Munis stick with 'wait-and-see' approach

Munis were little changed on Tuesday, as U.S. Treasuries richened and equities ended mixed.

Muni yields fell by up to two basis points. U.S. Treasury yields declined up to three basis points, with larger price gains at the long end of the curve.

The developing peace deal with Iran and Kevin Warsh's first meeting as head of the Federal Reserve Wednesday could both deliver significant boosts to munis, Matt Fabian wrote in a Municipal Market Analytics outlook report. They may add to "an already rare buyers' opportunity for popular front end maturities," he wrote.

"In other words, expected demand ? via reinvestment of July maturities (as we are now at the seasonal peak for expected maturities/calls) and likely fresh inflows ? will find a municipal short end priced with the most concession since March," Fabian said.

A look at the Fed
Incoming Federal Reserve Chair Kevin Warsh faces "challenges aplenty," Darrell Cronk, CIO for Wealth & Investment Management at Wells Fargo (WFC) and president of Wells Fargo Investment Institute, said during a midyear outlook meeting Tuesday.

Warsh will act more like the less open Paul Volcker or Alan Greenspan than Jerome Powell or the other recent Fed chairs, he said, and it will take time for him to implement any communication changes and for the markets to adjust to his style.

Luis Alvarado, co-head of global fixed income strategy at Wells Fargo Investment Institute, said the Fed is likely to remain on hold all year as inflation remains sticky. Interest rates will be steady or slightly higher, he added.

If Warsh lowers the Fed balance sheet, as expected, "it will create upward pressure on bond rates," Alvarado said. As such, he suggests, intermediate maturities (three to seven years) "are the best bet." Alvarado is "cautious" on long-term bonds. "It's about owning the right bonds," he said.

New-issue market
In the primary market Tuesday, Morgan Stanley (MS) priced for the New York State Housing Finance Agency (Aa2///) $509.62 million of affordable housing revenue bonds. The first tranche, $108.73 million of Series 2026D-1 sustainability bonds, saw 2.8s of 5/2029, 2.9s of 11/2029, 3.25s of 5/2032, 3.3s of 11/2032, 3.75s of 5/2036, 3.8s of 11/2036, 4.3s of 11/2041, 4.65s of 11/2046, 4.85s of 11/2051, and 4.95s of 5/2056, all priced at par, callable 11/2032.

The second tranche, $290.205 million of Series 2026D-2 sustainability bonds, saw 3.15s of 5/2066 callable 11/2028, 3.25s of 5/2066 callable 11/2029, and 3.35s of 2066 callable 11/2030, all priced at par.

The third tranche, $39.635 million of Series 2026E sustainability bonds, saw 3.25s of 5/2066 priced at par, callable 11/2029.

The final tranche, $71.05 million of Series 2026F refunding social bonds, saw 2.45s of 11/2026, 3.05s of 5/2031, 3.05s of 11/2031, 3.75s of 5/2036, 3.8s of 11/2036, 4.3s of 11/2041 and 4.65s of 5/2046, all priced at par, callable 11/2032.

BofA priced for Louisiana (Aa2/AA//AA) $373.645 million of general obligation refunding bonds, Series 2026B, with 5s of 9/2027 at 2.41%, 5s of 2031 at 2.78%, 5s of 2036 at 3.12% and 5s of 2037 at 3.26%, noncall.

In the competitive market, Washington (Aaa/AA+/AA+/) sold $1.5 billion of bonds across four series. The first, $543.27 million of motor vehicle fuel tax and vehicle related fees GO bonds, Series 2026F, was sold to BofA Securities, with 5s of 6/2027 at 2.41%, 5s of 2032 at 2.85%, 5s of 2036 at 3.11%, 5s of 2042 at 3.6%, 5s of 2046 at 4.02% and 5s of 2051 at 4.30%, callable 6/2036.

The second series, $382.775 million of various purpose GO bonds, Series 2026E-1, was sold to BofA Securities, with 5s of 2034 at 2.98%, 5s of 2036 at 3.15%, 5s of 2041 at 3.53% and 5s of 2044 at 3.77%, callable 8/2036.

The third series, $401.55 million of various purpose GO bonds, Series 2026E-2, was sold to BofA Securities, with 5s of 2045 at 3.89%, 5s of 2046 at 4.02% and 5s of 2051 at 4.32%, callable 8/2036.

The fourth series, $190.240 of Series 2026T-3 taxable GO bonds, was sold to Wells Fargo (WFC), with all bonds priced at par: 3.95s of 8/2027, 4.27s of 2031, and 4.55s of 2034, noncall.