Bonds

Munis firmer amid busy primary, led by $1.1 CPS Energy

Municipals were firmer Tuesday amid a busy primary market with several large deals, as U.S. Treasury yields fell and equities ended up.

The two-year muni-to-Treasury ratio Monday was at 68%, the three-year at 69%, the five-year at 71%, the 10-year at 70% and the 30-year at 86%, according to Refinitiv Municipal Market Data’s 3 p.m. EST read. ICE Data Services had the two-year at 68%, the three-year at 68%, the five-year at 69%, the 10-year at 69% and the 30-year at 85% at 3:30 p.m.

New-issue volume has topped $50 billion over the past few weeks, said AllianceBernstein in a weekly report.

This week, issuance surges to above $14 billion, the highest weekly new-issue calendar since 2021, “which may again weigh on the muni market,” they noted.

Tuesday was a particularly busy day.

In the primary market, Jefferies priced and repriced for San Antonio Electric and Gas Systems (Aa2/AA-/AA-/) $1.106 billion of revenue refunding bonds, with yields bumped five to 15 basis points. The first tranche, $455.48 million of New Series 2024A, saw 5s of 2/2035 at 3.38% (-10), 5s of 2039 at 3.62% (-7), 5.25s of 2044 at 3.98% (-9) and 5.25s of 2049 at 4.16% (-7), callable 8/1/2034.

The second tranche, $455.665 million of New Series 2024B, saw 5s of 2/2024 at 3.54% (-15), 5s of 2029 at 3.27% (-10), 5s of 2034 at 3.36% (-10), 5s of 2039 at 3.62% (-7), 5s of 2044 at 3.98% (-5), 5.25s of 2049 4.16% (-7), and 5s of 2054 at 4.29% (-7), callable 8/1/2034.

The third tranche, $194.775 million of New Series 2024C, saw 5s of 2/2035 at 3.38% (-10), 5s of 2039 at 3.62% (-7), 5s of 2044 at 3.98% (-5), 5.5s of 2049 at 4.06% (-12) and 5s of 2054 at 4.29% (-7), callable 8/1/2034.

RBC Capital Markets preliminarily priced for the Colorado Health Facilities Authority (Aa1/AA+//) $653.025 million of Intermountain Health revenue refunding bonds, Series 2024A, with 5s of 5/2030 at 3.45%, 5s of 2034 at 3.45%, 5s of 2037 at 3.56%, 5s of 2044 at 4.05% and 5s of 2054 at 4.31%, callable 5/15/2032.

BofA Securities priced for Connecticut (Aa3/AA-/AA-/AA+/) priced $450 million of GOs. The first tranche, $250 million of taxables, 2024 Series A, saw 5.5s of 5/2025 at 5.158%, 4.718s of 2029 at par and 4.876s of 2034 at par.

The second tranche, $200 million of tax-exempts, 2024 Series D, saw 5s of 5/2025 at 3.41%, 5s of 2029 at 3.24%, 5s of 2034 at 3.28%, 5s of 2039 at 3.49% and 5s of 2044 at 3.85%, callable 5/1/2034.

BofA Securities priced for the Massachusetts Housing Finance Authority (Aa2/AA+//) $288.15 million of non-AMT sustainability housing bonds. The first tranche, $90.385 million of Series A-1, saw all bonds price at par: 3.5s of 6/2027, 3.65s of 6/2029, 3.7s of 12/2029, 4s of 6/2034, 4s of 12/2034, 4.1s of 12/2039, 4.55s of 12/2044, 4.7s of 12/2049, 4.8s of 12/2054, 4.9s of 12/2054, 4.95s of 12/2064 and 5s of 12/2067, callable 6/1/2033.

The second tranche, $35.415 million of Series A-2, saw 4.837s of 12/2067 at par, callable 6/1/2033.

The third tranche, $162.35 million of Series A-3, saw all bonds price at par: 3.6s of 12/2026, callable 12/1/2025, and 3.75s of 6/2029, callable 6/1/2028.

Siebert Williams Shank priced for Waco, Texas, (Aa1/AA+//) $277.205 million. The first tranche, $204.655 million of combination tax and revenue certificates of obligation, Series 2024A, saw 5s of 2/2025 at 3.62%, 5s of 2029 at 3.31%, 5s of 2034 at 3.38%, 5s of 2039 at 3.62%, 5s of 2044 at 3.98%, 5s of 2049 at 4.11% and 5.25s of 2054 at 4.14%, callable 2/1/2034.

The second tranche, $43.585 million of taxable combination tax and revenue certificates of obligation, taxable Series 2024B, saw 5s of 2/2025 at 5.209%, 6s of 2029 at 4.873%, 5.055s of 2034 at par%, 5.405s of 2039 at par, 5.488s of 2044 at par and 5.608s of 2054 at par, callable 2/1/2034.

