Munis on the sidelines amid UST, equity selloff

Bonds

Municipals were mixed Wednesday even as U.S. Treasuries and equities sold off amid intensifying tensions over the Russia-Ukraine crisis.

Municipal triple-A yields were unchanged on the Refinitiv MMD scale while experiencing up to two basis point cuts outside 10 years on ICE Data Services’ curve and two basis point bumps inside of 5 years on IHS Markit’s.

With UST rising most on the short end, the municipal to UST ratio five-year fell slightly to 74%, 83% in 10 and 89% in 30, according to Refinitiv MMD’s 3 p.m. read. ICE Data Services had the five at 73%, the 10 at 85% and the 30 at 90% at a 43:45 p.m. read.

Secondary trading was mixed with few trades to point strong moves in any direction. The primary market picked up and the New York Metropolitan Transportation Authority came into the competitive market while other taxable issuances sit on the day-to-day calendar.

BofA Securities priced for Hillsborough County Aviation Authority, Florida (Aa3//AA-/AA) $376.135 million of Tampa International Airport revenue bonds. The first tranche, $264.655 million of alternative minimum tax bonds, 2022 Series A, saw bonds in 10/2023 with a 5% coupon yield 1.29%, 5s of 2027 at 1.92%, 5s of 2032 at 2.35%, 4s of 2037 at 2.66%, 4s of 2042 at 2.79%, 5s of 2047 at 2.62% and 4s of 2052 at 2.92%, callable 10/1/2031 at par.

The second tranche, $111.480 million of non-alternative minimum tax bonds, 2022 Series B, saw bonds in 10/2023 with a 5% coupon yield 1.08%, 5s of 2027 at 1.61%, 5s of 2032 at 1.96%, 4s of 2037 at 2.33%, 4s of 2042 at 2.42%, 5s of 2047 at 2.39% and 4s of 2052 at 2.68%, callable 10/1/2031 at par.

BofA Securities also priced for Hillsborough County Aviation Authority (A1//A+/AA-) $348.375 million of Tampa International Airport taxable subordinated revenue refunding bonds, Series 2022 A (PFC). All bonds are priced at par: 1.836% in 10/2023, 2.633% in 2027, 3.174% in 2032, 3.674% in 2037 and 3.858% in 2044, callable 10/1/2031.

BofA Securities priced for Maryland Stadium Authority (A1/AA/A+/) $372.970 million of Built to Learn revenue bonds, Series 2022A. Bonds in 6/2023 with a 5% coupon yield 1.06%, 5s of 2027 at 1.76%, 5s of 2032 at 2.22%, 4s of 2037 at 2.59%, 3s of 2042 at 3.11%, 4s of 2047 at 2.84% and 4s of 2052 at 2.94%, callable 6/1/2032.

In the competitive market, the Metropolitan Transportation Authority, New York (/AA/AA/) sold $377.955 million of dedicated tax fund bonds to BofA Securities. The first tranche, $205.15 million of Series 2022A Bidding Group 2 Bonds, saw bonds in 11/2044 with a 5% coupon yield 2.32%, 5s of 2047 at 2.37% and 4s of 2052 at 2.67%, callable 5/15/2032 at par.

The second tranche, $172.805 million of Series 2022A Bidding Group 1 Bonds, saw bonds in 11/2032 with a 5% coupon yield 1.95%, 5s of 2037 at 2.10%, 4s of 2042 at 2.46% and 4s of 2043 at 2.49%, callable 5/15/2032.

The Investment Company Institute on Wednesday reported $3.120 billion of outflows in the week ending Feb. 16, up from $993 million of outflows in the previous week.

Exchange-traded funds, meanwhile, saw inflows at $626 million in the week ending Feb. 16 after $701 million of inflows the week prior.

“The struggle in municipals, despite somewhat better customer bidding and a supportive street narrative that emerged [mid-last week], shows a market uncertain of its own price discovery while mutual funds are seeing outflows,” said Matt Fabian, partner at Municipal Market Analytics.

