Munis continue rally as issuance swells

Bonds

Municipals were firmer Wednesday amid another heavy new-issue calendar, led by several large deals that saw yields lowered upon repricing. U.S. Treasuries yields fell further and equities ended up.

Issuance remains robust Wednesday with an estimated $5.9 billion, said J.P. Morgan strategists, led by Peter DeGroot.

The negotiated calendar was led by $830 million from the Metropolitan Washington Airports Authority, followed by $807 million from Massachusetts.

Gilt-edged Maryland topped the competitive market, selling $1.2 billion in four series.

In the primary market, BofA Securities priced and repriced for the Metropolitan Washington Airports Authority (Aa3/AA-/AA-/) $829.51 million of AMT airport system revenue and refunding bonds, Series 2024A, which saw yields bumped five to 10 basis points from the preliminary pricing: 5s of 10/2025 at 3.87% (-6), 5s of 2029 at 3.82% (-5), 5s of 2034 at 3.83% (-5), 5s of 2039 at 4% (-5), 5s of 2044 at 4.26% (-5), 5.25s of 2049 at 4.31% (-10) and 5.5s of 2054 at 4.30% (-10), callable 10/1/2033.

Morgan Stanley priced and repriced Massachusetts’ (Aa1/AA+/AA+/) $806.685 million of GOs, with yields bumped four to eight basis points from the preliminary pricing. The first tranche, $750 million of Consolidated Loan of 2024 bonds, Series B, with 5s of 5/2026 at 3.27% (-4), 5s of 2029 at 3.10% (-7), 5s of 2034 at 3.06% (-8), 5s of 2039 at 3.33% (-8), 5s of 2044  at 3.70% (-8), 5s of 2049 at 3.94% (-6) and 5s of 2054 at 4.02% (-8), callable 5/1/2034.

The second tranche, $56.685 million of refunding bonds, Series C, saw 5s of 9/2031 at 3.08% (-6) and 5s of 2033 at 3.07% (-6), noncall.

J.P. Morgan priced and repriced for the Bay Area Toll Authority $598.925 million of toll bridge revenue bonds, with yields bumped five to 16 basis points from the preliminary pricing: The first tranche, of $63.995 million of Series F-1 (/AA/AA/), saw 5s of 4/2025 at 3.24% (-5), 5s of 2029 at 3.01% (-3), 5s of 2032 at 3% (-3), 5s of 2040 at 3.32% (-10) and 5s of 2052 at 3.91% (-5), callable 4/1/2034.

The second tranche, $250 million of green bonds – climate bond certified, Series F-2 (/AA/AA/), saw 5s of 4/2032 at 2.98% (-5), 5s of 2034 at 3.01% (-6), 5s of 2039 at 3.27% (-5), 5s of 2044 at 3.54% (-16) and 5s of 2045 at 3.58% (-16), callable 4/1/2032.

The third tranche, $284.93 million of subordinate bonds, Series S-11 (/AA-/AA-/), saw 5s of 4/2025 at 3.29% (-5), 5s of 2028 at 3.06% (-5), 5s of 2034 at 3.01% (-12) and 5s of 2036 at 3.11% (-7), callable 4/1/2034.

J.P. Morgan priced for the Harris County Cultural Education Facilities Finance Corp., Texas, (Aa3/AA-//) $563.04 million of Memorial Hermann Health System fixed-rate hospital revenue bonds. The first tranche, $427.29 million of Series 2024B, saw 5s of 7/2031 at 3.41%, 5s of 2034 at 3.42%, 5s of 2039 at 3.64% and 5s of 2040 at 3.74%, callable 7/1/2034.

The second tranche, $135.75 million of Series 2024C, saw 5s of 7/2054 with a mandatory put date of 7/1/2029 at 3.47%, callable 7/1/2028.

BofA Securities priced for Charlotte, North Carolina, (Aaa/AAA//) $543.775 million of water and sewer system revenue bonds, with 5s of 7/2025 at 3.26%, 5s of 2029 at 3.02%, 5s of 2034 at 3.02%, 5s of 2039 at 3.25%, 5s of 2044 at 3.61%, 5s of 2049 at 3.81% and 5s of 2054 at 3.92%, callable 7/1/2034.

