Municipal secondary activity was quiet Friday but weakness in U.S. Treasuries and an unsettled equities market led to small cuts to triple-A benchmarks around the five- to 10-year part of the curve.
About $7.44 billion of issuance is expected for the first week of February, up from the $5.95 billion issued the last week of January, but still below average. January volume fell 26.7% as issuers contemplate budget decisions amid the pandemic.
The mixture of tax-exempt and taxable issuance — keeping with the recent increases in taxables, several large deals are expected the first two weeks of the month — should help keep muni levels steady if a bigger UST adjustment takes place.
Large deals from New York issuers lead the slate. The Nassau Interim Financing Authority is set to come with just over a billion dollars of triple-A-rated exempt and taxable sales tax-secured bonds on Wednesday. The New York City Transitional Finance Authority is pricing $990 million of exempt subordinate future tax-secured bonds and two competitive taxable deals worth nearly $300 million also on Wednesday.
Investors will see a corporate CUSIP healthcare green refunding deal out of Seattle Children’s Hospital and a taxable pension obligation bond deal from city of Monterey Park, California.
Ratios continue to lead participants to shake their heads at the atypical relationship to UST. On Friday, municipals as a percentage of Treasuries were at 67% in 10 years and 75% in 30 years, according to Refinitiv MMD. Ratios fell further to 65% in 10 years and 77% in 30, according to ICE Data Services data.
It is most certainly an issuers’ market as rates are low, credit spreads continue to tighten, money pours into municipal bond mutual funds at record levels and a net negative supply sits at more than $11 billion.
Data released Friday suggested economic weakness continued as 2020 drew to a close
“The economy slowed and lost some ground as we closed out 2020,” said Diane Swonk, chief economist at Grant Thornton. “The first quarter is poised to be even weaker. Technically, some will argue we are in a recovery, but this is a setback and the hole that COVID dug is still large. The data also reveal just how critical aid is in sustaining even modest growth given the course of the virus and progress in the pace of vaccinations. (We are still chasing instead of front running a virus that is mutating.)”
However, Mickey Levy and Roiana Reid of Berenberg expect sizable stimulus will pump the economy, and expect gross domestic product for 2021 to expand at a 6.5% rate, better than the consensus forecast.
“Ending the pandemic remains the critical issue,” they note. “We continue to assume that the distribution and administration of the vaccines will be successful and unleash an unprecedented amount of fiscal and monetary stimulus, excess personal saving, and pent-up demand. More stimulus adds more fuel, and more debt.”
Consumers retrenched for a second consecutive month in December as the coronavirus continued to pummel the nation.
Personal consumption fell 0.2% in December after a revised 0.7% drop a month earlier, originally reported as a 1.1% decline.
Economists polled by IFR Markets expected a 0.4% slide in December.
Income grew 0.6% after falling 1.3% a month earlier. Economists expected a 0.1% increase.
And the University of Michigan’s consumer sentiment index confirmed consumers are still not ready to resume normal activities. The index fell to 79.0 in January from 80.7 in December and 99.8 in January 2020.
Economists expected the index to hold at the 79.2 level posted mid-month.
The current conditions index fell to 86.7 from 90.0. A year ago it measured 114.4. The expectations index slid to 74.0 in January from 74.6 a month earlier and 90.5 in January 2020.
Separately, the employment cost index rose 0.7% in the fourth quarter, larger than the 0.5% rise expected by economists.
Also released pending home sales fell 0.3% in December after a 2,5% decline in November. Economists expected a 0.6% drop. This was the fourth month in a row pending sales declined, and this drop was led by a decrease in the Midwest.
Year-over-year pending sales rose 21.4%.
The Chicago Business Barometer surged to 63.8 in January, its top level since July 2018, from a downwardly revised 58.7 in December, initially reported as 59.5.
Economists expected a 58.0 read.
“Among the main five indicators, production saw the largest monthly gain, followed by new orders. Employment recorded the biggest decline,” according to a release.
Also released Friday, the Federal Reserve Bank of Chicago’s Midwest Economy Index decreased to 1.26 in December from 1.83 in November, while the relative MEI slipped to 1.58 from 1.91 in November, suggesting the regional economy is performing better than normal.
The New York City Transitional Finance Authority (Aa1/AAA/AAA/) is set to price $900 million of future tax-secured subordinate refunding bonds on Wednesday. Serials 2023-2028, 2034-2041; terms 2046, 2051. Wells Fargo Securities will run the books.
The TFA will also price $90 million of future tax-secured subordinate bonds, Fiscal 2010 Subseries F-5 (remarketing) serials 2029-2033. Wells will run the books.
