A quiet start to a larger new-issue week led by L.A. Airports

BY SourceMedia | MUNICIPAL | 08/08/22 04:34 PM EDT By Lynne Funk

It was a steady start to the week, with municipal triple-A yield curves little changed, U.S. Treasuries took a break from last week's volatility to close out firmer across the curve while equities were mixed.

Muni-UST ratios on Monday were at 61% in five years, 81% in 10 years and 97% in 30 years, according to Refinitiv MMD's 3 p.m. read. ICE Data Services had the five at 62%, the 10 at 85% and the 30 at 97% at a 4 p.m. read.

"It looked like August was starting to look just like July as yields fell for the first four days of the week but with the higher-than-expected jobs number on Friday, we did see yields rise considerably on Friday," noted Jason Wong, vice president of municipals at AmeriVet Securities.

But munis outperformed Treasuries as buyers are continuing to favor the asset class with 10-year ratios now around 80% compared to 85.44% the prior week, Wong noted.

"Municipal yields are adjusting to the reality of a sustained rate hike program despite having solid intra-market fundamentals," noted Kim Olsan, senior vice president at FHN Financial.

Weekly supply is holding below $5 billion, reinvestment needs are still in effect from large redemptions and fund flows are leaning more positive, she said.

With short rates moving in a bear flattener trade, the first week of August brought a 20-basis point correction in the 1-year MMD yield.

"We did see the curve flatten slightly by 3.3 basis points to 129 basis points as the relative cheapness on the long end of the curve has brought back buyers as the short end continues to be rich compared to the rest of the curve" Wong said.

Short ratios, Olsan said, are now in the process of normalizing back toward 60%/UST after falling through 50%, creating a better bias for buyers.

"Specific buys and sells, though, were quite granular in nature, depending on varied motivations of buyers or sellers," Olsan said. "Nevertheless, wider spreads and higher yields in quality bonds such as AAA GOs and pre-refunded credits are correcting some of the heavy push that occurred through June and July."

As the larger August redemption period winds down before September, Olsan said supply is ticking up with several issues over $250 million. Bond Buyer 30-day visible supply sits at $14.37 billion.

Olsan highlights this week's Minnesota's GO sale, which offers a total of $480 million with a maximum maturity of 20 years.

"Considering the flatness of the curve out to 2040 or so (95% yield capture at 20 years), demand should be firm for the state's issue," she said.

At the lower end of investment grades, Philadelphia will price A1/A-plus water/wastewater bonds due out to 2042.

"A general spread tightening in single-A utility credits this year has led to smaller losses in the category ? an A-rated water index is down 5.07%," she said.

Many investors believe the majority of inflation pressures are behind us, despite tough talk by several Fed officials after the last Fed rate hike, a report from John Miller and Anders Persson of Nuveen said.

"That may mean future Fed hikes will be lower than many currently fear," they said. They agree inflation fears should begin to cool, meaning Treasury bonds will likely remain well-bid for the foreseeable future.

Municipal bonds should also remain well-bid as a supply/demand imbalance continues, they said.

"Supply should remain light through Labor Day in the U.S., yet billions of dollars of reinvestment money remains to be redeployed," the report said. "We believe munis also represent fair value at these levels."

Secondary trading
Delaware 5s of 2023 at 1.75%. Georgia 5s of 2025 at 1.70%, the same as Friday. New York City TFA 5s of 2026 at 1.90%.

Prince George's County, Maryland, 5s of 2027 at 1.85% versus 1.80% Friday. Montgomery County, Maryland, 5s of 2027 at 1.89%. California 5s of 2028 at 1.91%-1.89%.

Wake County, North Carolina, 5s of 2029 at 2.01%. Anne Arundel County, Maryland, 5s of 2031 at 2.20%-2.17%.

Maryland 5s of 2034 at 2.50%. New York Dorm PITs 5s of 2036 at 3.02%-3.01%.

Los Angeles Department of Water and Power 5s of 2042 at 3.00%. Washington 5s of 2046 at 3.23% versus 3.13%-3.12% Thursday.

AAA scales
Refinitiv MMD's scale was left unchanged at the 3 p.m. read: the one-year at 1.59% and 1.69% in two years. The five-year at 1.82%, the 10-year at 2.24% and the 30-year at 2.91%.

The ICE AAA yield curve was little changed: 1.62% in 2023 and 1.68% in 2024. The five-year at 1.83%, the 10-year was at 2.29% (+1) and the 30-year yield was at 2.92% at 4 p.m.

The IHS Markit municipal curve was little changed: 1.56% in 2023 and 1.69% in 2024. The five-year was at 1.82%, the 10-year was at 2.24% and the 30-year yield was at 2.92% at a 3 p.m. read.

Bloomberg BVAL was unchanged: 1.54% in 2023 and 1.65% in 2024. The five-year at 1.83%, the 10-year at 2.25% and the 30-year at 2.91% at 4 p.m.

Treasuries were firmer at the close.