The third tranche, $28.965 million of GO refunding bonds, Series 2024C, saw 5s of 2/2026 at 3.44%, 5s of 2029 at 3.36%, 5s of 2034 at 3.44% and 5s of 2036 at 3.49%, callable 2/1/2034.

Barclays priced for the Connecticut Health and Educational Facilities Authority (Aaa/AAA//) $254.32 million of Yale University revenue bonds, Series 2015A, with 5s of 7/2035 at 3.06%, noncall.

BofA Securities priced for the Colorado Health Facilities Authority (Aa2/AA/AA/) $212.175 million of Advent Health Obligated Group hospital revenue bonds. The first tranche, $140.445 million of Series 2024A, saw 5s of 11/2059 with a put/tender date of 11/15/2029 at 3.56% and 5s of 2059 with a mandatory tender of 11/15/2031 at 3.63%, noncall.

The second tranche, $71.73 million of Series 2024B, saw 5s of 11/2029 at 3.41%, 5s of 2034 at 3.44% and 5s of 2039 at 3.65%, callable 5/15/2034 except for 11/15/2039.

D.A. Davison priced for the Bremerton School District No. 100-C, Washington, (Aaa///) $140.595 million of unlimited tax general obligation bonds, insured by Washington School Bond Guarantee Program, with 5s of 12/2025 at 3.56%, 5s of 2029 at 3.37%, 5s of 2034 at 3.44%, 5s of 2039 at 3.74%, 5s of 2044 at 4.05% and 5.25s of 2047 at 4.10%, callable 6/1/2034.

In the competitive market, the Renewable Water Resources, South Carolina, (Aa1/AAA//) sold $120.81 million of sewer system revenue bonds, Series 2024A, to BofA Securities, with 5s of 4/2026 at 3.25%, 5s of 2029 at 3.11%, 5s of 2034 at 3.08%%, 5s of 2039 at 3.31%, 4s of 2044 at 4.05% and 4s of 2049 at 4.23%, callable 4/1/2034.

The Fayetteville School District No. 1, Arkansas, (Aa2///) sold $177.63 million of construction bonds, to BofA Securities, with 5s of 2/2026 at 3.50%, 5s of 2029 at 3.35%, 3.5s of 2034 at 3.85%, 4s of 2039 at par, 4s of 2042 at 4.20% and 4s of 2050 at 4.40%, callable 8/1/2029.

Issuance will remain elevated for the next several weeks, though Matt Fabian, a partner at Municipal Market Analytics, warns the current market is not yet built to digest over $10 billion supply for weeks in a row.

The forward calendar is approximately $20 billion, the highest in years as “borrowers unlock plans that had been delayed and accelerate future plans” (both due to election-related volatility), he said.

Due to this, MMA’s original 2024 full-year issuance projection of $425 billion to $450 billion may be “too low.”

With the summer technical season starting, “higher yields and munis’ relative cheapness should be tailwinds to the muni market,” AllianceBernstein strategists said.

With these tailwinds, munis should outperform taxables.

“The timing couldn’t be better,” they said. “With $22 billion in reinvestment cash hitting the muni market June 1 and munis having cheapened significantly over the past couple of weeks, the muni market is primed to run.

“Net cash available for reinvestment — which is gross issuance minus bonds maturing, bonds being called and coupon payments — is expected to be $45 billion this summer,” they noted.

This “significant” tailwind, though lower than the trailing three-year average of $78 billion, will be supportive of the muni market, they said.

Dealer inventories hit a 2024 high last week, $11.8 billion ex-VRDOs, which is the largest since May 2023, Fabian said. And without Citi or UBS, major banks that recently departed the municipal bond market, there will be “greater” impacts on firm risk, he said.

“Opportunistic/active” mutual funds lack fresh capital to deploy, something unlikely to change until NAV trends “pivot,” he noted.

Fabian believes banks and crossover buyers view tax-exempt municipals as “far too expensive absent corporate tax hikes or substantial cheapening” and thinks hedge fund and trading accounts will need to emerge in a “more meaningful” way to help “syndicate excess issuance” (regardless of Fed’s actions in 2024 and outcome of the election in November).

AAA scales
Refinitiv MMD’s scale was bumped three to six basis points: The one-year was at 3.31% (-3) and 3.26% (-3) in two years. The five-year was at 3.07% (-4), the 10-year at 3.02% (-6) and the 30-year at 3.87% (-6) at 3 p.m.

The ICE AAA yield curve was bumped three to five basis points: 3.34% (-5) in 2025 and 3.27% (-5) in 2026. The five-year was at 3.05% (-5), the 10-year was at 3.02% (-5) and the 30-year was at 3.86% (-3) at 3:30 p.m.

The S&P Global Market Intelligence municipal curve was bumped four to six basis points: The one-year was at 3.34% (-4) in 2025 and 3.26% (-4) in 2026. The five-year was at 3.05% (-4), the 10-year was at 3.01% (-4) and the 30-year yield was at 3.85% (-6), according to a 3 p.m. read.

