Competitive calendar soars with $2B-plus DASNY, $889M California deals

Municipals were firmer Thursday as two sizable deals in the competitive market took focus. U.S. Treasuries were little changed and equities ended down.

The two-year municipal to UST ratio Thursday was at 66%, the five-year at 70%, the 10-year at 74% and the 30-year at 91%, according to Municipal Market Data's 3 p.m. EST read. ICE Data Services had the two-year at 66%, the five-year at 69%, the 10-year at 73% and the 30-year at 91% at 4 p.m.

This is the third consecutive week of around $10 billion in issuance, as muni yields are "confronting the pressure of what has been a heavy calendar and active selling (both cash raises for syndicate buys and tax payments)," said Kim Olsan, senior fixed income portfolio manager at NewSquare Capital.

During the first 12 weeks of the year, weekly supply has averaged around $10 billion, or 25% above last year's pace, she said, citing Bloomberg data.

Thursday saw around $3.8 billion supply, according to J.P. Morgan strategists. Most of that issuance came from competitive deals, the largest being the Dormitory Authority of the State of New York with $2 billion-plus of general-purpose state personal income tax revenue bonds in five series and California with $889 billion of taxable various purpose GOs in three series.

The elevated supply, along with "a sizable proportion of competitive deals, signals potential for continued availability of cheaper bonds in liquid 5% coupon structure," J.P. Morgan strategists said.

Municipals were firmer Thursday, with yields bumped up to four basis points, depending on the scale. However, muni yields are still higher than they were at the start of the month.

The 10- to 15-year range has "borne the brunt of this month's correction with a 28 basis point upward swing from February's close," Olsan said.

Long-dated bonds have moved up around 21 to 24 basis points but with an "obvious larger percentage loss," she said.

"There is still an effort to find a balance between attractive fair values and yields (certainly improved in recent weeks) and where sellers are willing to let bonds go (stymied to some extent with listings rising)," Olsan said.

"In the mix is supply that is not showing any signs of abating ? for the final week of Q1 there are two $1 billion-plus deals and several more in the $250 million-plus camp (including more New York issuance coming from New York City Waters)," she noted.

In the competitive market Thursday, the Dormitory Authority of the State of New York (Aa1///AAA/) sold $2.062 billion of general purpose state personal income tax revenue bonds in five series:

The authority sold $580.675 million of tax-exempt Series 2025A Bidding Group 1 bonds to BofA Securities, with 5s of 3/2028 at 2.84%, 5s of 2030 at 2.98%, 5s of 2035 at 3.37% and 5s of 2038 at 3.57%, callable 3/15/2035.

DASNY also sold $538.8 million of tax-exempt Series 2025A Bidding Group 2 bonds to BofA Securities, with 5s of 3/2039 at 3.65%, 5s of 2040 at 3.75%, 5s of 2045 at 4.22% and 5s of 2046 at 4.27%, callable 3/15/2035.

Additionally, the authority sold $442.71 million of tax-exempt Series 2025A Bidding Group 3 bonds to BofA Securities, with 5s of 3/2047 at 4.34%, 5s of 2050 at 4.38% and 5s of 2051 at 4.40%, callable 3/15/2035.

The authority sold $440.73 million of tax-exempt Series 2025A Bidding Group 4 bonds to BofA Securities with 5s of 3/2052 at 4.40% and 5s of 2055 at 4.43%, callable 3/15/2035, as well.

Lastly, DASNY sold $59.185 million of taxable Series 2025B bonds to J.P. Morgan, with all bonds at par: 4.2s of 3/2026 and 4.15s of 2027, noncall.

California (Aa2/AA-/AA/) sold $444.43 million of taxable various purpose GO construction bonds, Bid Group A, to Wells Fargo (WFC), with 4.875s of 9/2030 at 4.47%, noncall.

The state also sold $413.98 million of taxable various purpose GOs, Bid Group B, to J.P. Morgan, with 5.1s of 9/2035 at 5.00%, noncall.

The state also sold $30.685 million of taxable various purpose GO refunding bonds to Wells Fargo (WFC), with 6.25s of 3/2028 at 4.24%, 6.25s of 2030 at 4.45% and 6s of 2031 at 4.60%, noncall.

Fund flows
Investors pulled $216.4 million from municipal bond mutual funds in the week ending Wednesday, following $367.1 million of outflows the prior week, according to LSEG Lipper data.

High-yield funds saw inflows of $316.2 million compared to the previous week's inflows of $107.4 million.

Tax-exempt municipal money market funds saw inflows of $1.95 billion for the week ending March 18, bringing total assets to $132.46 billion, according to the Money Fund Report, a weekly publication of EPFR.

The average seven-day simple yield for all tax-free and municipal money-market funds rose to 2.87%.

Taxable money-fund assets saw $29.04 billion pulled.

The average seven-day simple yield fell to 4%.

The SIFMA Swap Index fell to 3.28% Wednesday compared to the previous week's 3.62%.

