cut three to five basis points: 3.11% (+3) in 2023 and 3.18% (+3) in 2024. The five-year at 3.24% (+4), the 10-year at 3.39% (+4) and the 30-year at 4.05% (+4) at 4 p.m.
Treasuries were weaker on the long end.
The two-year UST was yielding 4.513% (+2), the three-year was at 4.532% (+1), the five-year at 4.363% (+2), the seven-year 4.307% (+2), the 10-year yielding 4.248% (+2), the 20-year at 4.617% (+4) and the 30-year Treasury was yielding 4.390% (+4) at the close.
Primary to come:
The New York City Transitional Finance Authority (Aa1/AAA/AAA/) is set to price Wednesday $950 million of tax-exempt future tax secured subordinate bonds, Fiscal 2023 Series D, Subseries D-1, serials 2024-2027 and 2036-2052. Wells Fargo Bank.
The Triborough Bridge and Tunnel Authority is set to price Thursday $690.845 million of climate-certified payroll mobility tax senior lien green bonds, Series 2022E, consisting of $186.515 million of Series E-1, $99.560 million of Series E-2a and $404.770 million of Series E-2b. J.P. Morgan Securities.
The Indiana Finance Authority (Aaa///) is set to price Tuesday $500 million of environmental improvement revenue bonds, Series 2022 (Fulcrum Centerpoint, LLC Project). Morgan Stanley & Co.
Atlanta (Aa1//AA+/) is set to price Tuesday $409.705 million of bonds, consisting of $369.380 million of social general obligation public improvement bonds, Series 2022A-1; $36.620 million of general obligation public improvement bonds, Series 2022A-2 and $3.705 million of various purpose general obligation bonds, Series 2022B. J.P. Morgan Securities.
The California Statewide Communities Development Authority is set to price next week $378.860 million of bonds (Enloe Medical Center), consisting of $208.955 million (/BBB-//), Series 2022A, serials 2024-2032, terms 2037, 2042, 2047, 2052 and 2057 and $169.865 million (/AA//), Series 2022B, term 2047, insured by Assured Guaranty Municipal Corp. KeyBanc Capital Markets.
The Texas State Technical College System (A2/A+//) is set to price Tuesday $294.945 million of revenue financing system improvement bonds, Series 2022A. Piper Sandler & Co.
The Allegheny County Sanitary Authority, Pennsylvania, (Aa3/AA-//) is set to price Tuesday $289.785 million of sewer revenue bonds, Series 2022, serials 2025-2042, terms 2047 and 2053. PNC Capital Markets.
The Michigan State Housing Development Authority is set to price Thursday $268.190 million of non-AMT social single-family mortgage revenue bonds, 2022 Series D. Barclays Capital.
Palomar Health, California, is set to price Thursday $215 million of tax-exempt certificates of participation, Series 2022A. Citigroup Global Markets.
The Peralta Community College District, California, (/AA-//) is set to price Tuesday $151.605 million, consisting of $120 million of 2018 Election general obligation bonds, Series B, serials 2023-2024, term 2052 and $31.605 million of general obligation refunding bonds, Series 1, serials 2023-2034. Siebert Williams Shank & Co.
The Indiana Finance Authority (Aa3/AA//) is set to price Tuesday $150 million of green first lien wastewater utility revenue bonds, Series 2022B (CWA Authority Project). J.P. Morgan Securities.
The Missouri Development Finance Board (A1/AA-//) is set to price Tuesday $133.930 million of revenue bonds, Series 2022 (Saint Louis Zoo Projects), serials 2028-2042, terms 2044, 2047, 2052 and 2055. Stifel, Nicolaus & Co.
The Maryland Economic Development Corporation (/BBB-//) is set to price Wednesday $110.680 million of senior student housing revenue bonds, Series 2022A (Morgan State University Project), serials 2028-2033, terms 2043, 2053 and 2058. RBC Capital Markets.
Pinal County, Arizona, (/AA-/AA/) is set Thursday $109.625 million of pledged revenue obligations, Second Taxable Series 2022. Stifel, Nicolaus & Co.
Competitive:
The Tennessee State School Bond Authority (Aa1/AA+/AA+/) is set to sell $278.670 million of higher education facilities second program bonds, 2022 Series A (Tennessee State Aid Intercept Program), at 10:30 a.m. eastern Tuesday and $25.205 million of taxable higher education facilities second program bonds, 2022 Series B (Tennessee State Aid Intercept Program), at 11 a.m. Tuesday.
California (Aa2/AA-/AA/) is set to sell $397.625 million of various purpose general obligation refunding bonds, Bid Group A, at 10:30 a.m. eastern Wednesday; $319.065 million of various purpose general obligation refunding bonds, Bid Group B, at 11:15 a.m. Wednesday and $514.790 of various purpose general obligation refunding bonds, Bid Group C, at 12 p.m. Wednesday.
The New York City Transitional Finance Authority is set to sell $210.440 million of taxable future tax secured taxable subordinate bonds, Fiscal 2023, Subseries D-2, at 10:45 a.m. Wednesday and $139.560 million of taxable future tax secured taxable subordinate bonds, Fiscal 2023, Subseries D-3, at 11:30 a.m. Wednesday.
Spartanburg County School District No. 4, South Carolina, is set to sell $100 million of general obligation bonds, Series 2022A, at 11 a.m. Wednesday.