Municipals were little changed with triple-A benchmarks holding steady and investors on the sidelines Tuesday awaiting new paper to test the higher-yield environment as U.S. Treasuries pared back morning losses and equities fell after Monday’s record rally. New York City priced bonds for retail investors for the second day with no changes from Monday’s levels.
Trading of high-grade Maryland, Washington and various New York credits showed some firming, but nothing to move benchmarks. A few trades of Austin Texas Electric Utility System 5s of 2045 showed weaker prints from Friday after a Chapter 11 bankruptcy filing Monday of a large-scale electric power cooperative and rating agencies have placed public utilities and cities with their own utilities on watch for possible downgrade in the wake of the storm that brought blackouts and nearly caused the collapse of the Texas grid.
Ratios rose slightly again with the 10-year muni/UST at 81% and the 30-year at 81%, according to Refinitiv MMD. ICE Data Services showed ratios at 78% in 10 years and 81% in 30. Bloomberg BVAL had the 10-year at 79% and the 30 at 85%.
In the primary, BofA Securities priced for retail investors for the second day $1.25 billion New York City (Aa2/AA/AA-/) general obligation offering at the same levels as Monday. The $900 million Fiscal 2021 Series F and Subseries F-1 saw bonds in 2023 with a 3% coupon yield 0.37%, 5s of 2026 at 0.89%, 3s of 2035 at 2.28%, 5s of 2036 at 2.05%, 3s of 2041 at 2.62%, 4s of 2047 at 2.63% and 3s of 2051 at 2.85%. The $240 million Fiscal 2021 Series 1 reoffering had 5s of 2028 at 1.21%, 5s of 2031 at 1.65% and 5s of 2035 at 2.00%. The $113 million Fiscal 2008 Series L Subseries L-5 reoffering had 5s of 2032 at 1.74% and 5s of 2035 at 2.00%.
Institutional pricing of New York City and competitive deals from Baltimore and Cambridge, Mass., should help give a sense of where yields are heading. Ohio offers up state GOs.
CreditSights placed New York City’s GOs on a “market underperform” in a Tuesday report, citing elevated risks due to population and job losses and an uncertain recovery as a result.
“While we believe New York’s credit is sturdy for now, particularly with more stimulus likely to come, risks are elevated in the medium- and long-terms, particularly compared to broader credits like New York State with a tax base that encompasses urban, suburban, and rural areas,” the report by John Ceffalio and Patrick Luby said.
The report noted the city’s 10-year benchmark GO yield, which was evaluated at just +8 over AAA municipals prior to the pandemic, widened to +66 by May.
“Since then, spreads steadily tightened along with the market, buoyed by federal aid, and most recently traded at +28, representing a yield of 1.91%,” the report said.
Spreads on an Oct. 5 GO non-callable 5s of 2030 were priced at about +80 to triple-A benchmarks. That same bond was evaluated at +26 as of the close on Friday, the report noted.
“While jobs will rebound as the pandemic winds down, this will take time, as holders of those nearly 600,000 lost jobs may have left the city, and many businesses have shuttered permanently,” Ceffalio and Luby wrote. “There are myriad uncertainties to the recovery, notably two Manhattan staples: tourists and commuters. We expect both to return, but how soon and how many of each are open questions.”
In data released Tuesday, the New York City manufacturing sector did not fare well in February, with business conditions and employment seeing “significant drops,” according to the Institute for Supply Management-New York.
The current business conditions index plunged to 35.5 in February from 51.2 in January, while the six-month outlook slid to 51.5 from 53.3, and the employment index fell to 41.1 from 60.6.
This contrasts other manufacturing indexes, which have shown strength in the sector.
BofA Securities priced $372 million of bridge revenue bonds for the San Francisco Bay Area Toll Authority (Aa3/AA/AA/). Bonds in 2056 with a 2% coupon yield 1.17% with a mandatory 2028 tender and 2027 call option, $56 million in 2056 with a 2024 tender and 2023 call option came at +28 basis points to SIFMA and $100 million of 2056 with a 2026 tender and 2025 par call came at +45 basis points to SIFMA.
BofA also priced $354.3 million taxable fixed-rate bonds at par: 2025 at 0.879%, 2026 1.079%, 2031 2.069%, 2036 at 2.619% and 2040 at 2.982%.
Secondary market
Trading was light but some bonds exchanged hands close to recent levels to a touch firmer.
Washington GO 5s of 2022 traded at 0.15%. University of Washington 5s of 2027 at 0.76%-0.75%.
Maryland 5s of 2029 at 0.96% versus 0.98% Friday. Maryland 5s of 2031 at 1.17% versus 1.19% Friday. Maryland 5s of 2032 at 1.22% (original 1.20%). Maryland 5s of 2034 traded at 1.33% versus 1.34%-1.30% Friday.
Columbus Ohio, 5s of 2034 at 1.45%. Washington 5s of 2034 at 1.42% versus 1.52%-1.51% Wednesday. Washington 5s of 2036 at 1.51%. Maryland 5s of 2036 at 1.43% versus 1.44%-1.40% Monday.
Los Angeles DWP 5s of 2039 at 1.65%-1.64%. New York City TFA 4s of 2041 at 2.33%. Austin Electric 5s of 2045 at 1.87%-1.86% versus 1.84%-1.72% Friday.
New York City water 5s of 2048 at 2.12%-2.11% versus 2.14%-2.13% Monday. NYC water 5s of 2051 at 2.17% versus 2.21%-2.20% Monday.
