Municipalities came under pressure beyond 10 years on Wednesday, shifting the benchmarks of these cheaper bonds by two basis points, while U.S. Treasuries were little changed and new issues showed tightening in bonds. spreads which continues on the loans sought.
In the primary, a Pittsburgh airport deal saw compelling levels for the industry which has seen extensive squeeze as it rebounds from COVID-related damage. To show the dramatic short-term tightening, Allegheny County Airport Authority’s five-year bonds, rated A2, were one basis point richer at 0.41% than a government credit with a golden edge.
The 2026 Maryland 5 was bought at 0.42% and its 10-year price was valued plus four basis points at triple A.
The Airport Authority’s five-year rate with a 5% coupon was valued at four basis points higher than triple-A, while its 10-year non-AMT bond maturity was +19 relative to yields. reference. While the airport deal has deadlines in January and August Maryland, the spreads are still pretty tight.
More than an additional $ 2 billion has been reported in municipal bond mutual funds over the past week, continuing to be a component of demand for support for the munis.
The Investment Company Institute announced another week’s influx of $ 2.123 billion for the week ending August 4, up from $ 2.639 billion the week before. The fund complex has reached its 22nd consecutive week of fundraising.
Exchange traded funds saw their inflows drop to $ 105 million from $ 623 million the week before.
Total assets held now stand at $ 62 billion since the start of the year, according to ICI.
In the primary, Citigroup Global Markets Inc. priced the Allegheny County Airport Authority (A2 // A / A +) at $ 823.55 million in Pittsburgh International Airport AMT Income Bonds and not -AMT. The first, $ 711.13 million AMT, saw 5s from 2026 to 0.47%, 5s from 2031 to 1.26%, 5s from 2036 to 1.63%, 4s from 2036 to 1, 77%, 4s from 2046 to 2.06%, 5s from 2051 to 2.03%, 5s from 2056 to 2.08% and 4s from 2056 to 2.23%. The second, $ 111.16 million non-AMT, saw 5s from 2026 to 0.41%, 5s from 2031 to 1.09%, 5s from 2036 to 1.43%, 4s from 2041 to 1 , 69%, 4s from 2046 to 1.84%, 5s from 2051 to 1.81% and 5s from 2056 to 1.86%.
The Maryland Golden Edge sold $ 539.95 million in unlimited tax-exempt general bonds to JP Morgan Securities. The first tranche, $ 258.95 million, saw bonds in 2026 with a coupon of 5% at 0.42% and 5s of 2031 at 0.94%. The second, $ 281 million, had 5s of 2032 at 1.00% and 4s of 2036 at 1.33%.
Wells Fargo won $ 75 million from taxable Maryland GO: 2024 at nominal price of 0.46% and 0.67% in 2025.
Goldman Sachs & Co. LLC has valued for the CSCDA Community Improvement Authority, Calif. (Not rated) $ 229.5 million of essential social bonds for housing income. The first, $ 104.5 million, saw 3s of 2,057 at 2.67%. The second, $ 75 million, with bonds at par at 2.45% in 2047. The last, $ 50 million, had 4’s of 2057 at 2.90%.
A view from the buyer’s side
Municipalities remain attractive as an asset class and could potentially outperform Treasuries at the end of the summer, depending on how market techniques evolve, buy-side analysts said this week.
In the short term, the summer techniques generated very noticeable net negative supply conditions, according to Jeff Lipton, managing director and head of municipal credit and market strategy and municipal capital markets at Oppenheimer & Co.
While municipalities continued to post positive performances in July, they underperformed U.S. Treasuries, with the year-to-date performance gap through July revealing further tightening from the month. previous, Lipton said in a weekly report Tuesday.
“While we see continued weakness in the treasury market over the next few weeks, we believe summer municipal techniques have the potential to cause municipalities to outperform Treasuries in the short term,” Lipton wrote.
Even with the rise in higher yields, municipalities remain historically rich in treasures, he added.
According to Refinitiv MMD, municipal / UST ratios were 66% in 10 years and 74% in 30, while ICE Data Services had 10 years at 67% and 30 at 73%.
“If the outlook for the future fiscal bite remains muted for a while and we continue to receive stronger doses of hawkish rhetoric from the Fed and higher inflation data points, yields could come under pressure to the increase continues, “he added.
However, Lipton said this scenario would likely be “distilled” given the summer techniques that generate visible negative net supply conditions.
“We believe that munis still have the capacity to generate positive performance, although admittedly that performance could be compromised if the technical aspects became much less constructive and the prospects for tax increases faded considerably – even at from the currently high levels of doubt, ”he said.
“While summer techniques should support the performance of munis, the performance of munis against US Treasuries will be largely determined by the treasury market’s response to the Fed’s rhetoric and future inflation data,” he said. he declares.
