Diversity of issues marks calendar; NYC TFA bonds priced for retail

Bonds

Municipal bond buyers will see a wide variety of issues come to market this week, with most of the major sectors represented, with special emphasis on education, transportation and power deals.

“It is a relatively high-grade week with a diverse basket of credits. Transportation and power are featured with deals from CTRMA and Santee Cooper,” said John Hallacy, founder of John Hallacy Consulting LLC. “Perhaps, now that rates are moving a bit, they wanted to get in before a sharp change.”

He said there were many issues for buyers to choose from this week.

“The ‘No Place Like Home Program’ bonds from California Health are also different and are social bonds as in ESG. Social is gaining traction in our market,” Hallacy said. “We have not seen a moral obligation bond in some time. The offering out of the Wisconsin Center District will also benefit from bond insurance.”

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In secondary trading, municipals were little changed Monday, with yields on the AAA scales remain mostly steady across the curve.

Munis held firm as equities crumbled on worries over that more COVID-19 cases will continue to hurt the global economy while prospects for a fiscal stimulus package from Washington looked unlikely before next week’s Presidential election.

“Tax-exempt bond yields ran in place on Monday despite tumbling equities and rallying rates as last week’s outperformance versus treasuries and the week’s hefty $15 billion+ primary supply slate (including taxables) gave participants reason for pause,” said Refinitiv MMD managing analyst Greg Saulnier.

Despite ongoing uncertainty and volatility, the municipal market has kept pace with the generous slate of new issuance in recent weeks, and demand is expected to grow ahead, according to Jeffrey Lipton, managing director and head of municipal credit and market strategy, at Oppenheimer & Co.

Fund flows remain positive, largely indicative of stable demand from asset management firms, Lipton noted.

In addition, recent new issues have been well-received — especially taxable issuance, which continues to drive primary market supply.

“We expect taxables to maintain a meaningful presence throughout the balance of the year, likely surpassing 30% of aggregate issuance, Lipton said.

“All things considered, the muni market is behaving rationally and efficiently — albeit we are seeing disproportionate participation from the institutional investor with retail keeping to the sidelines ahead of Election Day,” Lipton said.

“As market participants strategize their investment thesis once the election results are in, public health policy, infrastructure initiatives, and potential individual and corporate tax adjustments will frame the narrative,” Lipton said.

While cash continues to be put to work, he said, the market may see some flow volatility once the Presidential election is over.

He said this outlook is not purely driven by politics, but also by elevating anxiety brought about by rising COVID-19 caseloads.

“Not only are investors thinking about the balance of power in Washington D.C. come next week, they are also focused on the timeline for mitigating therapeutics and a safe and efficacious vaccine,” he continued. While prospects for passing the next wave of congressional relief ahead of Nov. 3 are quickly fading, any hopes that state and local governments will receive much-needed assistance are likely to carry into a post-election lame-duck session of Congress, according to Lipton.

Back to the municipal market technicals, overall demand and credit look positive going forward, Lipton noted.

Higher taxes, particularly on the corporate side, he said, could likely boost demand for tax-exemption, resulting in a potential shift towards tighter spreads.

Credit, on the other hand, will remain influenced by the progress of economic recovery, he added.

“While we can expect to see higher instances of impairment, the outlook for overall credit quality remains favorable with the vast majority of muni issuers displaying resiliency,” Lipton said.

Primary market
This week’s supply is estimated at $15.8 billion in a calendar composed or $12.3 billion of negotiated deals and $3.5 billion of competitive sales.

On Monday, Ramirez & Co. priced for retail investors the New York City Transitional Finance Authority’s (Aa1/AAA/AAA/NAF) $700 million of tax-exempt future tax-secured subordinate fixed-rate Fiscal 2021 Series D Subseries D-1 bonds.

The bonds were priced for retail to yield from 0.30% with a 5% coupon (+12 basis points) in 2022 to 0.79% with a 5% coupon (+35 basis points) in 2026 and to yield from 1.82% with a 5% coupon (+56 basis points) in 2034 to 2.80% with a 2.75% coupon (+106 basis points) and 2.78% with a 3% coupon (+104 basis points) in a split 2050 maturity.

The bonds will be priced for institutions on Wednesday after a second day of retail orders. Also Wednesday, the TFA plans to competitively sell about $200 million of taxable fixed-rate bonds.

Simultaneously with the sales, the TFA will be reoffering $218.215 million of Fiscal 2001 Series C bonds, Fiscal 2010 Subseries G-5 bonds and Fiscal 2013 Subseries S-6 bonds.

“New York City small business revenues are still down 39% from the beginning of the year, a big improvement from late March when they were down as much as 70%, but little improved from early July,” the New York City Comptroller Scott Stringer’s office said in a report Monday. “Small business revenues in New York City have nonetheless recovered more than the Bay Area, San Antonio, Boston and Washington D.C., if less well than in multiple other cities.”

Last Thursday, New York State Comptroller Thomas DiNapoli said the securities industry saw its pre-tax profits rise 82% in the first six months of 2020. Wall Street is the biggest contributor to NYC’s economy, accounting for about 17% of all economic activity. Its estimated contribution of $3.9 billion to the city’s total tax collections in the fiscal year ending June 30 was down 5%, reflecting a decline in jobs and capital gains.

