Municipals finished little changed in quiet trading Tuesday as the first half of 2020 and the second quarter of the year came to an end.
The secondary was lethargic as investors chased the new deals in an active primary. Tuesday saw billion-plus deals out of Massachusetts and the County of Los Angeles.
At the halfway point of the year, muni volume stands at $198.05 billion in 5,458 issues.
Customers are not tapping into the secondary as much as they have in previous weeks because of the short holiday week and the size of the new-issue calendar, a Florida trader said.
“It’s taking the customers’ attention away from the secondary,” he added. “It’s really quiet in the secondary market — there’s low flows and the bid-wanted lists are extremely light,” repeating a pattern he also saw on Monday.
Aside from pockets of traders and writing a few transactions with customers, the overall flow is “below average,” according to the trader. “The holiday feels like it’s already begun for us if you are a secondary trader.”
Traders are counting on the arrival of the July 1 coupon and redemptions to help pump some life into the secondary market.
“July 1 will be a big date as cash hits the account before people start to disappear, but they just might delay purchases until after the 4th,” he said.
Despite the focus on the new-issue market and the stigma of low absolute yields, he said fundamentals are strong and the overall municipal marketplace is still constructive, with attractive ratios, especially in the two-, 10- and 30-year benchmarks.
Absolute yields have been plaguing the market for the last few weeks, the trader said, but at the same time, municipals have underperformed the Treasury rally in the last week, he said.
“Overall, the trend that we have seen over the last week or so has been positive for higher ratios, but has been an indicator for muni underperformance,” he said.
“The municipal to Treasury ratios have risen and that has encouraged buyers — along with reinvestment cash — to continue to be involved” in the primary market, he said.
“It’s very attractive for relative buyers, but because of the overall rate rejection we have seen from individual investors, I think they have chosen to purchase in the primary first, and leaving a limited amount of interest in the secondary this week,” the trader said.
He expects the holiday week to end quicker.
“About 85% to 90% of the calendar is being priced today,” he said Tuesday, with final pricings and allotments expected for those deals tomorrow,” he said, “Once all these deals get tickets, you’ll start to see a significant drop off in activity and people at their desks.”
The Massachusetts School Building Authority (Aa2/AA+/AAA/NR) hit the screens with two dedicated sales tax and refunding social bonds totaling $1.45 billion.
The deals are made up of $350 million of tax-exempts and $1.095 billion of taxables.
Citigroup priced the taxable senior dedicated sales tax refunding bonds. The taxables were priced at par to yield from 0.349% in 2021 to 1.503% in 2028, and from 1.753% in 2031 to 2.103% in 2035.
BofA Securities and UBS Financial Services priced and repriced the $350 million of exempt Series 2020A senior dedicated sales social bonds.
The exempts were repriced to yield from 1.16% with a 5% coupon in 2031 to 1.93% with a 4% coupon in 2040. A split 2045 term bond was priced to yield 1.91% with a 5% coupon and 2.11% with a 4% coupon and a split 2050 term was priced to yield 1.96% with a 5% coupon and 2.38% with a 3% coupon.
The exempts had been tentatively priced to yield from 1.20% with a 5% coupon in 2031 to 1.93% with a 4% coupon in 2040. A 2045 term bond was priced to yield 1.88% with a 5% coupon and a split 2050 term was priced to yield 1.93% with a 5% coupon and 2.38% with a 3% coupon.
Siebert Williams Shank priced San Antonio, Texas’ (Aaa/AAA/AA+/NR) $443.695 million of taxable general improvement refunding bonds and $27.895 million of tax-exempt general improvement refunding bonds.
The taxables were priced at par to yield from 0.314% in 2021 to 2.013% in 2034. The exempts were priced to yield from 0.26% with a 4% coupon in 2021 to 0.33% with a 5% coupon in 2023.
Citigroup priced the Kentucky State Property and Buildings Commission’s (A2/AA/A+/NR) $121.465 million of revenue bonds, Project No. 124 Series A.
The deal was insured by Assured Guaranty Municipal Corp. except for the 2020 to 2023, which are rated A1 by Moody’s Investors Service.
The bonds were priced to yield from 0.57% with 2% and 5% coupons in a split 2020 maturity to 2.02% with a 5% coupon in 2039.
Since 2010, the commission has sold about $3.7 billion of debt, with the most issuance occurring in 2016 with is sold $734 million.
JPMorgan Securities priced King County, Wash.’s (Aa2/AA/NR/NR) $200.59 million of junior lien sewer revenue refunding mandatory put bonds.
The bonds were priced at par to yield 0.625% in 2032 with a mandatory tender in 2024.
Citi priced and repriced Corpus Christi, Texas’ (Aa3/AA-AA-/NR) $133.7655 million of Series 2020A utility system junior lien revenue improvement and refunding bonds.
The deal was repriced to yield from 0.32% with a 5% coupon in 2021 to 2.20% with a 3% coupon in 2040. A 2045 term was repriced to yield 2.13% with a 4% coupon and a 2050 term was priced to yield 2.48% with a 3% coupon.
