New issues reprice lower, secondary holds levels steady

Bonds

Municipal triple-A benchmarks were little changed Tuesday while primary deals saw bumps in repricings as U.S. Treasuries and equity markets were also little changed on light economic data.

It was all about the primary in the municipal market Tuesday, with several large deals from various credits and structures priced and sold competitively to good demand. New York City offered bonds to retail with its long bond in 2051 with a 4% coupon yielding 1.92%. Philadelphia’s airport private-activity AMT bonds saw bumps as did Texas Municipal Power Authority, both carrying insurance from Assured Guaranty Municipal Corp. Competitive loans from double-A Santa Clara County, California, saw levels through triple-A benchmarks while triple-A Hillsborough County, Florida, came a few basis points above them.

Preliminary data from Refinitiv for June shows volume is at $41 billion for the month, a 21.7% drop from June 2020 and second quarter issuance fell 4.3% from a year ago. Taxables declined 47.3% as did refundings (down 54.6% for the month). With Tuesday’s new issues, the figure will climb slightly. Full data will be released Wednesday.

Municipal-to-UST ratios were holding to recent levels, at 68% in 10 years and 72% in 30, according to Refinitiv MMD. ICE Data Services had the 10-year muni-to-Treasury ratio at 67% and the 30-year at 72%.

Refinitiv MMD had the five-year at 56% and ICE at 54%.

In the negotiated space, UBS Financial Services Inc. priced for retail for the New York City Municipal Water Finance Authority (Aa1/AA+/AA+/) $450 million of water and sewer system second general resolution revenue bonds. The first tranche, $400 million, saw 5s of 2048 at 1.74%, ($25 million), $105 million in 2048 were not offered to retail, 3s of 2051 at 2.17% ($25 million), 4s of 2051 at 1.92% ($25 million), while $50 million in 2051 were not offered to retail. All callable in 6/15/2031. The second, $50 million, saw 5s of 2028 at 0.65% ($25 million) and $25 million in 2028 not offered to retail, callable in 12/15/2026.

BofA Securities repriced for the city of Philadelphia (A2//A/) $295.6 million of AMT PAB airport revenue and refunding bonds with three to 15 basis point bumps. Bonds in 2022 with a 5% coupon yield 0.30%, 5s of 2026 at 0.83% (-3), 4s of 2031 at 1.51% (-3), 5s of 2036 at 1.76% (-3), 4s of 2041 at 1.96% (-10), 4s of 2046 at 2.04% (-15) and 5s of 2051 at 2.05% (-7). Bonds in 2037-2046 carry Assured Guaranty Municipal Corp. insurance.

Siebert Williams Shank & Co., LLC priced for the State Building Authority, Michigan, (Aa2//AA-/) $206.27 million of 2021 revenue bonds Series I (Facilities Program), with 4s of 4/2022 at 0.13%, 4s of 10/2022 at 0.14%, 4s of 4/2026 at 0.60%, 4s of 10/2026 at 0.64%, 4s of 10/2038 at 1.67%, 4s of 10/2041 at 1.77%, 3s of 10/2051 at 2.21%, 4s of 10/2046 at 2.07% and 2.625s of 10/2056 at par.

BofA Securities repriced for the Texas Municipal Power Agency (A1///) $192.7 million of transmission system revenue refunding bonds, insured by Assured Guaranty Municipal Corp., with two to eight basis point bumps: 3s of 2021 at 0.15% (-5), 3s of 2022 at 0.18% (-8), 3s of 2026 at 0.72% (-5), 3s of 2031 at 1.41% (-6), 3s of 2036 at 1.91% (-3), 2.25s of 2041 at 2.37% (-2), 3s of 2046 at 2.19% (-6), and 2.5s of 2051 at 2.60% (-2), callable in 9/1/2026.

Citigroup Global Markets Inc. priced for Collin County, Texas, (Aaa/AAA//) $103.5 million of limited tax permanent improvement and refunding bonds with 5s of 2022 at 0.10%, 5s of 2026 at 0.60%, 4s of 2031 at 1.24%, 3s of 2036 at 1.57% and 2.25s of 2041 at 2.20%, callable in 2/15/2030.

