Municipal bond yields are back near early July highs

Bonds

Municipals felt the pressure of an increase of supply and a weaker U.S. Treasury market, and benchmarks saw two- to three-basis-point cuts to scales, but new issues repriced to lower yields.

The 10-year muni hit 0.90% on ICE Data Services scale and just below that on Refinitiv MMD, Bloomberg BVAL and IHS Markit, reaching early July levels.

The 10-year UST reached 1.345% at the close and the 30-year just shy of 2% at 1.992%.

As such, municipal to UST ratios fell slightly at 65% in 10 years and 73% in 30, according to Refinitiv MMD, while ICE Data Services had the 10-year at 66% and the 30 at 72%.

It was a day for Texas school bond issuances, with several large deals pricing. Texas net negative supply still stands at $9.878 billion while total net negative supply is at $18.539 billion, per Bloomberg. Bond Buyer 30-day visible supply sits at $9.73 billion. August issuance typically rises above July levels, but the $60 billion or so of redemptions hang overhead, leaving plenty of cash available to be put to work.

Gilt-edged Maryland has $615 million of exempt and taxable unlimited tax general obligation bonds in three sales Wednesday, which should direct benchmarks.

In the competitive market, the Massachusetts Bay Transportation Authority (Aa3/AA//) sold $275 million of subordinate sales tax sustainability bond anticipation notes to BofA Securities. Bonds mature in 2025 with a 4% coupon yield 0.22%.

BofA Securities priced for Maryland (Aaa/AAA/AAA/) $237 million of general obligation forward-delivery refunding bonds, $114.15 million forward delivery on 3/1/2022: 5s of 2026 at 0.55%, 4s of 2028 at 0.86% and 4s of 2029 at 0.96%; $123 million of forward delivery on 5/1/2022: 3s of 2027 at 0.92%, 4s of 2028 at 0.98% and 4s of 2029 at 1.07%.

Citigroup Global Markets Inc. priced for the Allentown Neighborhood Improvement Zone Development Authority (Baa3///) $153 million of forward delivery tax revenue refunding bonds: 5s of 2024 at 0.81%, 5s of 2026 at 1.16%, 5s of 2031 at 1.84%, 5s of 2036 at 2.08% and 5s of 2042 at 2.23%, callable in 5/2032, dated date 2/1/2022.

J.P. Morgan Securities LLC priced for the City of San Antonio, Texas (Aaa/AAA/AA+/) $226.53 million of general improvement bonds, combination tax and revenue certificates of participation and taxable combination tax and revenue certificates of obligation. $128.345 million of GOs: 5s of 2022 at 0.07%, 5s of 2026 at 0.43%, 5s of 2031 at 1.08%, 4s of 2036 at 1.41%, 4s of 2041 at 1.60%; $41.365 million of exempt COPs: 5s of 2022 at 0.07%, 5s of 2026 at 0.43%, 5s of 2031 at 1.08%, 3s of 2036 at 1.68% and 3s of 2041 at 1.85%; $22.890 million of taxable COPs, at par: 2022, 0.22%, 2026, 1.05%, 2031, 1.80%, 2036, 2.28% and 2041 2.67%.

Siebert Williams Shank & Co., LLC. priced and repriced for the Del Valle Independent School District, Texas (/AAA//) (PSF Guarantee) $187.275 million of unlimited tax school building bonds with bumps of three to four basis points: 5s of 2022 at 0.08% (-4), 5s of 2026 at 0.45% (-2), 4s of 2031 at 1.08% (-3), 2s of 2036 at 1.93% (-3), and 2s of 2041 at 2.15% (-3).

BofA Securities price for the City of Garland, Texas (A1//AA-/) $153 million of electric utility system taxable revenue refunding bonds, priced at par: 2023 at 0.454%, 2026 1.268%, 2031, 2.022%, 2036, 2.622%, 2041, 2.95% and 2051 at 3.20% and 3.15%.

RBC Capital Markets priced for the Friendship Independent School District, Texas (Aaa/AAA//) (PSF Guarantee) $141 million of unlimited tax school building bonds: 5s of 2022 at 0.09%, 5s of 2024 at 0.15%, 3s of 2036 at 1.52%, 3s of 2041 at 1.79%, 3s of 2046 at 1.95%, 4s of 2051 at 1.84% and 3s of 2051 at 2.14%.

Buy-side take
Buy-side investors want yield, but are looking beyond the plain-vanilla market to find it, causing a slight dip in overall demand, according to Roberto Roffo, managing director and portfolio manager at SWBC Investment Company.

“Munis are a little weaker today in sympathy with Treasuries, but I think that the overall level in muni yields is resulting in a little less interest also,” he said on Tuesday.

“New issues are getting done, but not with the strong demand we have become accustomed to,” he said. “High-yield deals — or anything that seems cheap — are still seeing strong demand.”

Nonetheless, the available cash from investors should continue and remain supportive of the market going forward, Roffo said.

“Cash is still flowing into the municipal market, but at a slightly slower pace, adding to the cash already on hand,” he said.