Even without an increase in federal tax rates, municipalities are expected to continue to offer “very desirable credit quality and diversification attributes,” which should attract more foreign investment into the asset class, according to Lipton.
“Against this backdrop, we do not expect a significant easing in credit spreads or even a substantial reversal of the currently wealthy municipal valuations that have characterized the market for some time now,” he said, adding that when technical factors change course, he will be on the lookout for advantageous future investment opportunities.
In a weekly report, Bill Merz, director of fixed income at Minneapolis-based US Bank Wealth Management, said that while the additional yields over treasury bills on quality corporate and municipal bonds are at historically low or close to these, there is still value at eu.
“Yields on high yield corporate and municipal bonds are also low compared to the past, but can still provide significant income,” as well as low default rates for now, to stay low for now, according to Merz, who helps oversee $ 282 billion in assets under management.
Refinitiv MMD saw stable levels at 0.06% in 2022 and 0.08% in 2023. The 10-year yield stabilized at 0.88% while the 30-year yield increased from two to 1. , 48%.
The municipal ICE yield curve stabilized at 0.06% in 2022 and 0.08% in 2023. The 10-year maturity was at 0.90% and the 30-year yield increased from two to 1 , 46%.
IHS Markit’s municipal analytical curve saw the one-year rate stabilize at 0.07% and the two-year rate at 0.08%, the 10-year yield up one to 0.90% and the yield at 30 years up from one to 1.46%.
Bloomberg BVAL saw levels of 0.06% in 2022 and 0.06% in 2023, while the 10-year rose from one to 0.90% and the 30-year from two to 1.47%.
Treasuries were slightly lower while stocks were mixed. The 10-year Treasury yielded 1.328% and the 30-year Treasury yielded 1.992% at the end of the session. The Dow Jones Industrial Average gained 219 points or 0.62%, the S&P 500 rose 0.25% while the Nasdaq lost 0.16%.
Informa: Municipal money market funds fall
Assets of tax-exempt municipal money market funds fell by $ 407.8 million, lowering their total to $ 91.16 billion for the week ending August 10, according to the Money Fund Report, a publication of ‘Informa Financial Intelligence.
The seven-day average simple return on the 157 tax-free funds and the municipal money market fell to 0.01% from 0.02% the week before.
Taxable assets of money market funds fell by $ 4.02 billion, bringing total net assets to $ 4.355 trillion. The seven-day average simple return of the 763 taxable reporting funds fell to 0.01% from 0.03% the week before.
The CPI increases slightly
The consumer price index rose 0.5% seasonally adjusted in July after increasing unrevised 0.9% in June, while the base rate also jumped 0.3% after an unrevised gain 0.9% in June.
Economists polled by IFR Markets had estimated that the CPI would rise by 0.5% and the core by 0.4%.
Year over year, the CPI was up 5.4%, its largest 12-month increase since rising 5.4% in August 2008. The core was up 4.3% d year to year.
Economists were forecasting an annual increase of 5.3% in the CPI and 4.3% in the core for the year.
“The CPI report adds credence to the argument that even though inflation is high, it is probably at or near its peak,” said Scott Ruesterholz, portfolio manager at Insight Investment. “In particular, we are seeing signs that the volatile categories that have driven much of the recent price spike, like rental cars and used cars, are moderating in line with high-frequency data like car auctions. used, which indicate a normalization of prices. “
Core inflation “is starting to show signs of cooling following the pandemic-induced surge in the spring months, as this is in part due to the emergence of the Delta variant, which could dampen inflation in August, “said Diane Swonk, chief economist at Grant Thornton. “It should be noted that the Delta variant disrupts both supply and demand, which will leave the Federal Reserve uneasy as the turn of the year approaches. The Fed is still expected to reduce its purchases of ‘assets; timing of rate hikes is even more distant.
Primary to come
The Triborough Bridge and Tunnel Authority is expected to price Thursday at $ 450 million in senior lien bonds for the MTA Bridge and Tunnel Mobility Tax. JP Morgan Securities LLC.
The city of Lubbock, Texas (A1 / A + / A + /) is expected to price Thursday at $ 254.32 million in revenue bonds for lighting and power systems. BofA Securities.
The Windy Gap Firming Project Water Activity Enterprise, Colorado (Aa2 / AA //) is expected to price Thursday at $ 165.665 million in Windy Gap Firming Project senior income bonds. Goldman Sachs & Co. LLC.
The University of North Dakota is expected to award $ 130.4 million in certificates of attendance on Thursday. Stifel, Nicolaus & Company, Inc.
Pecos-Barstow-Toyah Independent School District (/ AAA //) (PSF Guarantee) is expected to price Wednesday at $ 111.79 million in unlimited school construction tax obligations, 2022-2041 series. RBC Capital Markets.
Aaron Weitzman contributed to this report.