Since outflows began on Jan. 19th, ICI has reported about $10.67 billion of outflows. Exchange-traded funds have been faring better.

Fabian said separately managed accounts and other buyers with shorter maturities are also driving demand, since front-end yields now surpass yearly expenses, allowing them to put funds to work.

“So this remains an orderly, albeit less certain market; despite a still elevated amount of customer bids wanteds as accounts look to value their portfolios, actual net customer buying has remained positive,” Fabian said.

Credit and term spreads are being kept in check by the tight primary calendar, he said, which may need to broaden to restore more compelling secondary liquidity and enhance market activity.

Short bonds have caught a steady bid with one- to three-year maturities accounted for almost 15% of all volume last week, noted Kim Olsan, senior vice president at FHN Financial. This is the range that has corrected the most from the end of January, giving up more than 20 basis points, she noted.

Further out the curve, interest becomes more inquiry specific with volumes falling below 50% in the longest maturities with yields past 10 years having settled seven to 10 basis points above January’s close, she noted.

“Two structures that stand out in secondary trading point to portfolio rebalancings—lower-rated credits and short call options,” Olsan said. “Single-A revenue spreads continue to widen as buyers have a wider set of higher-yielding, highly-rated bonds at their disposal.”

Short-call structures, she said, have compressed as seasoned calls have rolled down the curve.

“An offer of University of Arizona (Aa2/AA-) 5s due 2040 with a 2025 call at 1.50% compares with its original 2015 issue yield of 3.21%,” Olsan said. “Sellers can optimize the curve with modest extensions and realize 50 basis points or more of yield pickup.”

Informa: Money market muni funds drop
Tax-exempt municipal money market fund assets felldropped by $223.5 million, bringing their total to $85.62 billion for the week ending Feb. 21, according to the Money Fund Report, a publication of Informa Financial Intelligence.

The average seven-day simple yield for the 148 tax-free and municipal money-market funds remained at 0.01%.

Taxable money-fund assets lost $7.73 billion, bringing total net assets to $4.397 trillion in the week ended Feb. 21. The average seven-day simple yield for the 775 taxable reporting funds remained at 0.02%.

Secondary trading
New York State Urban Development Corp. 5s of 2023 at 0.84%. District of Columbia 5s of 2023 at 0.91%. Washington 5s of 2023 at 0.96%.

Florida 5s of 2027 at 1.50%-1.49%. DASNY NYU 5s of 2028 at 1.77%. Triborough Bridge and Tunnel Authority MTA 5s of 2029 at 1.65%. DASNY 5s of 2031 at 1.78% versus 1.79% Monday.

Minnesota 5s of 2032 at 1.73%-1.72%. University of Washington 5s of 2033 at 1.95%, same as original.

District of Columbia 5s of 2038 at 1.93%-1.92%. LA DPW 5s of 2039 at 1.95%. Washington 5s of 2040 at 2.21%-2.19%. Washington 5s of 2046 at 2.11%. LA DPW 5s of 2046 at 2.22%. LA DPW 5s of 2051 at 2.30%. Metropolitan Water District of Southern California 5s of 2051 at 2.10%.

AAA scales
Refinitiv MMD’s scale were unchanged at the 3 p.m. read: the one-year at 0.84% (unch) and 1.11% (unch) in two years. The five-year at 1.41% (unch), the 10-year at 1.65% (unch) and the 30-year at 2.02% (unch).

The ICE municipal yield curve saw weakness 10 years and the long end: 0.85% (unch) in 2023 and 1.14% (unch) in 2024. The five-year at 1.38% (unch), the 10-year was at 1.68% (+1) and the 30-year yield was at 2.06% (+2) in a 4 p.m. read.

The IHS Markit municipal curve saw cuts inside of 10 years: 0.85% (+2) in 2023 and 1.12% (+2) in 2024. The five-year at 1.42% (+2), the 10-year at 1.65% (unch) and the 30-year at 2.04% (unch) at a 3 p.m. read.