RBC Capital Markets preliminarily priced for the Los Angeles Department of Water and Power (Aa2/AA-//AA) $514.46 million of power system revenue refunding bonds, 2024 Series C, with 5s of 7/2025 at 3.26%, 5s of 2029 at 3.04%, 5s of 2034 at 3.06%, 5s of 2039 at 3.32%, 5s of 2044 at 3.71%, 5s of 2049 at 3.91% and 5s of 2054 at 3.99%, callable 1/1/2034.

Jefferies priced for the Northern California Sanitation Agencies Financing Authority (Aa2/AA+//) $441.405 million of Sacramento Area Sewer District Treatment and Resource Recovery System refunding revenue bonds, Series 2024A, with 5s of 12/2024 at 3.40%, 5s of 2029 at 2.96%, 5s of 2034 at 3% and 5s of 2039 at 3.23%, callable 12/1/2034.

Wells Fargo priced for the Chesterfield Economic Development Authority, Virginia, (Aa1/AA+/AA+/) is set to price Thursday $285.2 million of county mobility projects revenue bonds, with 5s of 4/2026 at 3.32%, 5s of 2029 at 3.12%, 5s of 2034 at 3.14%, 5s of 2039 at 3.36%, 5s of 2044 at 3.71%, 5s of 2048 at 3.89% and 4s of 2050 at 4.21%, callable 4/1/2034.

Loop Capital Markets priced for the Metropolitan Water District of South Carolina (/AA+/AA+/) $173.445 million of term rate mode subordinate water revenue refunding bonds. The first tranche, $88.2 million of 2024 Series B-2, saw 5s of 7/2037 with a mandatory put date of 7/1/2029 at 3.06%, callable 7/1/2028.

The second tranche, $88.245 million of 2024 Series B-3, saw 5s of 7/2037 with a mandatory put date of 7/1/2031 at 3.10%, callable 7/1/2030.

Morgan Stanley priced for the Pennsylvania Economic Development Financing Authority (B3/BB-/BB-/) $130.57 million of PPL Energy Supply Project exempt facilities revenue refunding bonds. The first tranche, $50 million of Series 2009B, saw 5.25s of 12/2038 with a mandatory tender of 6/1/2027 price at par, callable 6/1/2026.

The second tranche, $80.57 million of Series 2009C, saw 5.25s of 12/2037 with a mandatory tender of 6/1/2027 price at par, callable 6/1/2026.

In the competitive market, Maryland (Aaa/AAA/AAA/) sold $351.63 million of GO state and local facilities loan of 2024, First Series A, Bidding Group 1, to BofA Securities, with 5s of 6/2029 at 3% and 5s of 2033 at 2.95%, noncall.

The state also sold $300.505 million of GO state and local facilities loan of 2024, First Series A, Bidding Group 2, to Morgan Stanley, with 5s of 6/2034 at 2.97% and 5s of 2036 at 3%, callable 6/1/2034.

Maryland sold $347.865 million of GO state and local facilities loan of 2024, First Series A, Bidding Group 3, to J.P. Morgan, with 5s of 6/2037 at 3.09% and 5s of 2039 at 3.20%, callable 6/1/2034.

The state sold $200 million of taxable GO state and local facilities loan of 2024, First Series B, Bidding Group 1, to Wells Fargo, with all bonds priced at par: 4.61s of 6/2027 and 4.44s of 2029, noncall.

Following year-to-date highs last week, the muni market has rallied 14 to 17 basis points, according to MMD, lagging the 16-25 basis point UST rally.

Munis underperformed USTs last month “by 29-49-47-14bps in 2-5-10-30yrs, respectively,” J.P. Morgan strategists said. 

“Absolute yields look attractive in the context of the trading range over the past three years, recent underperformance versus taxable fixed-income, and our longer-term projections for lower rates this year,” they said.

