Munis improve in light trading, following UST strength

Bonds

Municipals were better on light but strong trading in the secondary, as dealers pushed benchmarks lower with large blocks of high-grades exchanging hands but sales to customers also showed strong interest.

U.S. Treasuries helped direct municipals to lower yields as the UST 10-year fell to 1.36% — the lowest since Feb. 24 — and the 30-year clocked in at 1.989% near the close — the first time it was below 2% since Feb. 11.

Triple-A benchmarks fell two to four basis points as a result with the 10-year municipal now well below the 1% mark, with Refinitiv MMD the lowest at 0.93%.

Heavier trading in the belly of the curve showed where opportunity might live for buyers. Secondary trading showed as much on Tuesday.

A few trades of note: Anne Arundel 5s of 2029 at 0.84% versus 0.87% Thursday. Delaware 5s of 2029 at 0.73% versus 0.75% Friday. Georgia 5s of 2029 at 0.81% versus 0.82% Friday. Washington 5s of 2029 at 0.83% versus 0.90% Wednesday. Harris County, Texas, flood 5s of 2029 at 0.90%-0.89%. Harvard 5s of 2030 at 0.86% versus 0.93% Wednesday.

Georgia 5s of 2031 at 0.94% versus 1.02%-1.00% Wednesday. Georgia 5s of 2032 at 1.02%-1.01% versus 1.07% Thursday.

California 5s of 2034 at 1.15%-1.14% versus 1.20% Friday.

Arlington County, Virginia, 5s of 2036 at 1.17% and 5s of 2038 at 1.22% versus 1.29% on June 24.

“After last week, the municipal yield curve is more uniformly valued,” according to a Municipal Market Analytics Outlook report, which added, “things may be a bit more appealing at the very center (11-13 years) where more pressure on sellers is evident.”

Ratios have barely moved but a basis point or two, up and down, of late. Municipal-to-UST ratios were at 68% in 10 years and 72% in 30 on Tuesday, according to Refinitiv MMD. ICE Data Services had the 10-year muni-to-Treasury ratio at 69% and the 30-year at 73%.

The light primary gets underway Wednesday, led by a competitive deal from the Collier County, Florida, Water and Sewer District (//AAA/), set to sell $137.69 million of water and sewer revenue bonds at 11 a.m. eastern. The other sizable deals are set for Thursday.

NYS, NYC to sell $6.75B of bonds in Q3
New York State, New York City and their public authorities plan to sell about $6.75 billion of bonds in the third quarter of 2021, state Comptroller Thomas DiNapoli said Tuesday.

The planned sales include $4.25 billion of new money and $2.5 billion of refundings and reofferings.

The calendar is broken down into sales of $3.2 billion scheduled for July, of which $1.96 billion is for new-money and $1.24 billion for refunding purposes; $3.49 billion scheduled for August, of which $2.23 billion is for new-money purposes and $1.26 billion is for refunding or reoffering purposes; and $65 million scheduled for September, which is for new-money purposes.

Issuers include New York City, the Dormitory Authority of the State of New York, the New York City Transitional Finance Authority, the New York State Thruway Authority and the State of New York Mortgage Agency.

Secondary trading and scales
Other trades to note: Maryland 5s of 2024 traded at 0.30%-0.28%. Fairfax County, Virginia, 4s of 2027 at 0.61% versus 0.64% Friday.

Los Angeles Department of Water and Power 5s of 2041 at 1.37%-1.35% versus 1.38% Friday.

New York City water 5s of 2048 at 1.65%-1.63% versus 1.73% original.

Godley, Texas, ISD 5s of 2051 at 2.06% versus 2.20% original. LA DWP 5s of 2050 at 1.51%-1.50%. LA DWP 5s of 2051 at 1.53%-1.55% versus 1.60% Friday. NYC water 5s of 2051 at 1.67%.

According to Refinitiv MMD, short yields were steady at 0.12% in 2022 and 0.17% in 2023. The yield on the 10-year fell three basis points to 0.93% while the yield on the 30-year dropped three basis points to 1.44%.

The ICE municipal yield curve showed bonds steady in 2022 at 0.11% and falling one basis point to 0.14% in 2023. The 10-year maturity was better by two basis points at 0.96% and the 30-year yield fell four to 1.45%.

The IHS Markit municipal analytics curve showed short yields steady at 0.12% and 0.15% in 2022 and 2023, respectively, with the 10-year down two basis points at 0.95%, and the 30-year yield also fell two to 1.46%.

