Munis somewhat weaker, UST yields rise

Bonds

Municipals were steady to slightly weaker in spots as U.S. Treasury yields rose and equities ended up.

Despite some slight weakness Monday, munis continued “their impressive start to June,” with yields falling 10 to 13 basis points last week, Birch Creek strategists said.

Munis have rallied roughly 24 to 29 basis points month-to-date, a “complete 180” from May where yields rose up to 34 basis points in the belly of the curve, said Jason Wong, vice president of municipals at AmeriVet Securities.

“We could expect to see muni yields fall in anticipation of the expected Fed rate cut this fall,” he said.

In the first two weeks of June, munis returned to a 1.77% yield, pushing year-to-date returns up to negative 0.17%, he said. Munis were down 1.91% through the end of May, Wong noted.

“Although we are in one of the strongest two-week rallies year-to-date, munis still look attractive despite the continued richness of munis compared to Treasuries,” he said.

During the two-week rally, the two-year muni-UST ratio has fallen by two percentage points, the five-year ratio by one percentage point, the 10-year ratio by more than three percentage points, and the 30-year ratio by just over two percentage points, according to Wong.

The two-year muni-to-Treasury ratio Monday was at 64%, the three-year at 65%, the five-year at 66%, the 10-year at 65% and the 30-year at 84%, according to Refinitiv Municipal Market Data’s 3 p.m. EST read. ICE Data Services had the two-year at 66%, the three-year at 67%, the five-year at 68%, the 10-year at 68% and the 30-year at 85% at 3:30 p.m.

Open-end funds experienced outflows last week, but investors’ addition of money into exchange-traded funds resulted in a net $154 million inflow into muni mutual funds for the week, Birch Creek strategists said.

Buyers focused more on the secondary market due to muni mutual fund inflows and more attractive valuations as USTs fell, especially after primary deals “slowed down,” they noted.

The market will see “another light spate of deals” this week, Birch Creek strategists said.

The calendar is set for at an estimated $7.3 billion, with a third coming from two “mid-grade” transactions — the New York Transportation Development Corp. with $1.5 billion of green AMT special facilities revenue bonds for the  John F. Kennedy International Airport  New Terminal One project and Public Energy Authority of Kentucky with $1.1 billion of gas supply revenue refunding bonds.

There are several other large deals on the horizon.

Los Angeles is set to price June 26 $1.5 billion of 2024 tax and revenue anticipation notes.

The New York City Transitional Finance Authority is set to price the week of July 15 $1.7 billion of tax-exempt and taxable future tax-secured revenue refunding bonds.

New York City is set price the week of July 29 $1.2 billion of GO refunding bonds.

AAA scales
Refinitiv MMD’s scale was unchanged: The one-year was at 3.09% and 3.05% in two years. The five-year was at 2.85%, the 10-year at 2.79% and the 30-year at 3.69% at 3 p.m.

The ICE AAA yield curve saw small cuts five years and out: 3.15% (-1) in 2025 and 3.08% (-1) in 2026. The five-year was at 2.88% (+3), the 10-year was at 2.83% (+3) and the 30-year was at 3.69% (+2) at 3:30 p.m.

The S&P Global Market Intelligence municipal curve was cut up to one basis point: The one-year was at 3.14% (unch) in 2025 and 3.08% (+1) in 2026. The five-year was at 2.85% (+1), the 10-year was at 2.81% (unch) and the 30-year yield was at 3.68% (unch) at 3 p.m.

Bloomberg BVAL was cut up to one basis point: 3.14% (+1) in 2025 and 3.09% (unch) in 2026. The five-year at 2.88% (+1), the 10-year at 2.81% (unch) and the 30-year at 3.71% (+1) at 3:30 p.m.

Treasuries were weaker.

The two-year UST was yielding 4.767% (+8), the three-year was at 4.505% (+8), the five-year at 4.304% (+8), the 10-year at 4.278% (+7), the 20-year at 4.520% (+6) and the 30-year at 4.408% (+6) at 3:30 p.m.

Primary to come
The New York Transportation Development Corp. (Baa3/BBB-/BBB-/) is set to price Tuesday $1.5 billion of green AMT serial facilities revenue bonds for the John F. Kennedy International Airport New Terminal One Project, serials 2037-2044, terms 2049, 2054, 2060. BofA Securities. 

The Public Energy Authority of Kentucky (A1///) is set to price $1.108 billion of gas supply revenue refunding bonds, 2024 Series B. Morgan Stanley.

Ohio (Aa2/AA//) is set to price Tuesday $461.020 million of Cleveland Clinic Health System Obligated Group hospital revenue bonds, Series 2024A. BofA Securities. 

The New York State Housing Finance Agency (Aa2///) is set to price Tuesday $309.93 million of sustainability affordable housing revenue bonds, consisting of $81.545 million of Series C-1, and $228.385 million of Series C-2. Morgan Stanley.

The Pennsylvania Turnpike Commission (Aa3/AA-/AA-/AA-/) is set to price Tuesday $300 million of turnpike revenue bonds, Series C of 2024, serials 2025-2044, terms 2049, 2054 Loop Capital Markets.

The Oregon Department of Transportation (/AA//) is set to price Tuesday $236.975 million of social grant anticipation revenue bonds, Series 2024, serials 2025-2039. Wells Fargo.

The Massachusetts Development Finance Agency (A1///) is set to price Tuesday $196.085 million of Northeastern University Issue revenue refunding bonds, Series 2024A, serials 2025-2043. Barclays.

Raleigh, North Carolina, (Aa2/AA+/AA+/) is set to price Thursday $194.76 million of limited obligation bonds, Series 2024, serials 2024-2039. BofA Securities. 

The Indiana Finance Authority (/AAA/AAA/) is set to price Thursday $150 million of green State Revolving Fund Program bonds, Series 2024A, serials 2030-2044. BofA Securities. 

The Richardson Independent School District, Texas, is set to price Tuesday $123.895 million of unlimited tax school building bonds, Series 2024. Baird.

The Colorado Housing and Finance Authority (Aaa/AAA//) is set to price Tuesday $116.67 million of taxable social Class I single-family mortgage bonds, Series D, serials 2026-2035, terms 2039, 2046, 2050. Jefferies.

The Arlington Higher Education Finance Corp. (Ba2///) is set to price Tuesday $107.515 million of BASIS Texas Charter Schools education revenue bonds, Series 2024. Morgan Stanley.

Competitive
Olathe, Kansas, is set to sell $106.6 million of GO temporary notes, Series 2024-A, at 10:30 a.m. eastern Tuesday, and $45.96 million of GO improvement bonds, Series 2024A, at 11 a.m. Tuesday.

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