The two-year muni-to-Treasury ratio Wednesday was at 67%, the three-year at 68%, the five-year at 70%, the 10-year at 69% and the 30-year at 86%, according to Refinitiv Municipal Market Data’s 3 p.m. EST read. ICE Data Services had the two-year at 67%, the three-year at 68%, the five-year at 69%, the 10-year at 69% and the 30-year at 85% at 3:30 p.m.

In May and month-to-date in June, the 2-5-10-30yr IG muni ratios “cheapened considerably” compared to taxable fixed-income, they noted. 

Ratios “reset” the most in five- to 10-year portion of the curve, while the 10-year spot is still “more attractive” in taxables versus tax-exempts, J.P. Morgan strategists said.

The longest part of the tax-exempt market is where value is “most apparent,” with ratios on 30-year AA tax-exempts nearer the middle of the trailing three-year range versus taxable munis, they said.

Following a “solid” start to 2024, inflows into muni mutual funds turned more “mixed” in May, they said.

The Investment Company Institute reported inflows into municipal bond mutual funds for the week ending May 29, with investors adding $156 million to funds following $573 million of inflows the week prior. This differs from LSEG Lipper’s report of $89.4 million of outflows over the same period.

ICI reported exchange-traded funds saw outflows of $97 million following $754 million of outflows the week prior.

The “mixed” inflows have left the market “suspectable to weaker technicals and the pop in supply thus far this year,” J.P. Morgan strategists said.

Tax-exempts will outperform if the UST market rallies and inflows continue, they said.

AAA scales
Refinitiv MMD’s scale was bumped seven basis points: The one-year was at 3.24% (-7) and 3.19% (-7) in two years. The five-year was at 3.00% (-7), the 10-year at 2.95% (-7) and the 30-year at 3.80% (-7) at 3 p.m.

The ICE AAA yield curve was bumped four to seven basis points: 3.30% (-4) in 2025 and 3.23% (-4) in 2026. The five-year was at 2.99% (-6), the 10-year was at 2.96% (-6) and the 30-year was at 3.80% (-5) at 3:30 p.m.

The S&P Global Market Intelligence municipal curve was bumped six basis points: The one-year was at 3.28% (-6) in 2025 and 3.20% (-6) in 2026. The five-year was at 2.99% (-6), the 10-year was at 2.95% (-6) and the 30-year yield was at 3.79% (-6), according to a 3 p.m. read.

Bloomberg BVAL was bumped five to seven basis points: 3.29% (-6) in 2025 and 3.23% (-6) in 2026. The five-year at 2.99% (-6), the 10-year at 2.94% (-6) and the 30-year at 3.81% (-5) at 3:30 p.m.

Treasuries were firmer.

The two-year UST was yielding 4.730% (-4), the three-year was at 4.512% (-4), the five-year at 4.309% (-4), the 10-year at 4.333% (-7), the 20-year at 4.522% (-4) and the 30-year at 4.444% (-3) at 3:30 p.m.

Negotiated calendar:
Hutto, Texas, (Williamson County) (/AA//) is set to price Thursday $291.205 million in two series, $15.745 million of Series 2024A, insured by Build America Mutual, serials 2028-2049, and $275.46 million of Series 2024B, serials 2026-2054. Baird. 

The Lower Colorado River Authority (/A/AA-/) is set to price Thursday $258.91 million of revenue refunding bonds, serials 2025-2045. BofA Securities.

The North Dakota Housing Finance Agency (Aa1///) is set to price Thursday $200 million of housing finance program non-AMT social bonds. RBC Capital Markets.

The North Carolina Housing Finance Agency (Aa1/AA+//) of taxable home ownership revenue bonds, serials 2025-2036, terms 2039, 2044, 2049, 2055, 2055. RBC Capital Markets.

Competitive:
The Sacramento City Unified School District, California, is set to sell $262.5 million of Election of 2020 (Measure H) GOs, 2024 Series B, at noon Thursday.

The Horry County School District, South Carolina, (Aa1///) is set to sell $225 million of GOs at 1 p.m. Thursday.

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