Bloomberg BVAL saw short yields at 0.11% and 0.14% while the 10-year fell three basis points to 0.94% and the 30-year down three to 1.46%.

Treasuries were stronger and equities were mixed. The 10-year Treasury was yielding 1.36% and the 30-year Treasury was yielding 1.997%. The Dow Jones Industrial Average fell 219 points or 0.63%, the S&P 500 fell 0.25% while the Nasdaq gained 0.12%.

Economy
Strength in the service sector, despite price pressures and a dip in unemployment, suggests tapering can wait until early next year, one analyst said.

“The U.S. service sector is still strong and while pricing pressures remain, this report does not provide any new signals that support the argument that tapering should happen sooner than early next year,” according to Ed Moya, senior market analyst for the Americas at OANDA.

Investors anticipate the Federal Open Market Committee meeting minutes will be hawkish, he said.

The Institute for Supply Management’s services PMI dipped to 60.1% in June from a record-high 64.0% in May.

Economists polled by IFR Markets expected a reading of 63.5%.

The business activity/production index fell to 60.4% from 66.2% the prior month.

New orders declined to 62.1% from 63.9%, employment dropped to 49.3% from 55.3%.

The employment index is “seemingly inconsistent with the robust gains in employment in the services sectors,” said Berenberg chief economist for the U.S., Americas and Asia Mickey Levy, noting the employment report showed “very strong gains of 497,000 in May and 642,000 in June in employment in the service sectors, and anecdotal evidence indicates robust demand for workers and insufficient supply.”

The prices index slipped to 79.5% from 80.6%, suggesting “clear upward pressure,” according to Levy. “The index was above 70 for the fifth consecutive month and above 60 for the ninth consecutive month, both record levels,” he said.

The dip adds credence to “the inflation is transitory argument,” Moya added.

Separately, the employment trends index rose to 109.84 in June from an upwardly revised 107.70 in May, first reported as 107.35, the Conference Board reported Tuesday. The index grew 28.2% from June 2020.

The gain “suggests that strong job growth will continue through the summer,” said Gad Levanon, head of The Conference Board’s Labor Markets Institute. The labor market should “remain very tight” this summer, he said. “Recruiting and retention will remain extremely difficult, and wage growth will remain very high.”

Supply issues should ease by year end, he said, and the unemployment rate could decline to under 4% by this time next year. “A tight labor market is likely to be the new normal until the next recession.”

BCA Research, in a report, expects the labor market recovery to expand in September.

Treasury yields fell on Friday despite a strong employment report headline number, BCA said. “We see the bond market as overly complacent in the face of what is shaping up to be a rapid labor market recovery that will only accelerate once schools reopen and expanded unemployment benefits lapse in September.”

While Friday’s report wasn’t so strong to “derail the Fed’s stance,” Sebastien Galy, senior macro strategist at Nordea Asset Management, said, “The Federal Reserve is likely far behind the curve given the fact that monetary policy takes six to eighteen months to have an impact and the need for robust measures during COVID-19. The slower it is to tighten, the stronger will be the eventual pace of tightening.”

Primary market to come
The Trustees of the California State University (Aa2/AA-//) is set to price $1.882 billion of taxable and tax-exempt systemwide revenue bonds on Thursday. J.P. Morgan Securities LLC will run the books.

Tempe, Arizona, (/AA+/AA+/) is set to price on Thursday $343 million of taxable certificates of participation, serials 2023-2037. RBC Capital Markets is head underwriter.

The Catholic Bishop of Chicago (Ba1///) is set to price on Tuesday $150 million of senior bonds, term 2041. PNC Capital Markets LLC is lead underwriter.

The Municipal Electric Authority of Georgia (Baa1/A/BBB+/) is set to price on Thursday $134 million of Plant Vogtle Units 3&4 Project J Bonds, Series 2021A bonds. Goldman Sachs & Co. LLC will run the books.

The New Mexico Mortgage Finance Authority (Aaa///) Is set to price on Thursday $100 million of single-family mortgage program Class I bonds, serials 2022-2033, terms 2036, 2041, 2046, 2051, 2052. RBC Capital Markets is head underwriter.

The National Finance Authority/Massachusetts Development Finance Agency (nonrated) is set to price on Wednesday $94.2 million of Ascentria Care Alliance Project revenue refunding bonds, $31.715 Series NFA, $62.575 million Series MDFA. Ziegler is head underwriter.

In the competitive markets, the Collier County, Florida, Water and Sewer District (//AAA/) is set to sell $137.69 million of water and sewer revenue bonds at 11 a.m. eastern on Wednesday.

Chip Barnett contributed to this report.

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