Municipal yields were steady Tuesday as investors were handed billions of New York, Connecticut and Texas paper with deals re-pricing to lower yields, pre-sold totals high and sub-5% coupons a dominant theme.
Meanwhile, as expected, Illinois sold $2 billion of notes to the Federal Reserve through the Municipal Liquidity Facility. The notes yield 3.42% and mature in December 2023. The state is the last issuer expected to tap the MLF before it expires on New Year's Eve. The New York MTA is the only other issuer to use the MLF.
Connecticut, Harris County, Texas, Illinois Finance Authority all repriced to lower yields. It's clear the muni market will finish the year on firm footing, barring any outside major economic or COVID-related event. The technicals are just so strong.
The split between new money and taxable refunding bonds will remain the focus in early 2021, with the latter continuing to be a larger portion of the muni market.
Current 10-year AAA taxables are trading below 1.50%, indicating refunding options in the sector are a clear advantage for issuers, said Kim Olsan, senior vice president at FHN Financial. Taxable refundings will be in full force in early 2021. The math simply makes sense for issuers.
"For potential tax-exempt supply with upcoming 90-day call windows eligible for refunding, bonds would take out 2011 paper on their 10-year call date when yields traded at an average 2.63%," Olsan said. "Current 20-year AAA tax-exempts are pricing below 1.50%. The muni 10-year is at 0.70%.
Olsan noted that only in 2012 was the 10-year AAA trading below 2%. In 2013, the average 10-year yield was the highest average rate of the five-year period from 2011-2015, trading mid-year at 2.56% and closing out the year at 2.77%. Effects of the taper tantrum started during the summer and continued into year end.
Meanwhile, the Federal Reserve’s Financial Accounts (formerly Flow of Funds) report showed another quarter of moderate growth in the outstanding universe of municipal bonds (all numbers excluding market value gains), as Municipal Market Analytics pointed out in its weekly Outlook report. Par value outstanding is now $3.92 trillion, up $35 billion since the second quarter and above the $3.9 trillion mark for the first time since 2013.
This is the fourth-straight quarter of asset growth.
"It’s also a trend that comes without surprise," MMA said. "As state and local governments leverage the bond and loan markets for near-term budget support (via explicit deficit financings, scoop-and-toss refinancings, and other means) individual and aggregate debt levels are growing."
Municipal indicator requests plunged in November, according to CUSIP Global Services. The total of all municipal securities, which include bonds, long- and short-term notes and commercial paper, fell 52.6% to 1,030 from 2,171 in October.
However, on an annualized basis, total muni CUSIP identifier request volumes were up 9.8% to 15,171 through November from 13,823 in November 2019.
For municipal bonds alone, CUSIP requests in November fell 54.4% to 877 from 1,925 in October, but on an annualized basis they are up 12.3% to 12,630 from 11,243 in the same period last year.
Issuance of new security identifiers can be an early indicator of debt activity over the next few months.
“The significant month-to-month decline in municipal identifier requests is particularly noteworthy,” said Gerard Faulkner, director of operations for CGS. “We will continue to watch muni volumes closely as we turn the corner to the New Year.”
Among top state issuers, Texas, New York and Minnesota were the most active in November.
Primary market
The Empire State Development Corp. (AA+/AA+) sold $2.1 billion of personal income tax bonds on behalf of the New York state in six competitive sales, with $1.6 billion of tax-exempt bonds and $458 million of federally taxable securities.
The first two tranches, $832 million, went to BofA Securities with 50% sold. Bonds in 2023 with a 5% coupon were priced to yield 0.15%, 5s of 2025 to yield 0.28%, 5s of 2030 at 0.85%, 4s of 2035 at 1.51% and 3s of 2040 at 2.00%.
The second, $443 million of exempts went to J.P. Morgan Securities. The bonds mature from 2041 to 2046, with bonds in 2043-2046 all away. The deal was structured with 4% coupons, yielding 1.80% in 2041, 1.95% in 2045, and1.96% in 2046.
Wells Fargo won the $341 million of exempts. The deal was structured with 3% coupons yielding 2.23% in 2047, 2.24% in 2048, 2.25% in 2049 and 2.26% in 2050.
Wells Fargo also won the $316 million taxable bonds, all priced to par at 0.48% in 2023, 0.87% in 2025 and 1.39% in 2030.
Barclays won the $160 million of taxable PITs, all priced at par at 1.80% in 2031, 1.90% in 2032, 2.00% in 2033 and 2.68% in 2039.
Jefferies priced $800 million of general obligation bonds for the State of Connecticut (A1/A/A+/AA-), repricing lower by three to five basis points from a morning scale: 3s of 2022 yield 0.23%, 3s and 4s of 2025 yield 0.44%, 4s of 2030 yield 1.09%, 3s of 2035 yield 1.76%, 2s of 2040 yield 2.13%, 3s of 2040 yield 2.01% and 2s of 2041 at 2.18% and 5s of 2041 at 1.59%.