On Tuesday, Citigroup is set to price the California Health Facilities Financing Authority’s (Aa3/AA-/AA-/NR) $450 million of Series 2020 taxable senior revenue bonds for the “No Place Like Home” program.

Morgan Stanley is expected to price the Wisconsin Center District’s (A2/AA/NR/NR) $443.04 million of senior dedicated tax revenue bonds, consisting of Series 2020 C&D junior dedicated tax revenue bonds on Tuesday. The deal is supported by state of Wisconsin’s moral obligation and will be insured by Assured Guaranty Municipal Corp.

The Santee Cooper Cross Generating Station power plant in Pineville, S.C.

Bloomberg News

The South Carolina Public Service Authority is coming to market with $652.35 million of bonds for Santee Cooper in two issues on Tuesday.

Barclays Capital is set to price the $352.575 million of Series 2020A (A2/A/A-/) tax-exempt refunding and improvement revenue obligations while BofA Securities will price the Authority’s $299.775 million of Series 2020B (A2/A/A/) taxable refunding revenue obligations.

BofA is expected to price the Central Texas Regional Mobility Authority’s $343.91 million of Series 2020E (Baa1/A-//) senior lien revenue bonds, Series 2020F (Baa2/BBB+//) subordinate lien revenue bond anticipation notes and Series 2020G (Baa2/BBB+//) subordinate lien revenue refunding bonds.

Goldman Sachs is set to price the Los Angeles Unified School District’s (Aa3//AA+/AAA) $1.1 billion of Measure Q Series 2020C dedicated unlimited ad valorem property tax bonds on Wednesday.

On Thursday, BofA is set to price the Los Angeles Community College District’s (Aaa/AA+//) $1.8 billion of taxable general obligation refunding bonds.

In the competitive arena on Tuesday, Hudson County, N.J., is selling $223.086 million of unlimited tax general improvement bonds. NW Financial Group is the financial advisor; Wilentz Goldman is the bond counsel. Proceeds will be used to refund on a current basis part of 2019 bond anticipation note issue and to provide for capital improvements and equipment.

The Evergreen School District No. 114, Wash., is selling $230.55 million of unlimited tax GOS backed by the Washington State School District Credit Enhancement Program. The financial advisor is the Educational Services District 112 of Vancouver, Wash. Pacifica Law Group is the bond counsel. Proceeds will be used for capital improvements.

Secondary market
An active primary market might be grabbing the headlines, but FHN Financial said data from the Municipal Securities Rulemaking Board show that secondary commitments are not falling by the wayside.

“Recent activity suggests secondary trading is 50%-60% of totally daily volume. Steady syndicate levels are giving bid-sides more confidence to hold generic AAA benchmark curves to a tight range,” FHN said in a weekly market report. “There is some push to force natural AAA names in the 10-year area behind 1% with more concession — a welcome development from what was a long-run trade between 0.70% and 0.80%.”

Trading in sectors that have been more adversely affected with lockdown effects such as New York City credits, large-hub airports and healthcare systems, are all showing relaxed yield relationships that area creating new-found flows, FHN said. Syndicate pricings that are among the heaviest in memory indicate a comfort level with wider ranges, the report said.

Last week, the most traded muni sector was industrial development followed by education and utilities, according to IHS Markit.

Hopes for a stimulus drove up yields last week, but faded to disappointment by Friday, Wells Fargo said in a Monday market note.

“Most fixed income underperformed, but MBI still returned 52 basis points week over week outperformance to Treasuries,” Wells Fargo said. “With Treasuries yields rising 12+ basis points, taxable munis underperformed MBI by 74+ basis points week over week and underperformed Treasuries by 22+ basis points.”

Wells Fargo added that although higher-grade munis underperformed on the week, AAAs are still outperforming BBBs by 312 basis points year to date and would likely to continue to do so without a stimulus deal.

On Monday, high-grade municipals were unchanged, according to final readings on Refinitiv MMD’s AAA benchmark scale. Short yields in 2021 and 2022 were flat at 0.17% and 0.18%, respectively. The yield on the 10-year muni was steady at 0.96% while the yield on the 30-year remained at 1.74%.

The 10-year muni-to-Treasury ratio was calculated at 119.9% while the 30-year muni-to-Treasury ratio stood at 108.8%, according to MMD

The ICE AAA municipal yield curve showed short maturities were steady with the 2021 maturity at 0.19% and the 2022 at 0.21%. The 10-year maturity remained at 0.93% and the 30-year was flat at 1.75%.

The 10-year muni-to-Treasury ratio was calculated at 116% while the 30-year muni-to-Treasury ratio stood at 109%, according to ICE.

The IHS Markit municipal analytics AAA curve showed short yields steady at 0.15% and 0.16% in 2021 and 2022, respectively, with the 10-year yielding 0.97% and the 30-year at 1.75%.

The BVAL AAA curve showed the yield on the 2021 maturity flat at 0.14%, the 2022 maturity steady at while the 10-year remained at 0.94% and the 30-year was at 1.75%.

Treasuries were stronger as stock prices traded down.

The three-month Treasury note was yielding 0.10%, the 10-year Treasury was yielding 0.81% and the 30-year Treasury was yielding 1.61%.

The Dow fell 2.60%, the S&P 500 decreased 2.10% and the Nasdaq decline 1.90%.

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