Bloomberg BVAL was little changed: 0.85% (unch) in 2023 and 1.08% (unch) in 2024. The five-year at 1.41% (unch), the 10-year at 1.65% (unch) and the 30-year at 2.02% (unch) at a 4 p.m. read.

Treasuries were weaker while equities sold off.

The two-year UST was yielding 1.600% (+5), the five-year was yielding 1.899% (+3), the 10-year yielding 1.989% (+5), and the 30-year Treasury was yielding 2.295% (+6) at the close. The Dow Jones Industrial Average lost 464 points or 1.38%, the S&P was down 1.84% while the Nasdaq lost 2.57% at the close.

Primary to come:
Virginia Small Business Financing Authority (Baa1///BBB) is set to price Thursday $1.109 billion of federally taxable subordinate lien revenue refunding notes, Series 2022, and tax-exempt, alternative minimum tax senior lien revenue and refunding bonds, Series 2022. J.P. Morgan Securities.

The Nature Conservancy, Virginia (Aa2///) is set to price Thursday $412 million of taxable green corporate CUSIP bonds, consisting of $350 million of Series 2022A and $62 million of Series 2022B. J.P. Morgan Securities.

Wisconsin (Aa1/AA+//AAA) is on the day-to-day calendar with $236.975 million of taxable general obligation refunding bonds of 2022, Series 2, serials 2023-2032 and 2037. UBS Financial Services.

The District of Columbia Water and Sewer Authority (Aa2/AA+/AA/) is set to price Thursday $367.07 million, consisting of $78.765 million of green public utility subordinate lien bonds, Series 2022B; $99.370 million of public utility subordinate lien bonds, Series 2022C-1; and $188.935 million of federally taxable public utility subordinate lien revenue and revenue refunding bonds, Series 2022D. Goldman Sachs & Co.

State of New York Mortgage Agency (Aa1///) is set to price Thursday $171.695 million of social homeowner mortgage revenue bonds, consisting of $115.02 million of non-alternative minimum tax bonds, Series 242, serials 2027-2034, terms 2037, 2042, 2047 and 2052; $18.27 million of alternative minimum tax bonds, Series 243, serials 2022-2027; and $38.405 million of non-alternative minimum tax bonds, Series 244, terms 2037 and 2041. RBC Capital Markets.

Duneland School Building Corp., Indiana (/AA+//) is set to price Thursday $167.22 million of ad valorem property tax mortgage bonds, Series 2022, serials 2023-2042, insured by Indiana State Aid Intercept Program. Raymond James & Associates.

Wisconsin (Aa1/AA+//AAA) is set $125.62 million of forward-delivery general obligation refunding bonds of 2023, Series 1, serials 2024 and 2027-2028. UBS Financial Services.

Liberty Hill Independent School District, Texas (Aaa///) is set to price Thursday $121.37 million of unlimited tax school building bonds, Series 2022, serials 2023-2056, insured by Permanent School Fund Guarantee Program. Raymond James & Associates.

Georgetown Independent School District, Texas (Aaa/AAA//) is set to price daily $103.88 million of taxable unlimited tax refunding bonds, Series 2022-A, insured by Permanent School Fund Guarantee Program. FHN Financial Capital Markets.

Competitive:
Anchorage, Alaska (/SP-1+//) is set to sell $150 million of 2022 general obligation tax anticipation notes, at 11 a.m. eastern Wednesday.

Oakland, California is set to sell $20.14 million of taxable general obligation bonds (Measure KK), Series 2022C-2, at 11:30 a.m. eastern Thursday.

Oakland, California is set to sell $192.175 million of tax-exempt general obligation bonds (Measure KK), Series 2022C-1, at 11:30 a.m. Thursday.

Gwinnett County School District, Georgia (Aaa/AAA//) is set to sell $35 million of general obligation sales tax bonds, Series 2022A, at 11 a.m. Thursday.

Gwinnett County School District, Georgia (Aaa/AAA//) is set to sell $230 million of general obligation sales tax bonds, Series 2022B, at 11 a.m. Thursday.

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