Municipal benchmark yields continued to trade in a narrow range in the secondary Tuesday while the new-issue market came alive with two high-grade competitive loans and speculative-grade Guam pricing bonds to strong demand.
U.S. Treasuries gave little direction and the market held steady to firmer in spots as a diverse set of deals got done with bumps in repricings.
Municipal benchmarks were little changed, with a basis point bump on Refinitiv MMD’s scale on bonds in 2029 and out while Bloomberg BVAL, ICE Data Services and IHS Markit also saw some firmer prints moving scales a basis point lower in spots.
Tuesday showed again how the primary is directing the secondary and the tightness of levels between credits is also telling. The 10-year Phoenix Civic Improvement Corp. (Aa2/AAA//) with a 5% coupon yielded 1.10%; 5s of 2031 for Ba1-rated Guam yield 1.99% while BAM-wrapped 5s of 2031 for the California Municipal Finance Authority, underlying rating Baa3, yield 1.37%.
Gilt-edge Prince George’s County 5s of 2031 landed at 1.06% and Aa2/AA West Virginia GOs at 1.14%.
The spread between Prince George’s County and Guam’s forward delivery bonds is 93 basis points. Guam’s long bond, 4s of 2042 yield 2.54%, or about plus-111 to triple-As.
Municipal to UST ratios also held in a range, closing at 61% in 10 years and 67% in 30 years on Tuesday, according to Refiniv MMD, while ICE Data Services saw ratios on the 10-year at 61% and the 30-year at 68%.
In the negotiated market, Siebert Williams Shank & Co. LLC repriced to lower yields by 2 to 5 basis points $317.3 million of junior lien water system revenue bonds for the City of Phoenix Civic Improvement Corp. Series 2021A, $250 million, had 5s of 2026 at 0.53% (-4 bps), 5s of 2031 at 1.10% (-5), 5s of 2036 at 1.31% (-4), 4s of 2041 at 1.63% (-5) and 5s of 2045 at 1.63% (-5). The second, $67.3 million of refunding bonds, saw 5s of 2022 at 0.10% (-2) and 5s of 2026 at 0.53% (-4).
Citigroup Global Markets Inc. priced $258.6 million of forward-delivery tax-exempt business privilege tax refunding bonds for the Government of Guam (Ba1///). Bonds in 2028 with a 5% coupon yield 1.60%, 5s of 2031 at 1.99%, 4s of 2036 at 2.30% and 4s of 2042 at 2.54%, callable in 1/1/2031, forward delivery in 10/7/2021.
Forward delivery bonds have become more popular with the elimination of tax-exempt advanced refunding municipal bonds with issuers using the structure as another replacement for them.
Recently upgraded Connecticut (Aa3/A+/AA-/) has plans to price nearly a billion of general obligation bonds, $225 million 2021 Series D of which are forward delivery social refunding bonds. Retail pricing was not available Tuesday.
In the competitive market, Prince George’s County, Maryland, (Aaa/AAA/AAA/) sold $271.6 million of general obligation consolidated public improvement bonds, Series 2021A to Citigroup with 5s of 2022 at 0.095%, 5s of 2026 at 0.53%, 5s of 2031 at 1.06%, 2s of 2036 at 1.80% and 2s of 2041 at par.
West Virginia (Aa2/AA//) sold $200 million of general obligation state road bonds to BofA Securities. Bonds in 6/2024 with a 5% coupon yield 0.30%, 5s of 12/2024 at 0.35%, 5s of 6/2026 at 0.59% and 5s of 12/2026 at 0.62%, 5s of 6/2031 at 1.14% and 5s of 12/2031 at 1.19%, 5s of 6/2036 at 1.35% and 5s of 12/2036 at 1.36%, 5s of 6/2041 at 1.55% and 5s of 12/2041 at 1.56%, and 5s of 6/2046 at 1.70%.
J.P. Morgan Securities LLC priced $277.4 million of student housing revenue bonds (CHF-Davis II, L.L.C. – Orchard Park Student Housing Project) Series 2021, insured by Build America Mutual for the California Municipal Finance Authority, underlying ratings: (Baa3///). Bonds in 2024 with a 5% coupon yield 0.37%, 5s of 2026 at 0.72%, 5s of 2031 at 1.37%, 4s of 2036 at 1.77%, 4s of 2041 at 1.90%, 4s of 2046 at 1.99%, 3s of 2051 at 2.47% and 3s of 2054 at 2.52%.