In the competitive market, Santa Clara, California, (/AA+/AA/) sold $337.7 million of lease revenue bonds to Citigroup Global Markets Inc. Bonds in 2022 with a 5% coupon yield 0.12%, 5s of 2026 at 0.49%, 5s of 2031 at 1.05%, 4s of 2036 at 1.34%, 2.125s of 2041 at 2.40%, 2.375s of 2047 at 2.50% and 2.375s of 2051 at 2.55%.

Seattle (Aa2/AA//) sold $261.6 million of municipal light and power improvement and refunding revenue bonds to Barclays Capital Inc. with 5s of 2022 at 0.12%, 5s of 2026 at 0.54%, 5s of 2031 at 1.08%, 4s of 2036 at 1.39%, 4s of 2041 at 1.64%, 4s of 2047 at 1.80% and 4s of 2051 at 1.84%.

Clark County School District, Nevada, (A1/A+//) sold $200 million of general obligation bonds to Morgan Stanley & Co. LLC. Bonds in 2022 with a 5% coupon yield 0.20%, 5s of 2026 at 0.70%, 5s of 2031 at 1.30%, 3s of 2036 at 2.00%, 3s of 2041 at 2.22%, callable in 6/15/2031.

Hillsborough County, Florida, (Aaa/AA+/AAA/) sold $152 million of utility revenue bonds to Robert W. Baird. Bonds in 2024 with a 5% coupon yield 0.30%, 5s of 2026 at 0.55%, 5s of 2031 at 1.15%, 2s of 2036 at 1.90%, 3s of 2041 at 1.89%, 3s of 2046 at 2.08%, and 2.5s of 2051 at 2.50%.

Secondary trading and scales
Trading showed San Francisco City and County 5s of 2022 at 0.14% versus 0.21% Friday. New York Urban Development Corp. 5s of 2022 at 0.09% versus 0.12% Monday. New York Dorm PIT 5s of 2023 at 0.20%. Harris County, Texas, 5s of 2023 at 0.21%.

Wisconsin 5s of 2025 at 0.41%. University of Washington 5s of 2026 at 0.50%.

Delaware 5s of 2029 at 0.83%-0.82%. North Carolina 5s of 2029 at 0.91%. Ohio 5s of 2030 at 1.06%-1.05%.

Georgia 5s of 2033 at 1.11% versus 1.12%-1.11% Monday. New York City 5s of 2034 at 1.36%. Arlington County, Virginia, 5s of 2034 at 1.03%-1.02%. Fort Worth, Texas, ISD 5s of 2034 at 1.37% versus 1.42% Friday. Hennepin County, Minnesota, 5s of 2034 at 1.23%-1.22% versus 1.27%-1.26% Thursday. Georgia 4s of 2039 at 1.44%-1.40% versus 1.45% Monday.

New York City TFA 4s of 2046 at 1.88%. Georgia Road and Tollway Authority 4s of 2046 at 1.71% versus 1.73%-1.72% Thursday, original 1.71%.

High-grade municipals were little changed on all triple-A benchmarks on Tuesday. According to Refinitiv MMD’s AAA, short yields were steady at 0.12% and at 0.16% in 2021 and 2022. The yield on the 10-year stayed at 1.01% while the yield on the 30-year sat at 1.52%.

The ICE AAA municipal yield curve showed bonds steady in 2022 at 0.11% and 0.16% in 2023. The 10-year maturity was at 1.00% and the 30-year yield sat at 1.51%.

The IHS Markit municipal analytics AAA curve showed short yields steady at 0.13% and 0.16% in 2021 and 2022, respectively, with the 10-year unchanged at 1.01%, and the 30-year yield sat at 1.52%.

Bloomberg BVAL AAA curve showed short yields steady at 0.12% and 0.15% in 2021 and 2022, with the 10-year flat at 1.00% and the 30-year yield steady at 1.54%.

In late trading, the 10-year Treasury was yielding 1.48% and the 30-year Treasury was yielding 2.10%. Equities were up slightly, with the Dow Jones gaining 32 points, or 0.09%, the S&P 500 up 0.04% while the Nasdaq gained 0.16%.

Pay attention to Fed presidents
While the market parses every word uttered by Federal Reserve Board Chair Jerome Powell, Scott Colbert, executive vice president and chief economist at Commerce Trust Co., says it’s important to listen to regional Fed presidents’ thoughts.

“I think it’s important to pay attention to these Federal Reserve bank presidents, because clearly they’re a little more in touch with the business community, talking to them on a day-to-day level,” Colbert said in a video this week. “They’re closer to the communities.”