Bloomberg BVAL was bumped three to five basis points: 3.35% (-3) in 2025 and 3.28% (-3) in 2026. The five-year at 3.05% (-4), the 10-year at 3.01% (-5) and the 30-year at 3.87% (-4) at 3:30 p.m.

Treasuries were firmer.

The two-year UST was yielding 4.771% (-5), the three-year was at 4.555% (-7), the five-year at 4.349% (-7), the 10-year at 4.333% (-7), the 20-year at 4.561% (-7) and the 30-year at 4.477% (-8) at 3:30 p.m.

Negotiated calendar:
The Metropolitan Washington Airports Authority (Aa3/AA-/AA-/) is set to price Wednesday $829.51 million of airport system revenue and refunding bonds, Series 2024A AMT, serials 2025-2044, terms 2049, 2054. BofA Securities.

The Bay Area Toll Authority is set to price Wednesday $719.14 million of San Francisco Bay Area toll bridge revenue bonds in three series, consisting of $77.375 million of Series F-1 (/AA/AA/), $250 million of Series F-2 (/AA/AA/) and $391.765 million Series S-11 (/AA-/AA-/). J.P. Morgan.

Massachusetts (Aa1/AA+/AA+/) is set to price Wednesday $705.715 million of general obligation and GO refunding bonds, consisting of $650 million Series 1 and $55.715 million of refunding Series 2. Morgan Stanley.

The Harris County Cultural Education Facilities Finance Corp. (Aa3/AA-//) is set to price Wednesday $565.385 million of Memorial Hermann Health System hospital revenue bonds. J.P. Morgan.

Charlotte, North Carolina, (Aaa/AAA//) is set to price Wednesday $543.775 million of water and sewer system revenue bonds, serials 2025-2044, terms 2049, 2054. BofA Securities.

The Los Angeles Department of Water and Power (Aa2/AA-//AA) is set to price Thursday $511.485 million of power system revenue refunding bonds, serials 2025-2044, terms 2049, 2054. RBC Capital Markets.

Hutto, Texas, (Williamson County) (/AA//) is set to price Thursday $291.205 million in two series, $15.745 million of Series 2024A, insured by Build America Mutual, serials 2028-2049, and $275.46 million of Series 2024B, serials 2026-2054. Baird. 

The Economic Development Authority of the County of Chesterfield (Aa1/AA+/AA+/) is set to price Thursday $285.2 million of county mobility projects revenue bonds, serials 2026-2044, terms 2047, 2050. Wells Fargo.

The Lower Colorado River Authority (/A/AA-/) is set to price Thursday $258.91 million of revenue refunding bonds, serials 2025-2045. BofA Securities.

The North Dakota Housing FInance Agency (Aa1///) is set to price Thursday $200 million of housing finance program non-AMT social bonds. RBC Capital Markets.

The Metropolitan Water District of South Carolina (/AA+/AA+/) is set to price Wednesday $173.445 million of subordinate water revenue refunding bonds (mandatory PUT bonds). Loop Capital Markets.

The Pennsylvania Economic Development Financing Authority (B3/BB-/BB-/) is set to price Thursday $130.57 million of PPL Energy Supply, LLC Project exempt facilities revenue refunding bonds. Morgan Stanley.

The Hutto Independent School District, Texas (Aaa/AAA//) Is set to price Wednesday $125 million of unlimited tax school building bonds, PSF Guarantee, serials 2026-2054. RBC Capital Markets.

King County, Washington, (Aa2/AA//) is set to price Wednesday $115.58 million of junior lien sewer revenue refunding bonds. Morgan Stanley.

The Turnpike Authority of Kentucky (Aa3///AA-) is set to price Thursday $109.07 millin of economic development road revenue refunding revitalization projects bonds. J.P. Morgan.

The Mississippi Home Corporation (Aaa///) is set to price Tuesday $100 million of single family mortgage revenue bonds, non-AMT, serials 2029-2036, terms 2039, 2044, 2049, 2054. Raymond James & Associates, Inc.

The North Carolina Housing Finance Agency (Aa1/AA+//) of taxable home ownership revenue bonds, serials 2025-2036, terms 2039, 2044, 2049, 2055, 2055. RBC Capital Markets.

Competitive:
Maryland (Aaa/AAA/AAA/) is set to sell $351.63 million of GO state and local facilities loan of 2024, First Series A, Bidding Group 1, at 10:30 a.m. Wednesday; $300.505 million of GO state and local facilities loan of 2024, First Series A, Bidding Group 2, at 11 a.m. Wednesday; $347.865 million of GO state and local facilities loan of 2024, First Series A, Bidding Group 3, at 11:30 a.m. Wednesday; and $200 million of taxable GO state and local facilities loan of 2024, First Series B, Bidding Group 1, at noon Wednesday.

The Sacramento City Unified School District, California, is set to sell $262.5 million of Election of 2020 (Measure H) GOs, 2024 Series B, at noon Thursday.

Layla Kennington contributed to this story.

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