JPMorgan priced $196.2 million of limited tax bonds for the Alamo Community College District (Aaa/AAA//) with 5s of 2022 at 0.10%, 5s of 2026 at 0.57%, 4s of 2031 at 1.20%, 4s of 2036 at 1.41%, 3s of 2041 at 1.78% and 2.375s of 2046 at 2.34%.
BofA Securities priced $131.9 million of environmental facilities revenue bonds, $54 million of Series 2006B, remarketing refunding, with 2.125s of 2034 priced at par and $77.9 million of Series 2008A remarketing bonds, 2s of 2032 priced at par for Carroll County, Kentucky (A1/A//).
Morgan Stanley & Co. LLC priced $122.7 million of first-lien water revenue bonds (SEAM Facility & Other System Improvements Project) Series 2021 for the City of Aurora, Colorado, (/AA+/AA+/) with bonds in 2046 with a 2.25% coupon yielding 2.29% and 2.25s of 2051 at 2.34%.
Secondary trading and scales
Trades showed some strength out of the gates and continued throughout the day.
Washington Suburban Sanitation District, Maryland 5s of 2023 traded at 0.17% versus 0.18% Monday. Utah 5s of 2026 at 0.53%. Forsythe, Georgia 5s of 2027 at 0.63%-0.62%. Maryland 5s of 2027 at 0.70%. Seattle 5s of 2028 at 0.83%, up from 0.76% original. Fairfax County, Virginia 5s of 2029 at 0.92%-0.91%.
New York Dorm PITs 5s of 2034 at 1.40% versus 1.41% Monday. Maryland DOT 5s of 2034 at 1.19%.
Louisiana 5s of 2037 at 1.38%. Massachusetts waters 5s of 2039 at 1.38%.
San Antonio, Texas ISD 4s of 2041 at 1.47%-1.42% versus 1.51% Friday.
Washington 5s of 2042 at 1.56% versus 1.57% Monday. Fairfax County water and sewer 5s of 2046 at 1.64%-1.62% versus 1.70% original.
Lamar Texas ISD 3s of 2051 at 2.04%-2.03%.
On Refinitiv MMD’s AAA benchmark scale, yields were steady at 0.10% in 2022 and 0.14% in 2023. The yield on the 10-year fell one basis point to 1.01% and the 30-year fell one basis point to 1.58%.
The ICE AAA municipal yield curve showed yields at 0.11% in 2022 and 0.16% in 2023, the 10-year stayed at 1.01% while the 30-year sat at 1.60%.
The IHS Markit municipal analytics AAA curve showed yields at 0.10% in 2022 and 0.13% in 2023, the 10-year sat at 0.98% and the 30-year at 1.57%, down one basis point.
The Bloomberg BVAL AAA curve showed yields steady at 0.08% in 2022 and 0.10% in 2023, down one to 0.97% in the 10-year and the 30-year sat at 1.59%.
The 10-year Treasury was yielding 1.64% and the 30-year Treasury was yielding 2.37% near the close. Equities fell for the second day with the Dow losing 105 points, the S&P 500 fell 0.34% and the Nasdaq lost 0.03%.
Economic indicators
Continued supply-chain issues and higher prices for materials held home builders back in March.
Housing starts fell 9.5% in April, following an revised 19.8% surge in March, while building permits ticked up 0.3% in April, following a revised 1.7% climb a month earlier.
On a seasonally adjusted annual basis there were 1.569 million starts in April, down from a revised 1.733 million in March. Permits totaled 1.760 million in April and revised 1.755 million in April.
Economists polled by IFR Markets expected 1.710 million starts and 1.770 million permits.
“Rising materials prices, lack of land and labor shortages are holding back builders during what is usually the busiest home-buying season,” according to Yelena Maleyev, economist at Grant Thornton.
Year-over-year, though, starts are up 67.3% and permits have increased 60.9%.
“Supply-chain constraints are exacerbating shortages of homes available for sale,” she said. “The silver lining is that lumber prices may have peaked in early May and begun to come down, but prices still have a long way to go before reaching pre-pandemic levels.”
Despite the problems currently facing the housing market, Maleyev noted that demand remains strong as the peak season for home buyers approaches.
“Lack of homes for sale in the most in-demand markets is pricing out some buyers,” she said. “We could see that ease up by the end of the year as prices start to come down from recent peaks.”
Mark Vitner, senior economist at Wells Fargo Securities, noted that weather was also a factor in the latest month, particularly in the South.
“Despite this past month’s declines, demand for housing, and single-family homes in particular, remains white-hot,” he said. “This is particularly true in the South, which showed uncharacteristic weakness during the month, as the weather was a little wetter than usual this spring throughout much of the South, and with lumber, labor and appliances in short supply, many builders appear to have hit the pause button this past month.”
