Munis end month quietly after largest sell-off since April

Bonds

Municipal bonds were little changed Friday after a sell-off in global bond rates helped send muni yields more than 40 basis points higher on the 10- and 30-year triple-A benchmark since the rout began on Feb. 17.

The market took a much-needed breather Friday and U.S. Treasuries pared Thursday’s losses to see the 10-year fall 12 basis points to 1.42% and the 30-year 17 basis points to 2.11%. Municipals were steady at 1.14% in 10 years and 1.82% in 30 years as trading was light but steady and participants readied for a new month and about $6.2 billion of new issues to kick it off, led by $1.25 billion of tax-exempt and taxable general obligation bonds from New York City.

The 10-year muni/UST ratio rose in line with yield moves in both markets with the 10-year at 78% and the 30-year at 82%, according to Refinitiv MMD. ICE Data Services showed ratios rise one basis point to 77% in 10 years and up two basis points to 84% in 30.

Municipal volume is estimated at $6.197 billion, lower than the $7.129 billion this week. There are $4.283 billion of municipal bond sales scheduled for negotiated sale next week versus a revised $5.465 billion that were sold this week. Bonds scheduled for the competitive slate total $1.913 billion compared with $1.663 billion this week.

In February, total volume fell 27.5% to $30.608 billion from $42.229 billion in 2020. Issuance is down 24.2% in the first two months of 2021. February issuance was still higher than January’s $24.023 billion.

While there was a pause in the municipal market correction on Friday, there was a still a bittersweet climate as investors applauded the higher yields attained earlier in the week while issuers were slightly precautious about selling new debt next week.

“The market has been through a lot in the last week and today was just a day for the market to catch its breath,” a New York trader said.

He noted new issues continue to garner strong demand although the higher yields are a little daunting for issuers of large deals.

Secondary trading was light but showed steady levels. Fairfax County, Virginia 5s of 2024 traded at 0.36%. North Carolina GOs, 5s of 2025 at 0.57%-0.55% versus Tuesday 0.46%-0.45%. Wisconsin GOs, 5s of 2026 at 0.63%-0.61%. Maryaldn GOs, 5s of 2029 at 0.98% and 5s of 2031 at 1.19%.

Baltimore County, Maryland 4s of 2037 at 1.58%-1.52%. Washington GOs, 5s of 2041 at 1.76%-1.75%.

Primary Market
Among the new issues debuting next week at the new levels is a $1.25 billion New York City (Aa2/AA/AA-/) general obligation offering will dominate the calendar when the three-series deal is priced by BofA Securities.

The issue consists of $900 million Fiscal 2021 Series F and Subseries F-1; $240 million Fiscal 2021 Series 1 reoffering; and $109.1 million Fiscal 2008 Series L Subseries L-5 reoffering.

The University of Chicago (Aa2/AA-/AA+/) is set to sell $609.6 million of taxable corporate CUSIP fixed-rate bonds, serials 2044-2052, in a Citigroup-priced negotiated deal.

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 San Francisco Bay Area Toll Authority (Aa3/AA/AA/) will come to market with two separate deals — both priced by BofA Securities.

The larger of the offerings is a $372.3 million deal consisting of three series.

A term rate Series A includes $124 million of term rate bonds; the Series B includes $156.8 million of index rate bonds; and Series F-1 includes $91.5 million of fixed rate bonds.

The authority’s other deal is $354.3 million and consists of federally taxable fixed-rate bonds in a single 2021 Series F-2.

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.

The Illinois Finance Authority (Aa2/AA-/AA+/) will sell $218.3 million of revenue bonds for the University of Chicago in a Series 2021 A structured from 2022 to 2023; 2025; 2028; and 2031 to 2034. Citigroup Global Markets Inc. will run the books.

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.

Economy
Stimulus payouts and added benefits for the unemployed helped personal incomes jump 10% in January, following a 0.6% gain a month earlier. Personal consumption expenditures climbed 2.4% after a 0.4% decline in December.

Economists polled by IFR Markets expected a 9.9% spike in income and a 2.5% increase in consumption.

“In the absence of the stimulus checks, personal income would have been flat in January; personal income excluding government transfers declined 0.1% for the month,” according to Wells Fargo economists Tim Quinlan and Shannon Seery.

Morgan Stanley researchers expect the next stimulus package, which should come in March, will push up savings, “adding to a powerful tailwind of buying power that has been building among U.S. households — ready to be deployed as the economy is reopening.”

The PCE index was up 1.5% from a year ago, after being 1.3% higher last month, while the core also rose 1.5% on an annual basis in January after a 1.4% gain in December.

“Both measures of inflation revealed a modest acceleration but remained well below the Federal Reserve’s target of 2%,” noted Grant Thornton Chief Economist Diane Swonk. “The Fed will look past both of those increases as they are expected to be transitory. Any flare in inflation we see tied to the surge in demand from an easing in social distancing would have to show up as a sustained acceleration in wages to be persistent. That has not happened in four decades, which is why the Fed is skeptical it will happen today.”

Morgan Stanley sees PCE inflation peaking near 2.6% in April and May. “On balance, data for January has largely beat expectations, pointing to stronger-than-expected growth in 1Q21,” they said.

Also released Friday, the Chicago Business Barometer dropped to 59.5 in February from 63.8 in January, as new orders and productions posted the biggest drops in the month. Employment was the largest gainer.

“Demand eased markedly in February with new orders dropping 11 points, its lowest level since August 2020,” according to the release. “Similarly, production shed 9.3 points, following two consecutive months of gains. Anecdotal evidence provides a mixed picture, with some firms experiencing a downturn due to the pandemic, while others report strong consumer demand.”

The University of Michigan’s consumer sentiment index’s final February read was 76.8, up from the preliminary 76.2, but down from the 79.0 posted in January. Economists expected a bigger drop to 76.5.

The current conditions index fell to 86.2 from 86.7 last month. It was also 86.2 in the preliminary read.

The expectations index rose to 70.7 from 69.8 at mid-month. In January, the index was at 74.0.

Secondary market
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 1.14% 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 1.12% 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 1.42% and the 30-year Treasury was yielding 2.14% near the close. Equities were mixed with the Dow down 327 points, the S&P 500 down 0.04% and the Nasdaq up 0.94%.

Gary Siegel contributed to this report.

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