Municipals were weaker in spots to end the week, while U.S. Treasuries and equities saw losses on continued concerns over the debt limit impasse and questions over the Federal Reserve’s next policy moves.
Municipals mostly stayed in their own lane throughout the week but UST weakness Friday seeped into the secondary Friday, moving yields higher for triple-As by a couple basis points.
The two-year muni-Treasury ratio Friday was at 67%, the three-year at 68%, the five-year at 68%, the 10-year at 67% and the 30-year at 89%, according to Refinitiv MMD’s 3 p.m. ET read. ICE Data Services had the two-year at 71%, the three-year at 72%, the five-year at 69%, the 10-year at 69% and the 30-year at 90% at 4 p.m.
“Economic data continue to show resilience with a strong employment picture, though inflation is moderating at a slower-than-desired pace,” BofA strategists said in a weekly market report.
The market’s continued “focus over the next several weeks should be on the debt limit,” BofA strategists noted.
“Given the historical norm of resolution at the last minute, perhaps any macro market stress is only possible by the final week of May,” according to BofA strategists. They expect a resolution to happen at the last minute.
In munis, some pre-refunding “widening may present opportunities given the debt limit,” they said.
While the Treasury market is “in the range bound pattern seen for the past few months, it is now more data dependent,” they said.
“Aggressive positioning in the short end of the Treasury market reinforced the steepening bias in the Treasury curve, making muni hedging choices biased towards the longer part of the curve,” BofA strategists said. “This is different than in the middle of the intensive hiking sequence when Treasury curve flattening was the main theme, and muni hedging can be quite risky in long maturities in that environment.”
Still, they said, “the steepening bias in the Treasury curve is subject to economic data and financial market changes, as three cuts are not implied in the Fed’s current posture.”
Tax-exempts usually experience strength in May, according to Barclays strategists Mikhail Foux, Clare Pickering and Mayur Patel. They said “high-grade munis have not had any losses since 2016; the average [yield to worst] decline over the past decade was 11bp and a whopping 23bp since 2016,” they said.
“There should still be much potential upside going into the summer, with nearly $100 billion in redemptions, not counting coupons,” Barclays said.
Meanwhile, the lighter 30-day visible pipeline is beneficial for the near-term market outlook, they said. Bond Buyer 30-day visible supply sits at $10.82 billion.
Calendar stands at $6B
For the coming week, investors will be greeted with a new-issue calendar estimated at $6.018 billion with a few bellwether, triple-A names coming from Loudoun County, Virginia, Frederick County, Maryland, and Columbia University with sizable deals.
There are $4.204 billion of negotiated deals on tap and $1.814 billion on the competitive calendar.
The negotiated calendar is led by $277 million of municipal certificates from the California Housing Finance Agency, followed by $250 million of revenue bonds from the Dormitory Authority of the State of New York and $260 million of special obligations bonds from Jackson County, Missouri.
Fort Worth, Texas, leads the competitive calendar with $220 million of revenue bonds in two deals, followed by $200 million of highway revenue bonds from Clark County, Nevada, and $200 million of general fund tax anticipation notes from Fulton County, Georgia.
Maryland 5s of 2024 at 3.02%. Ohio 5s of 2025 at 2.94%. Texas 5s of 2025 at 2.34%-2.81%.
Triborough Bridge and Tunnel Authority 5s of 2028 at 2.39%-2.36%. Wisconsin 5s of 2029 at 2.41%. Connecticut 4s of 2030 at 2.57%-2.54% versus 2.51% Tuesday and 2.44% on 5/1.
Alamo Community College District, Texas, 5s of 2031 at 2.63%-2.55%. Manatee County, Florida 5s of 2032 at 2.50% versus 2.48% Wednesday. California 5s of 2036 at 2.73% versus 2.76% on 5/5 and 2.78%-2.79% on 5/4.
Union County, North Carolina, 5s of 2042 at 3.10%. NYC TFA 4s of 2051 at 4.15%-4.16% versus 4.13%-4.15% Thursday and 4.13%-4.10% on 5/4.
Refinitiv MMD’s scale was cut up to three basis points: The one-year was at 2.99% (+2) and 2.69% (+3) in two years. The five-year was at 2.33% (+2), the 10-year at 2.31% (unch) and the 30-year at 3.36% (unch) at 3 p.m.
The ICE AAA yield curve was cut one to two basis points: 3.07% (+2) in 2024 and 2.77% (+2) in 2025. The five-year was at 2.35% (+2), the 10-year was at 2.31% (+2) and the 30-year was at 3.36% (+1) at 4 p.m.
