Municipals cheapen ahead of another heavier supply week

After outperforming the larger weakness in U.S. Treasuries over the past week, municipals played some catch up Friday seeing pressure across the curve ahead of holiday-shortened, but still heavy supply week.

Triple-A yields rose two to five basis points while Treasuries were stronger 10-years and in, to close out a week of more mixed economic data that has economists constantly reevaluating their Federal Reserve policy expectations with little consensus.

"On the back of stronger payrolls, and this week's hotter-than-expected inflation prints, the probability of a rate cut next month has meaningfully declined," according to Barclays PLC (JJCTF) in a weekly report. "Not that long ago investors were expecting a 50bp cut in November; now even 25bp is not fully priced in by fed fund futures."

Ratios were little changed on the day's moves with the two-year muni-to-Treasury ratio Friday at 62%, the three-year at 61%, the five-year at 62%, the 10-year at 67% and the 30-year at 83%, according to Refinitiv Municipal Market Data's 3 p.m. EST read. ICE Data Services had the two-year at 63%, the three-year at 62%, the five-year at 63%, the 10-year at 68% and the 30-year at 83% at 3:15 p.m.

"Even though ratios have increased slightly this week from their recent lows, they are still rather unattractive at current levels," Barclays (JJCTF) strategist Mikhail Foux wrote. "Going into October, we were hoping for a better entry point prior to elections, but at this point we are not sure that investors will actually get what they were hoping for."

However, as secondary activity picked up Friday, J.P. Morgan's Peter DeGroot said it is worth noting that reinvestment capital is "expected to plummet to the near-lows of the year in the coming weeks, and accordingly, despite steady [mutual fund] inflows, we expect that the municipal market will cheapen leading up to the election.

"While off from the recent spike in May, dealer inventories have moved higher to 10% above the trailing one-year average," DeGroot said. "Generally higher levels of inventory are the result of continued elevated tax-exempt supply in the primary," he said.

"Naturally, this adds to the cheapening bias in large supply weeks, as deals are priced to clear the market."

The holiday-shortened week will see about $11 billion of new issuance led by $2.2 billion of tax-exempt and taxable transportation system bonds from the New Jersey Transportation Trust Fund Authority (A2/A-/A/).

Chicago is also set to price $1.575 billion of Chicago O'Hare International Airport AMT and non-AMT general airport senior lien revenue refunding bonds Thursday.

Recently upgraded Pennsylvania (Aa2/A+/AA/) leads the competitive slate with $1.63 billion of general obligation bonds in three sales Wednesday.

The Metropolitan Governments of Nashville and Davidson Counties, Tennessee, (Aa2/AA+//) will also tap the competitive market Thursday with $786.66 million of general obligation improvement bonds in three sales.

"If market participants believe that muni supply will completely disappear in November-December, they might end up being disappointed, as the average monthly issuance in the last two months of the year averaged about $30 billion in the past five years, and even if it lower this year, it should not be by that much," Foux said.

DeGroot said several factors remain that reinforce his view that the period between now and the election "could present the best opportunity of the year, and possibly of the entire rate cycle, to purchase municipal bonds."

CUSIP requests fall
The aggregate total of identifier requests for new municipal securities, including municipal bonds, long-term and short-term notes, and commercial paper, fell 10.2% versus August totals, according to CUSIP Global Services. On a year-over-year basis, overall municipal volumes are up 7.2%.

For the specific category of municipal bond identifier requests, there was a drop of 12.9% month-over-month, but requests for municipal bond identifiers are still up 6.9% year-over-year.

AAA scales
Refinitiv MMD's scale was cut: The one-year was at 2.73% (+5) and 2.47% (+3) in two years. The five-year was at 2.44% (+3), the 10-year at 2.78% (+3) and the 30-year at 3.69% (+3) at 3 p.m.

The ICE AAA yield curve was little changed: 2.73% (unch) in 2025 and 2.49% (unch) in 2026. The five-year was at 2.45% (+2), the 10-year was at 2.76% (+3) and the 30-year was at 3.63% (+2) at 3 p.m.

The S&P Global Market Intelligence municipal curve saw cuts: The one-year was at 2.77% (+4) in 2025 and 2.50% (+3) in 2026. The five-year was at 2.45% (+3), the 10-year was at 2.75% (+3) and the 30-year yield was at 3.64% (+3) at 3 p.m.

Bloomberg BVAL saw cuts: 2.74% (+2) in 2025 and 2.49% (+2) in 2026. The five-year at 2.47% (+3), the 10-year at 2.74% (+3) and the 30-year at 3.64% (+2) at 3 p.m.

Treasuries made gains 10 years and in.

The two-year UST was yielding 3.945% (-6), the three-year was at 3.861% (-5), the five-year at 3.884% (-4), the 10-year at 4.081% (-1), the 20-year at 4.444% (+1) and the 30-year at 4.3%9 (+1) at 3:45 p.m.

Primary to come:
The New Jersey Transportation Trust Fund Authority (A2/A-/A/) is set to price Thursday $1.5 billion of transportation system tax-exempt and taxable bonds. BofA Securities.