Goldman, Sachs & Co. priced $437 million of toll road first lien revenue and refunding bonds for Harris County, Texas, (Aa2//AA/) with large bumps of four to 15 basis points in a repricing. Bonds in 2021 with a 5% coupon yield 0.08%, 5s of 2025 at 0.30%, 5s in 2030 at 0.87%, 4s in 2035 at 1.30%, 4s in 2040 at 1.55%, 4s in 2045 at 1.77% and 4s in 2050 at 1.86% and 3s at 2.06%.
Citigroup Global Markets priced $435 million of Illinois Clean Water Initiative revolving fund revenue green bonds for the Illinois Finance Authority (NR/AAA/AAA/NR). Bonds in 2021 with a 5% coupon yielded 0.13%, 5s of 1/2025 at 0.27%, 5s of 7/2025 at 0.30%, 5s of 1/2030 at 0.78%, 5s of of 7/2030 at 0.83%. Bonds in 2035 with a 5% coupon yield 1.36%, while 5s yielded 1.16% and 4s in 2040 yielded 1.56% and 4s in 2041 yielded 1.60%.
Morgan Stanley & Co. LLC priced $330 million of health system revenue bonds for the New York City Health and Hospitals Corp. (Aa3/A+/A+/NR). Bonds in 2024 with a 3% coupon yielded 0.61%, 4s in 2025 yield 0.65%, 5s in 2030 yield 1.24%, 5s of 2035 at 1.63%, 5s of 2040 at 1.83%, and 3s of 2045 at 2.38% and 4s of 2048 at 2.21%.
Secondary market
High-grade municipals were little changed, according to final readings on Refinitiv MMD’s AAA benchmark scale. Short yields were at 0.13% in 2021 and 0.14% in 2022. Te yield on the 10-year was at 0.70% while the yield on the 30-year was at 1.39%.
The 10-year muni-to-Treasury ratio was calculated at 76% while the 30-year muni-to-Treasury ratio stood at 83%, according to MMD.
The ICE AAA municipal yield curve showed short maturities at 0.13% in 2021 and 0.14% in 2022. The 10-year maturity was at 0.70% while the 30-year yield was little changed at 1.41%.
The 10-year muni-to-Treasury ratio was calculated at 76% while the 30-year muni-to-Treasury ratio stood at 85%, according to ICE.
The IHS Markit municipal analytics AAA curve showed short yields at 0.11% and 0.12% in 2021 and 2022, respectively, and the 10-year steady at 0.69% as the 30-year yield was at 1.38%.
Treasuries lost ground on new stimulus talks while equities rose. The 10-year Treasury was yielding 0.91% and the 30-year Treasury was yielding 1.66%. The Dow rose 313 points, the S&P 500 rose 1.19%, while the Nasdaq gained 1.17%.
Still to come this week
New York City is set to price $1.5 billion of taxable general obligation bonds Wednesday, serials in 2022-2036 and 2021-2028. Jefferies LLC is bookrunner on the deal. New York City GO 5s of 2042 traded at 1.77% Monday.
The Texas PAB Surface Transportation Corp. is set to price $1.18 billion of taxable LBJ Infrastructure Group LLC I-635 managed lane project senior lien revenue refunding bonds with a Baa3 rating from Moody's Investors Service. The 2020C senior lien bond proceeds will be used to voluntarily repay about $1.1 billion of subordinate lien TIFIA loans. BofA Securities is lead manager.
The Dutchess County Local Development Corp. (/BB+//) is set to price $250 million of Bard College project revenue bonds in two series, 2038-2051 and 2022-2038. KeyBanc Capital Markets is bookrunner.
The Frisco Independent School District (Aaa/AAA//) will price $200 million of Collin and Denton County unlimited tax school building and refunding bonds, insured by the Permanent School Fund Guarantee program, serials 2021-2040; terms 2045,2051.
The Frisco Independent School District is also set to price $109 million of taxable refunding bonds Tuesday. RBC Capital Markets is bookrunner.
The City and County of Honolulu, Hawaii, (Aa2///AA/) plans to price $183 million of taxable wastewater system revenue refunding bonds on Tuesday. BofA Securities is lead underwriter.
The Maryland Economic Development Corp. (NR/NR/NR/NR) is set to price $133 million Port Covington Project special obligation bonds with terms in 2030, 2040 and 2050. Citigroup Global Markets Inc. is head underwriter.
The CSCDA Community Improvement Authority, California, (NR/NR/NR/NR) is set to price $116 million of essential housing revenue bonds, terms in 2054. RBC Capital Markets Inc. is head underwriter.