The Nassau County Interim Finance Authority (/AAA/AAA/) is set to price $577.65 million of sales tax-secured bonds and $561.75 million of taxable sales tax-secured bonds on Wednesday. Goldman, Sachs & Co. LLC is lead underwriter on both deals.
Seattle Children’s Hospital (Aa2//AA/) is set to price $405 million of corporate CUSIP green refunding bonds on Thursday. J.P. Morgan Securities is head underwriter.
Willis-Knighton Medical Center (/A/AA-/) is set to price $400 million of taxable bonds on Wednesday. Goldman is head underwriter.
Wake County, North Carolina, (Aa1/AA+/AA+/) is set to price $304 million of limited general obligation bonds on Wednesday. J.P. Morgan is bookrunner.
The Tarrant Regional Water District, Texas, (/AAA//) is set to sell $299.4 million of taxable revenue bonds by competitive bid at 11 a.m. on Tuesday.
The Massachusetts Port Authority (Aa2/AA-/AA/) is set to price $227 million of taxable revenue refunding bonds on Wednesday. BofA Securities is lead underwriter.
Broward County, Florida, School District (/AA-//) is set to sell $221.6 million of unlimited tax general obligation bonds at 11 a.m. Tuesday.
The Community Development Administration of the Maryland Department of Housing and Community Development (Aa1//AA/) is set to price $197 million of residential revenue bonds on Tuesday. J.P. Morgan is head underwriter.
New Orleans, Louisiana, (/AA//) is set to price $191.6 million of taxable water revenue refunding bonds insured by Assured Guaranty on Thursday. J.P. Morgan is bookrunner.
New Orleans will also issue $185 million of taxable sewerage service revenue refunding bonds Thursday. J.P. Morgan is head underwriter.
Detroit (Ba3/BB-//) is set to price $175 million of unlimited tax exempt ($135 million) and taxable ($40 million) social bonds on Thursday. BofA is lead underwriter.
The Arlington Independent School District, Texas, (Aaa/AAA//) PSF guaranteed, is set to price $172.6 million of unlimited tax school building bonds. Serials 2021-2023, 2025-2041; term, 2046. Siebert Williams Shank & Co. LLC is head underwriter.
The Industrial Development Authority of the County of Maricopa, California, (A2//A+/) is set to price $171 million of Honor Health hospital revenue refunding bonds Wednesday. Serials 2023-2028, 2031-2037, 2039; term, 2051. RBC Capital Markets will run the books.
The state of Louisiana (A1/A+//) is set to price $135.9 million of taxable unclaimed property special revenue refunding bonds, $64.78 million Series 2021 (I-49 North Project) and $71.1 million Series 2021 (I-49 South Project) serials, 2021-2033, serials 2021-2035, respectively. TD Securities LLC is lead underwriter.
Worcester, Massachusetts, (/AA-//) is set to sell $125.5 million of limited tax GOs at noon Monday.
Bethel School District No. 52, Lane County, Oregon, (Aa1///) is set to price $107.5 million of general obligation bonds in three series on Tuesday. Insured by Oregon School Bond Guaranty Act. Piper Sandler & Co. is head underwriter.
Waco Independent School District, Texas, (/AAA//) is set to price $106.5 million of unlimited tax taxable refunding bonds, insured by the PSF. Serials 2021-2038. Oppenheimer & Co. is bookrunner.
The city of Monterey Park, California, (/AA//) is set to price $106.3 million of taxable pension obligation bonds, serials 2022-2036; term, 2043, on Tuesday. Ramirez & Co. Inc. is head underwriter.
High-grade municipals were steady to weaker in the four- to 10-year range, according to final readings on Refinitiv MMD’s AAA benchmark scale. Short yields were at 0.09% in 2022 and 0.10% in 2023. The 10-year rose to 0.70% and the 30-year was flat at 1.38%.
The ICE AAA municipal yield curve showed short maturities steady at 0.09% in 2022 and 0.10% in 2023. The 10-year was at 0.70% while the 30-year yield sat at 1.40%.
The IHS Markit municipal analytics AAA curve showed yields at 0.11% in 2022 and 0.12% in 2023 while the 10-year remained at 0.69% and the 30-year yield at 1.38%.
The Bloomberg BVAL AAA curve showed yields at 0.09% in 2022 and 0.10% in 2023, while the 10-year was at 0.68%, a basis point higher, and the 30-year yield at 1.41%, also a bp higher.
The three-month Treasury note was yielding 0.09%, the 10-year Treasury was yielding 1.07% and the 30-year Treasury was yielding 1.85% near the close. Equities sold off with the Dow down 574 points, the S&P 500 fell 1.64% and the Nasdaq fell 1.65%.