AAA scales
MMD's scale was bumped two to four basis points: The one-year was at 2.62% (-2) and 2.63% (-2) in two years. The five-year was at 2.80% (-3), the 10-year at 3.13% (-3) and the 30-year at 4.16% (-4) at 3 p.m.

The ICE AAA yield curve was bumped up to three basis points: 2.68% (unch) in 2026 and 2.65% (-1) in 2027. The five-year was at 2.80% (-3), the 10-year was at 3.12% (-3) and the 30-year was at 4.14% (-3) at 4 p.m.

The S&P Global Market Intelligence municipal curve was bumped one to three basis points: The one-year was at 2.62% (-1) in 2025 and 2.63% (-1) in 2026. The five-year was at 2.80% (-1), the 10-year was at 3.12% (-3) and the 30-year yield was at 4.16% (-3) at 4 p.m.

Bloomberg BVAL was bumped two to four basis points: 2.53% (-2) in 2025 and 2.61% (-2) in 2026. The five-year at 2.76% (-3), the 10-year at 3.06% (-3) and the 30-year at 4.13% (-4) at 4 p.m.

Treasuries were little changed.

The two-year UST was yielding 3.956% (-2), the three-year was at 3.935% (-2), the five-year at 4.006% (-2), the 10-year at 4.23% (-1), the 20-year at 4.582% (-1) and the 30-year at 4.552% (flat) near the close.

FOMC redux
Analysts continued to parse the Federal Open Market Committee statement, the Summary of Economic Projections and Federal Reserve Board Chair Jerome Powell's press conference.

"There is a lot to unpack," noted Christian Chan, chief investment officer at AssetMark.

Given the policy uncertainty, he said, "the markets needed an act and a statement of stability."

The change in the statement was slight, Chan said, and "I would characterize the message from the SEP as conflicted. They are expecting both lower growth and higher inflation, so their options on the rates front are limited."

As for Powell's description of tariff-related inflation as "transitory," Chan suggested, "he may want to use a different word."

Tony Welch, CIO of SignatureFD, said, "It was notable to us that Chair Powell drew distinctions between the post-pandemic inflation and tariff-led inflation, with the latter more likely to be a temporary impulse, which is at least somewhat dovish."

And while any stagflation won't last long, he said, "it is possible that upcoming months may feel somewhat stagflationary."

While slower economic growth and higher-than-usual inflation are bearish for stocks, "for bonds, weakening growth has tended to be a bullish condition but more so when inflation is stable or easing," Welch said. "Should inflation pick up, that could provide a more challenging environment for bonds. Investors need to focus on diversification this year owing to the uncertainty around the economy, Fed policy and inflation."

For bond investors, "having an allocation to sectors with lower duration and some allocation to floating rate debt makes sense, coupled with a core allocation to more traditional, investment-grade corporates and Treasuries."

The Fed likely "will be willing to look through the short-term impact of tariffs on prices," said Brian Rose, senior U.S. economist at UBS Global Wealth Management. Signs of labor market weakness would lead to rate cuts, he said, "even if inflation remains around its current level."

Still, Morgan Stanley (MS) strategists expect a June rate cut based on its "inflation forecast, though we view the bar as higher now than before."

BNP Paribas (BNPQF) chief U.S. economist James Egelhof's core view is that rates will be unchanged through the end of the year.

"We believe the FOMC is now following a loose version of the 2012-2014 'Evans rule,' where the decision to exit the current policy hold will be taken when specific macroeconomic thresholds are reached," he said.

Lauren Saidel-Baker, an economist with ITR Economics, sees the consumer price index up 2.8% annualized this year, 4.1% higher in 2026 and up 2.6% in 2027. "This additional inflation could be exacerbated by tariffs and other Trump administration policies but will be driven by fundamental economic factors including elevated liquidity, recovering demand, and tight labor availability," she said.

The jobs market, while loosening, remains tight on historical terms, she said. "DOGE layoffs ? while the largest single layoff in U.S. history ? are not likely to entirely derail the national labor market. Instead, the balance of labor availability is likely hinged on critical skills gaps in certain sectors."

Keeping rates unchanged was "a safe decision given current economic and inflation data," said Nathan Hoyt, CIO at Regent Peak Wealth Advisors. "Forecasting cutting rates into the future, to pre-emptively soften a potential recession, would be wise only if they can convince the market that inflation data is under control."

If inflation "becomes hot inflation again, we will see a more dramatic move," he said, but the Fed seems to be "much more concerned with a shrinking economy than they would admit, leaving room to move quickly to cut, being content to let inflation run a bit hot and react to it late in favor of avoiding recession or minimizing a recessionary impact."

Fiscal policy could also lead to "more drastic measures" from the Fed, Hoyt said.

Recent data "paints an economic picture that is about as clear as mud," said Tim Holland, CIO at Orion, so "standing pat at its March meeting strikes us as the right move."

The prediction of two cuts this year "is appropriate," he said.

While downside risks to the economy increased this year, Holland remains optimistic, especially as the 10-year "remains range bound, which indicates, to us, little concern of a pending inflation spike, while investment-grade bonds seem to be pricing in very little risk of a recession."

Gary Siegel contributed to this report.