The New Jersey Transportation Trust Fund Authority (A2/A-/A/A) is also set to price Thursday $1.2 billion of transportation program bonds, consisting of $700 million of exempts, serials 2039-2042 and $500 million of taxables, serials 2025-2027. BofA Securities.

Chicago is set to price $1.575 billion of Chicago O'Hare International Airport AMT and non-AMT general airport senior lien revenue refunding bonds Thursday, consisting of $515.72 million of Series 2024C refunding AMT bonds, $840.05 million of Series 2024D non-AMT bonds, $158.43 million of Series 2024E AMT bonds, and $61.225 million of Series 2024F non-AMT bonds. J.P. Morgan Securities LLC.

The Southeast Energy Authority is set to price Wednesday $700 million of energy supply revenue bonds. Goldman Sachs & Co. LLC.

The Dormitory Authority of the State of New York is set to price Thursday $500 million of White Plains Hospital Obligated Group revenue bonds (Baa3/BBB-//), serials 2038-2053, terms 2058, 2063. BofA Securities.

The West Contra Costa Unified School District, California, (/AA//) is set to price Wednesday $352.785 million of general obligation bonds, consisting of tax-exempts and taxables. Insured By: BAM. J.P. Morgan Securities LLC.

The Equitable School Revolving Fund is set to price Wednesday $344.65 million of senior national charter school revolving loan fund revenue social bonds (/A//) via the Arizona Industrial Development Authority and the California Infrastructure and Economic Development Bank consisting of $200 million of Series A, serials 2029-2044, terms 2049, 2054, and $144.65 million of Series B, serials 2029-2044, terms 2049, 2054, 2059. Siebert Williams Shank & Co., LLC.

The School District of Pasco County, Florida, (Aa3//AA/) is on the day-to-day calendar with $197.195 million of sales tax revenue bonds, Series 2024, serials 2025-2039. BofA Securities.

Orlando, Florida, (/AAA/AAA/) is set to price Wednesday $149.27 million of water reclamation system improvement revenue and refunding bonds, consisting of $132.18 million of Series 2024A revenue bonds, serials 2025-2054, and $17.09 million of Series 2024B refunding bonds, serials 2025-2032. BofA Securities.

Louisiana (Aa3/AA//) is set to price Wednesday $141.88 million of gasoline and fuels tax second lien revenue refunding bonds. Wells Fargo Bank, N.A. Municipal Finance Group.

The Clear Creek Independent School District, Texas, (Aaa//AAA/) is set to price Wednesday $139.74 million of unlimited tax refunding bonds, consisting of $129.055 million of PSF-guaranteed Series 2024A, serials 2026-2040, and $10.685 million of Series 2024B (non-PSF), serial 2029. Jefferies LLC.

The Dormitory Authority of the State of New York is set to price Thursday $111.225 million of Montefiore Obligated Group Revenue bonds, serials 2025-2026, 2030-2044, terms 2047. BofA Securities.

The Torrance Unified School District, California, (Aa2/AA//) is set to price Thursday $110.385 million of general obligation bonds. Piper Sandler & Co.

Manchester, New Hampshire, (/AA-//) is set to price Tuesday $108.02 million of sewer revenue green bonds, serials 2026-2044, terms 2049, 2054. Raymond James & Associates, Inc.

Grayson County Junior College District, Texas, (Aa2//AA/) is set to price $104.85 million of general obligation bonds, serials 2028-2044, term 2049. BOK Financial Securities, Inc.

The Missouri Public Utilities Commission (nonrated) is set to price Wednesday $102.5 million of interim construction refunding notes, serials 2026. D.A. Davidson & Co.

The Central Florida Tourism Oversight District (/AA-/AA-/) is set to price Thursday $99.3 million of ad valorem tax bonds, series 2024A, serials 2025-2044. BofA Securities.

Palm Beach County, Florida, (A1/AA-//) is set to price Wednesday $97.715 million of airport system revenue improvement bonds, consisting of $23.865 million of non-AMT bonds, and $73.85 million of AMT bonds. J.P. Morgan Securities LLC.

Competitive:
Pennsylvania (Aa2/A+/AA/) is set to sell $1.63 billion of general obligation bonds in three sales Wednesday consisting of $235.16 million at 10 a.m., $687.5 million at 10:30 a.m. and $707.5 million at 11 a.m. eastern.

The Metropolitan Governments of Nashville and Davidson Counties, Tennessee, (Aa2/AA+//) is set to sell Thursday $786.66 million of general obligation improvement bonds in three sales, consisting of $266.385 million at 10:15 a.m., $205.805 million at 10:30 a.m. and $314.47 million at 10:45 a.m. eastern.

The State Public Works Board of California is set to sell $210.31 million of lease revenue various purpose bonds at 11:30 a.m. eastern Wednesday.

The Virginia Public School Building Authority (Aaa/AAA/AAA/) is set to sell $132.295 million of special obligation school financing bonds at 10:30 a.m. eastern Tuesday.

Suffolk County, New York, is set to sell $164.415 million of public improvement serial bonds at 11 a.m. eastern Wednesday.

Nevada is set to sell $116.51 million of general obligation bonds at 11:30 a.m. eastern Tuesday.