The two-year UST was yielding 3.208% (-2), the three-year was at 3.136% (-3), the five-year at 2.905% (-5), the seven-year 2.841% (-5), the 10-year yielding 2.751% (-8), the 20-year at 3.204% (-8) and the 30-year Treasury was yielding 2.977% (-9) at the close.

New-issue calendar:
The Department of Airports of the City of Los Angeles, California, (Aa2/AA/AA/) is set to price Tuesday $990.680 million of Los Angeles International Airport refunding bonds, consisting of $602.885 million of Series 2022G, $178.570 million of Series 2022H and $209.225 million of Series 2022I. Goldman Sachs & Co.

The Triborough Bridge and Tunnel Authority, New York, (Aa3/AA-/AA-/AA/) is set to price Thursday $400 million of general revenue bonds, Series 2022A. Morgan Stanley & Co.

Alameda County, California, (Aaa/AAA/AAA/) is set to price Tuesday $340 million of taxable Measure A1 general obligation social bonds, 2022 Series B, serials 2023-2037, term 2042. UBS Financial Services.

Philadelphia, Pennsylvania, (A1/A+/A+/) is set to price Tuesday $307.375 million of water and wastewater revenue bonds, Series 2022C, serials 2023-2042, terms 2047 and 2052. RBC Capital Markets.

Cook County, Illinois, (A2/A+/AA-/) is set to price Thursday $279.805 million, consisting of $270.620 million of general obligation refunding bonds, Series 2022A, serials 2022-2029 and 2033 and $9.185 million of taxable general obligation refunding bonds, Series 2022B, serials 2022-2025, 2029 and 2033. Barclays Capital.

The county is also set to price Tuesday $215.475 million, consisting of $156.575 million of sales tax revenue bonds, Series 2022A and $58.900 million of sales tax revenue bonds, Refunding Series 2022B (/AA-//AAA). Morgan Stanley & Co.

San Antonio, Texas, (Aaa/AAA/AA+/) is set to price Tuesday $185.835 million, consisting of $57.880 million of general improvement bonds, Series 2022, serials 2023-2042; $80.110 million of combination tax and revenue certificates of obligation, Series 2022, serials 2023-2042 and $47.845 million of tax notes, Series 2022, serials 2023-2024. Siebert Williams Shank & Co.

The Hays Consolidated Independent School District, Texas, (Aaa//AAA/) is set to price Thursday $182.230 million of unlimited tax school building bonds, Series 2022, insured by the Permanent School Fund Guarantee Program. FHN Financial Capital Markets.

The Aubrey Independent School District, Texas, (Aaa/AAA//) is set to price Tuesday $180.380 million of unlimited tax school building bonds, Series 2022, serials 2027-2052, , insured by the Permanent School Fund Guarantee Program. Raymond James & Associates.

The Northshore School District No. 417, Washington, (Aaa///) is set to price Tuesday $152.790 million of unlimited tax general obligation and refunding bonds, Series 2022, insured by the Washington State School District Enhancement Program. Piper Sandler & Co.

The Sarasota County Public Hospital District, Florida, (A1//AA-/) is set to price Thursday $150 million of Sarasota Memorial Hospital Project fixed rate hospital revenue bonds, Series 2022. J.P. Morgan Securities.

The Pasadena Independent School District, Texas, is set to price Tuesday $121.515 million of unlimited tax school building bonds, Series 2022. Piper Sandler & Co.

The Lehigh County Industrial Development Authority, Pennsylvania, (A1/A+//) is set to price Thursday $115.500 million of non-AMT PPL Electric Utilities Corporation Project pollution control revenue refunding bonds, Series 2016. Morgan Stanley & Co.

The authority (A1/A+//) also is set to price Thursday $108.250 million of non-AMT PPL Electric Utilities Corporation Project pollution control revenue refunding bonds, Series 2016B. Morgan Stanley & Co.

San Antonio, Texas, (Aaa/AAA/AA+/) is set to price Tuesday $100.565 million of general improvement bonds, taxable Series 2022, serials 2023-2037, term 2042. Siebert Williams Shank & Co.

Competitive:
Minnesota (Aaa/AAA//) is set to sell $9.510 million of general obligation taxable state various purpose bonds, Series 2022C taxable, at 12:15 p.m. eastern Tuesday.

The state (Aaa/AAA//) also is set to sell $107.595 million of general obligation state various purpose refunding bonds, Series 2022D, at 11:45 a.m. Tuesday.

Minnesota (Aaa/AAA//) is set to sell $124.815 million of general obligation state various purpose bonds, Series 2022A, Bidding Group 2, at 11:15 a.m. Tuesday as well.

Additionally, the state (Aaa/AAA//) is set to sell $129.350 million of general obligation state various purpose bonds, Series 2022A, Bidding group 1, at 10:45 a.m. Tuesday.

Minnesota (Aaa/AAA//) is set to sell $220 million of general obligation state trunk highway bonds, Series 2022B, at 10:15 a.m. Tuesday.

The Board of Education for the Nebo School District, Utah, is set to sell $101.230 million of general obligation school building and refunding bonds, Series 2022, at 11:30 a.m. Tuesday.

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

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