Secondary trading and scales
Trading was mixed with pressure in spots. Florida PECO 5s of 2022 at 0.06%-0.05%. Loudoun County, Virginia 5s of 2023 at 0.08% versus 0.11% Monday. New York UDC 5s of 2023 at 0.08%-0.06%. Maryland 5s of 2024 at 0.14%.

Texas A&M 5s of 2025 at 0.24%. Fairfax County 4s of 2029 at 0.77%. California 5s of 2029 at 0.79% (0.70% on 8/3). Ohio waters 5s of 2038 at 1.23%. Hawaii highways 5s of 2038 at 1.26%-1.25%.

Washington 5s of 2042 at 1.46% (1.40% on 8/5). West Virginia 5s of 2042 at 1.53% (1.43% on 7/29).

Refinitiv MMD saw the one-year bumped by two basis points to 0.06% in 2022 and steady at 0.08% in 2023. The yield on the 10-year steady at 0.88% while the yield on the 30-year rose two to 1.46%.

ICE municipal yield curve saw bonds up one at 0.06% in 2022 and two to 0.08% in 2023. The 10-year maturity rose two to 0.90% and the 30-year yield rose three to 1.44%.

The IHS Markit municipal analytics curve saw the one-year steady at 0.07% and the two-year at 0.08%, with the 10-year up one three to 0.89%, and the 30-year yield up three to 1.45%.

Bloomberg BVAL saw levels steady at 0.05% in 2022 and 0.05% in 2023, while the 10-year rose two to 0.89% and the 30-year up three to 1.45%.

Treasuries were higher while equities were mixed. The 10-year Treasury was yielding 1.341% and the 30-year Treasury was yielding 1.984% in late trading. The Dow Jones Industrial Average gained 144 points or 0.41%, the S&P 500 rose 0.02% while the Nasdaq lost 0.52%.

Indicators
Productivity and unit labor costs growth eased in the second quarter, the latter should potentially “help limit the upward pressure on inflation,” according to one analyst.

“Productivity growth slowed in the second quarter, but the rapid shifts in the industry composition of activity over the pandemic continue to muddle the trend,” according to Sarah House, senior economist at Wells Fargo Securities. “Unit labor cost growth remained tame on an aggregate basis, which should help to limit the upward pressure on inflation stemming from the recent pop in wages.”

Non-farm productivity grew at a preliminary seasonally adjusted annual rate of 2.3% in the second quarter, down from the first quarter final reading of 5.4%, while unit labor costs rose 1.0% in the preliminary reading of the second quarter, lower than the 1.7% gain in the first quarter.

Economists polled by IFR Markets anticipated a 3.5% rise in productivity and a 1.2% gain in unit labor costs.

“For now, productivity growth is sufficiently strong to keep wage pressures from bleeding significantly into inflation, at least on an aggregate basis,” she said.

Elsewhere, the National Federation of Independent Business’ small business optimism index fell 2.8 points in July to 99.7. A 48-year record high of owners reported unfilled job openings.

“Small business owners are losing confidence in the strength of the economy and expect a slowdown in job creation,” said Bill Dunkelberg, NFIB’s chief economist “As owners look for qualified workers, they are also reporting that supply chain disruptions are having an impact on their businesses. Ultimately, owners could sell more if they could acquire more supplies and inventories from their supply chains.”

Primary to come
The Allegheny County Airport Authority (A2//A/A+) is set to price $823.55 million of Pittsburgh International Airport AMT and non-AMT revenue bonds on Wednesday. $711.13 million AMT, Serials 2026-2041, terms 2046, 2051, 2056; and $112.42 million non-AMT, Serials 2026-2041; terms 2046, 2051, 2056. Citigroup Global Markets Inc.

The Triborough Bridge and Tunnel Authority is set to price on Thursday $450 million of MTA Bridges and Tunnels payroll mobility tax senior lien bonds. J.P. Morgan Securities LLC.

The New York City Housing Development Corp. (Aa2/AA+//) is set to price on Wednesday $310.375 million of Multi-Family Housing Revenue Bonds, 2021 Series G-1 (Non-AMT) (Sustainable Development Bonds), 2021 Series G-2 (AMT) (Sustainable Development Bonds). Morgan Stanley & Co. LLC, New York.

The City of Lubbock, Texas (A1/A+/A+/) is set to price on Thursday $254.32 million of electric light and power system revenue bonds. BofA Securities.

The CSCDA Community Improvement Authority, California (nonrated) is set to price on Wednesday $236.565 million of essential housing revenue social bonds, serials 2057. Goldman Sachs & Co. LLC.

The Oregon Community College Districts (/AA//) is set to price on Wednesday $214.235 million of full faith and credit pension obligations. Piper Sandler & Co.

The Windy Gap Firming Project Water Activity Enterprise, Colorado (Aa2/AA//) is set to price on Thursday $165.665 million of Windy Gap Firming Project senior revenue bonds. Goldman Sachs & Co. LLC.

The University of North Dakota is set to price on Thursday $130.4 million of certificates of participation. Stifel, Nicolaus & Company, Inc.

Pecos-Barstow-Toyah Independent School District (/AAA//) (PSF Guarantee) is set to price on Wednesday $111.79 million of unlimited tax school building bonds, serials 2022-2041. RBC Capital Markets.

Aaron Weitzman contributed to this report.

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