The deal was tentatively priced to yield from 0.40% with a 5% coupon in 2021 to 2.23% with a 3% coupon in 2040. A 2045 term was priced to yield 2.20% with a 4% coupon and a 2050 term was priced to yield 2.48% with a 3% coupon.
Citi also priced the city’s $183.645 million of taxable utility system junior lien revenue refunding bonds.
Wells Fargo Securities priced the Regents of the University of Colorado’s (Aa1/NR/AA+/NR) $141.05 million of taxable university enterprise refunding revenue bonds.
The bonds were priced at par to yield from 0.528% in 2023 to 2.013% in 2035, 2.611% in 2042 and 2.811% in 2048.
Barclays Capital priced the California Statewide Communities Development Authority’s $171.595 million of revenue bonds for Emanate Health.
In the short-term sector, JPMorgan priced Los Angeles County, Calif.’s (MIG1/SP1+/F1+/NR) $1.2 billion of Series tax and revenue anticipation notes.
The TRANS, due June 30, 2021, were priced to yield 0.28% with a 4% coupon.
Citi was set to price the Port Authority of New York and New Jersey’s $1.1 billion of taxable Series AAA notes. Proceeds will be used to pay debt service on consolidated bonds.
Last week, S&P Global Ratings lowered its long-term rating on the Port Authority’s consolidated bonds to A+ from AA- and kept a negative outlook on the bonds. At the same time, S&P assigned an A+ rating to the authority’s $1.1 billion of Series AAA notes, which will be on par with othwas set to er consolidated bonds.
“The note rating reflects our view of the authority’s low market risk; our long-term rating on its consolidated bonds (A+/Negative); and PANYNJ’s strong legal authority to issue consolidated bonds to take out the notes, which mature on July 1, 2023.”
BofA priced the Philadelphia School District, Pa.’s (MIG1/NR/F1+/NR) $533.235 million of Series A 2020-2021 tax and revenue anticipation notes.
The TRANs, due June 30, 2021, were priced to yield 0.55% with a 4% coupon.
Wells Fargo: A reduced tax-exempt sector
Taxable muni CUSIP issuance is on track to reach about $56.1 billion for the first half of 2020, according to Wells Fargo Securities’ municipal securities research team.
“Assuming yields remain favorable, anchored at or near current levels, we estimate about $57.3 billion more in taxable muni volume for the second half of 2020, which projects to about $113 billion for the year. This would represent a new record for muni taxable issuance excluding Build America Bonds, surpassing 2019’s total of $72.1 billion. The overall muni taxable high water market was reached in 2010, with $151.9 billion issued, including $117.3 billion in BABs.”
For the year, and excluding some downside risks to issuance, Wells Fargo expects total issuance to pass the $390 billion mark.
“Adjusting for increased credit concerns and summer seasonality, we project second half of 2020 muni volume of between $189 billion to $198 billion,” Wells Fargo said. “This pencils out to full-year 2020 volume of between $391 billion and $399 billion, which is within 2.5% of our base case projection of roughly $400 billion.”
Some notable trades:
Keller Texas ISD 5s of 2022 traded at 0.29%-0.28%. Lower Marion Township, Pennsylvania 5s of 2024 traded at 0.36%-0.35%.
Nacogdoches, Texas ISD, 5s of 2027, traded at 1.00%-0.93%. Ohio waters 5s of 2028 at 0.83%. King County, Washington SD #414 4s of 2029 traded at 0.94%-0.90%.
University of Michigan 5s of 2036 traded at 1.38%-1.37%. New York City TFAs 4s of 2040 traded at 2.12%-2.11% while New York EFC green bonds, 5s of 2044, 1.62%-1.61%.
On Tuesday, readings on MMD’s AAA benchmark scale were unchanged. Yields on the 2021 and 2023 maturities were steady at 0.25% and 0.27%, respectively. The yield on the 10-year GO muni was flat at 0.90% while the 30-year yield was steady at 1.63%.
The 10-year muni-to-Treasury ratio was calculated at 141.5% while the 30-year muni-to-Treasury ratio stood at 117.2%, according to MMD.
The ICE AAA municipal yield curve showed short yields steady at 0.220% and 0.233% in 2021 and 2022, respectively. Out longer, the 10-year maturity was steady at 0.854% while the 30-year was flat at 1.652%.
ICE reported the 10-year muni-to-Treasury ratio stood at 138% while the 30-year ratio was at 114%.
The IHS Markit municipal analytics AAA curve showed the 2021 maturity yielding 0.25% and the 2022 maturity at 0.28% while the 10-year muni was at 0.91% and the 30-year stood at 1.66%.
The BVAL curve showed the 2021 maturity flat at 0.19% and the 2022 unchanged at 0.24%. BVAL calculated the 10-year muni unchanged at 0.84% while the 30-year was up one basis point at 1.65%.
Munis were little changed on the MBIS benchmark and AAA scales.
Treasuries were weaker as stocks traded higher.
The three-month Treasury note was yielding 0.155%, the 10-year Treasury was yielding 0.656% and the 30-year Treasury was yielding 1.410%.
The Dow rose 0.12%, the S&P 500 increased 0.97% and the Nasdaq gained 1.44%.