High-grade municipals were little changed, according to final readings on Refinitiv MMD’s AAA benchmark scale. Short yields were at 0.12% in 2022 and 0.19% in 2023. The 10-year sat at 1.15% and the 30-year at 1.81%.
The ICE AAA municipal yield curve showed short maturities at 0.13% in 2022 and 0.20% in 2023. The 10-year stayed at 1.11% while the 30-year yield remained at 1.82%.
The IHS Markit municipal analytics AAA curve showed yields at 0.12% in 2022 and at 0.16% in 2023 while the 10-year stayed at 1.09% and to 30-year at 1.77%.
The Bloomberg BVAL AAA curve showed yields at 0.12% in 2022 and at 0.19% in 2023, while the 10-year stayed at 1.11%, and the 30-year yield at 1.82%.
The three-month Treasury note was yielding 0.09%, the 10-year Treasury 1.41% and the 30-year Treasury was yielding 2.21% near the close. Equities were off with the Dow down 143 points, the S&P 500 down 0.81% and the Nasdaq down 1.69%.
Economy
Federal Reserve Bank of San Francisco President Mary Daly addressed the expectations that inflation will soar and the Fed will have to remove accommodation sooner than believed. “I see this as the tug of fear,” Daly told the Economic Club of New York in a webcast. “The reaction to a memory of high and rising inflation, an inexorable link between unemployment, wages and prices, and a Federal Reserve that once fell behind the policy curve.”
It’s a different world, she said, and while lessons should be learned from the past, they shouldn’t “dictate current and future policy.”
For example, the long-term unemployment rate continually fell, and inflation has not responded to “movements in output and employment” as in the past.
The changing conditions make conventional monetary policy use more difficult.
“We need to be vigilant against all the risks in the economy, but we also must weight them by their likelihood and expected cost,” Daly said. “As for the likelihood of runaway inflation, I don’t see this risk as imminent, and neither do market participants.”
Primary deals to come
The University of Chicago (Aa2/AA-/AA+/) is set to price $609.6 million of taxable corporate CUSIP fixed-rate bonds, serials 2044-2052, in a Citigroup-priced negotiated deal. The Illinois Finance Authority (Aa2/AA-/AA+/) will also price $218.3 million of exempt revenue bonds for the University of Chicago in a Series 2021 A structured from 2022 to 2023; 2025; 2028; and 2031 to 2034.
Ohio is slated to sell $564.2 million of GOs in two-series — new money and refunding portions — priced by BofA Securities. The new-money series includes $226.4 million of Series SCH-A bonds and $107.8 million of Series SCH-B bonds. The refunding portion consists of $204.9 million Series HE-A and a $25 million taxable series.
The Texas Public Finance Authority will issue $326 million of lease revenue bonds for the Texas Department of Transportation-Austin Campus Consolidation Project. The taxable series 2021 bonds are structured to mature from 2022 to 2041 and is being priced by Barclays Capital Inc.
The City of Orange, California, will sell $285.6 million of taxable pension obligation bonds in a deal being priced by Stifel, Nicolaus & Co. Inc.
The serial bonds mature from 2022 to 2036 and the term bonds mature in 2040 and 2044.
J.P Morgan Securities will price a Silicon Valley Clean Water (Aa2/AA//) $144.9 million of taxable wastewater refunding bonds in Series 2021 A and tax-exempt bonds in Series 2021 B wastewater refunding revenue bonds.
J.P Morgan will also price a $137.9 million East Baton Rouge Sewerage Commission (/AA-//) offering of multimodal revenue refunding bonds in Series 2021 A.
The Minnesota Housing Finance Agency is set to sell $125 million residential housing finance bonds in two series being priced by RBC Capital Markets. The Series 2021 Series A bonds are subject to the alternative minimum tax and are structured as $23.06 million serial bonds from 2022 to 2030 and $101.9 million Series 2021 B bonds maturing serially in 2022, 2025, 2026, and from 2030 to 2033 with terms in 2036, 2041, 2046, and 2051.
Columbia, South Carolina, is set to price $120 million of waterworks and sewerage system refunding revenue bonds in a taxable series 2021 B structured as serials between 2023 and 2036 and terms in 2041 and 2049. The deal will be priced by Raymond James & Associates Inc.
Mississippi (Aa2/AA/AA/) is set to price sell $119.7 million of taxable GO refunding bonds. The issue will be priced by Wells Fargo Securities.
The National Finance Authority (A2///) on behalf of the VA Birmingham Health Care Center project is set to price $106 million of taxable federal lease revenue bonds in a federally taxable deal priced by Oppenheimer & Co.
HJ Sims is set to price $102 million Town of Huntington Local Development Corporation revenue offering for the Gurwin Independent Housing Inc. Fountaingate Gardens project. The Series 2021 non-rated issue consists of Series A, B, and C.
In the competitive market, Baltimore County, Maryland, (/AAA//) is set to sell three deals, $145 million of tax-exempt unlimited tax GOs, 2022-2041, at 9:45 a.m. on Wednesday. The issuer also has $219.6 million of taxable GOs, 2021-2032 at 11 a.m. and $88 million of taxables, 2022-2041, at 11:15 a.m. on Wednesday.
New York City is set to sell $107 million of taxable GOs, 2028-2031, at 10:45 a.m. Wednesday.
Cambridge, Massachusetts, (/AAA//) is set to sell $106 million of GOs, 2022-2041, at 11 a.m. Wednesday.