The IHS Markit municipal curve was unchanged: 2.98% (+2) in 2024 and 2.69% (+3) in 2025. The five-year was at 2.32% (+2), the 10-year was at 2.30% (unch) and the 30-year yield was at 3.36% (unch), according to a 4 p.m. read.
Bloomberg BVAL was cut up to one basis point: 2.80% (+1) in 2024 and 2.67% (+1) in 2025. The five-year at 2.32% (+1), the 10-year at 2.30% (unch) and the 30-year at 3.38% (unch) at 4 p.m.
Treasuries were weaker.
The two-year UST was yielding 3.989% (+9), the three-year was at 3.660% (+10), the five-year at 3.442% (+8), the 10-year at 3.459% (+8), the 20-year at 3.871% (+5) and the 30-year Treasury was yielding 3.781% (+4) at 4 p.m.
Primary to come:
The California Housing Finance Agency (/BBB//) is set to price $277.326 million of partially exempt municipal social certificates on Tuesday. Serial bonds 2036. Citigroup Global Markets.
The Dormitory Authority of the State of New York (Aaa/AAA//) is set to price $275 million of Columbia University revenue bonds on Thursday. Goldman Sachs & Co.
Jackson County, Missouri, (/AA-//) is set to price $260.355 million of special obligation bonds on Tuesday. Morgan Stanley & Co.
The California Educational Facilities Authority (//AAA/) is set to price $240 million of Stanford University revenue bonds on Wednesday. J.P. Morgan Securities.
The Harris County Industrial Development Corp., Texas, (Baa3/BBB-/BBB-/) is set to price $225 million of marine terminal refunding revenue bonds on Wednesday. Serial 2050. BofA Securities.
The Springfield School District R-XII, Missouri, ( /AA+//) is set to price $190 million of general obligation school building bonds insured by the Missouri Director Deposit program. Serials 2024-2043. Stifel, Nicolaus & Co.
El Paso, Texas, (/AA+/AA+/) is set to price $181.260 million of water and sewer revenue improvement and refunding bonds. Serials 2024-2027 and 2029-2043. Term 2045 and 2049. Stifel, Nicolaus & Co.
The Virginia Electric and Power Company (A2/BBB+/A/) is set to price $160 million of pollution control refunding revenue bonds on Tuesday. KeyBanc Capital Markets.
The Florida Housing Finance Corp. (Aaa///) is set to price $150 million of taxable homeowner mortgage revenue bonds on Tuesday. Serials 2024-2035, terms in 2038, 2043, 2047, and 2054. BofA Securities.
The Southwestern Illinois Development Authority is set to price $138.840 million of local government program revenue bonds for the Edwardsville Community Unit School District #7 Project on Wednesday. Serials 2027-2041. Stifel, Nicolas & Co.
Farmington, New Mexico, (Baa2/BBB//) is set to price $130 million of pollution control non-AMT revenue refunding bonds for the Public Service Company of New Mexico San Juan Project on Wednesday. KeyBanc Capital Markets.
The Development Authority of Burke County, Georgia, (Baa1/BBB+/BBB+/) is set to price $115 million of pollution control revenue bonds for the Georgia Power Company Plant Vogtle Project). Serials 2032. Barclays Capital.
The New Jersey Economic Development Authority (A1/A+//) is set to price $110 million of water facilities refunding revenue bonds for the New Jersey American Water project subject to the AMT on Wednesday. J.P. Morgan Securities.
The City and County of Honolulu, Hawaii, (Aaa///) is set to price $105 million of multifamily housing revenue bonds on Wednesday. Serials 2026. Citigroup Global Markets.
The Phoenix Civic Improvement Corp., Arizona, (Aa2/AA-// ) is set to price $102.935 million of senior lien airport revenue refunding bonds subject to AMT on Tuesday. Serials 2024-2032. Barclays Capital.
The Downey Unified School District, California, (Aa2///) will sell $125 million of GO bonds on Tuesday.
Frederick County, Maryland, (Aaa/AAA/AAA/) is set to sell $101.620 million of GO public facilities project bonds on Tuesday.
The Metropolitan Council, Minnesota, is set to sell $153.910 million of GO park, transit, and wastewater revenue bonds on Tuesday in three deals.
Clark County, Nevada, is set to sell $200 million of highway revenue motor vehicle fuel tax bonds on Tuesday.
Fort Worth, Texas, (Aa1/AA//) is set to sell $220.225 million of drainage utility system revenue bonds on Wednesday in two deals.
Loudoun County, Virginia, (Aaa/AAA/AAA/) is set to sell $194.110 million of GO debt on Tuesday.