He also sees supply catching up with demand as the year progresses.
“The backlog of not-yet-started single-family homes has risen 26% since the end of the last year, which should provide strong momentum to home building later this year as supply catches up with demand,” Vitner said.
Also, the New York region’s service sector business activity grew at “a record-setting pace” in May, with the Business Leaders Survey business activity index rising to 38.8 from 30.2 in April.
The business climate index improved to negative 8.5 from negative 25.6, still suggesting conditions remain worse than normal.
The employment indexes saw a “modest” increase, as the number of employees index rose to 15.2 from 7.5 and wages climbed to 37.3 from 31.9.
Price increases “remained significant,” as prices paid surged to 62.7 from 55.0 and prices received nudged up to 18.8 from 18.7.
Survey respondents were extremely optimistic about the future, as the six-months ahead outlook for business activity recorded a record high reading of 67.8 from the previous high of 62.3.
Prices are expected to keep rising, as the future prices paid index grew to 70.3 and the future prices received gained to 43.3 from 33.5.
New deals still to come
In the competitive market on Wednesday, the Virginia College Building Authority (Aa1/AA+//) is set to sell $535.2 million of educational facilities revenue bonds, Series 2021A (21st Century Collage and Equipment Programs) at 10:30 a.m.
Seattle (Aa1/AA+//) is set to sell $112.9 million of drainage and wastewater system improvement and refunding revenue bonds 2021 at 10:45 a.m. Wednesday.
Fulton County, Georgia, is set to sell $175 million of general fund tax anticipation notes, series 2021, at 10 a.m. Wednesday.
Ladue School District, Missouri, (/AAA//) is set to sell $126 million of unlimited tax general obligation bonds at noon Wednesday.
In the negotiated space, Connecticut (Aa3/A+/AA-/) will sell $700 million of general obligation bonds in three series on Wednesday, $300 million 2021 Series B social bonds, $175 million 2021 Series C refunding GOs, and $225 million 2021 Series D forward delivery social refunding bonds. BofA Securities is bookrunner.
Connecticut (Aa3/A+/AA-/) is also set to price $300 million of taxable refunding GOs, serials 2022-2031, on Wednesday. UBS Financial Services Inc. is head underwriter.
Colorado (Aa2/AA-//) is set to price on Wednesday $500 million of Rural Colorado certificates of participation Series 2021A. J.P. Morgan Securities LLC is head underwriter.
The Charlotte-Mecklenburg Hospital Authority, North Carolina, (Aa3/AA-//) is set to price on Thursday $300 million of taxable healthcare revenue bonds Series 2021A, serial 2051. Citigroup Global Markets Inc. is bookrunner.
The authority is also set to price on Thursday $300 million of variable rate healthcare revenue bonds, three-, seven- and 10-year Series 2021B, C and D. Citigroup Global Markets Inc. is bookrunner.
The Maricopa County Special Health Care District, Arizona, (Aa3//AA-/) is set to price on Thursday $243 million of general obligation bonds, Series 2021 D. J.P. Morgan Securities LLC is head underwriter.
The Minnesota Housing Finance Agency (Aa1/AA+//) is set to price $178.1 million of AMT and non-AMT residential housing finance bonds on Wednesday. $24 million Series 2021C, serials, 2022-2028 and $154.1 million Series 2021D, serials 2022, 2027-2032, terms 2036, 2041, 2046, 2052, 2052. RBC Capital Markets is head underwriter.
The Pennsylvania Housing Finance Agency (Aa2/AA+//) is set to price on Wednesday $175.2 million of single family mortgage revenue bonds, Series 2021-135A (non-AMT social bonds), Series 2021-135B AMT social bonds. Barclays Capital Inc. is head underwriter. Retail order period on Tuesday.
The Sioux Falls School District No. 49-5, Minnehaha and Lincoln Counties, South Dakota, (/AA+//) is set to price on Thursday $159 million of general obligation refunding bonds, taxable Series 2021. D.A. Davidson & Co. is bookrunner.
The State of Louisiana (/AA//) Is set to price $155.3 million of grant anticipation revenue bonds, Series 2021, on Wednesday. J.P. Morgan Securities LLC is lead underwriter.
The Town of Hempstead Local Development Corp., New York, (A1/A//) is set to price on Thursday $100 million of tax-exempt and taxable revenue bonds, Series 2021 (Hofstra University Project). Barclays Capital Inc.