“I think they have a sense for a pulse on economic activity that you don’t get sitting basically in Washington D.C.,” he said.

Federal Reserve Bank of Boston President Eric Rosengren, Federal Reserve Bank of Dallas President Robert Kaplan, and Federal Reserve Bank of St. Louis President James Bullard spoke this week and Colbert’s takeaway is: “in general, they’re forecasting higher growth, higher inflation, lower unemployment, entire economic conditions than currently the consensus forecast.”

And economic growth should continue to surprise to the upside as the rest of the world catches up to the United States in the fight against the coronavirus, allowing them to fully reopen.

Inflation, which has also surpassed expectations, will recede, but “it may roll over at a higher level and be a little more persistent than you would expect,” Colbert said. Finally, he said, the three Fed leaders “see the employment markets as tighter than probably what the average person on the FOMC sees.”

Federal Reserve Bank of Richmond President Thomas Barkin, speaking Tuesday on an interview with MNI Market News, said the labor market needs to improve more before the Fed tapers. The job market has made “further progress,” he said, but not “substantial further progress,” which is what Chair Jerome Powell said was needed before tapering.

“I still think we’ve got a long way to go” on employment to get back to pre-COVID levels, Barkin said.

In economic data released Tuesday, the consumer confidence index climbed to 127.3 in June from 120.0 in May, while the present situation index gained to 157.7 from 148.7 and the expectations index rose to 107.0 from 100.9, the Conference Board said.

Economists polled by IFR Markets expected a 119.0 read.

“If June consumer confidence is indicative of spending, our above-consensus forecast for second quarter consumer spending is on track,” said Tim Quinlan, senior economist, and Sara Cotsakis, economic analyst at Wells Fargo Securities. “The better-than-expected outturn is a welcome improvement after last week’s disappointing personal income and spending report for May.”

Calling the report “very encouraging,” Dec Mullarkey, managing director, Investment Strategic Research & Initiatives at SLC Management, said, it “revealed a very upbeat consumer, both on the assessment of current conditions and expectations.”

And while consumers still expect higher inflation ahead, “consumers were clear it would have little impact on expected purchases,” he said. “This robust consumer pulse is consistent with the Fed’s outlook that the economy continues to strongly rebound and support hiring, which in turn should help shrink economic slack.”

Consumers were “buoyed by expectations that business conditions and their own financial prospects will continue improving in the months ahead,” said Lynn Franco, senior director of economic indicators at The Conference Board. “While short-term inflation expectations increased, this had little impact on consumers’ confidence or purchasing intentions.”

The number of respondents expecting to buy a home, car or major appliance in the near future all increased, she said, suggesting “consumer spending will continue to support economic growth in the short-term.”

The number of respondents who sees business conditions as “good” grew in the month, while the number that see conditions as “bad” fell. Similarly, the number seeing jobs as “plentiful” rose while those seeing jobs as “hard to get” slid.

The number expecting conditions to improve in six months gained while those expecting worsening condition declined.

Separately, home prices continued their ascent, with the S&P CoreLogic Case-Shiller national index up 14.6% in April, on a non-seasonally adjusted basis, compared with 13.3% a month earlier. The 10-city composite increased 14.4% in the month after a 12.9% rise a month earlier, while the 20-city jumped 14.9% after a 13.4% rise in May.

The 14.6% gain was “the highest reading in more than 30 years of S&P CoreLogic Case-Shiller data,” according to Craig J. Lazzara, managing director and global head of index investment strategy at S&P Dow Jones Indices.

For the month, the national index gained 2.1%, while the 10-city rose 1.9% and the 20-city climbed 2.1%.

Also released Tuesday, the service sector in Texas experienced slower growth, but wage and price pressures continued, according to the Texas Service Sector Outlook Survey, released by the Federal Reserve Bank of Dallas.

The revenue index decreased to 16.7 in June from 23.9 in May. The full-time employment index dipped, while part-time employment and hours worked were basically steady.

“Price and wage pressures further accelerated in June,” the survey said. “The wages and benefits index rose from 26.9 to a record high of 31.4, with more than one-third of contacts increasing wages compared with May. The selling prices index increased five points to 28.6, a new all-time high, while the input prices index inched up one point to 44.9 — its highest reading since 2008.”

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