Municipal yields rose for the sixth day in a row Tuesday, pushing the 10-year above 1%, a level not seen since May 2020. High-grade deals priced and secondary trading showed bonds exchanging hands at yields higher than triple-A benchmarks in some cases, but a healthy two-way flow was evident, even if there are signals that yields have not yet found a ceiling.
U.S. Treasuries held steady for most of Tuesday as Federal Reserve Chairman Jay Powell testified before Congress that the bond buying would continue and the economic recovery was far from complete. Stocks were off throughout the day but pared back earlier losses.
The triple-A muni 10-year reached above 1% and the 30-year neared 1.70% Tuesday while some new issues were being priced above 2% out long, including the New York City Municipal Water Finance Authority long bonds, 5s of 2051 at 2.07%.
“I would characterize the weakness that started last week and flowed into the beginning of this week as a long, overdue breather,” said Jim Conn, a portfolio manager for Franklin Templeton Fixed Income’s municipal bond team.
Conn said the yield changes the market has seen since last Wednesday have been broad based and evenly distributed among rating, sectors, and states.
The path toward lower yields since the pandemic began in March 2020 has been barely interrupted over the course of the recovery, and demand has remained steady and strong nonetheless, he noted.
“In addition to the strength from the supply-demand equation, Federal stimulus is likely to enhance issuer balance sheets and bolster credit strength,” Conn said. “Many investors close the muni demand feedback loop with the notion that mounting stimulus packages will be financed, in part, through higher personal income taxes, of course, which leads them back to the muni market for tax protection.”
Municipal to U.S. Treasury ratio spreads tightened as muni yields rose.
The 10-year muni/UST ratio is at 75% Tuesday and the 10-year at 76%, according to Refinitiv MMD. ICE Data Services showed ratios rise five basis points to 73% in 10 years and up two basis points to 77% in 30. BVAL showed 10-year ratios rise to 70% and at 78% in 30 years.
Gilt-edged Mecklenburg County, North Carolina sold five-year debt at 0.50% Tuesday, plus-five basis points to triple-A benchmarks, but at 1.10% with a 5% coupon in 10-years Tuesday more than 10 basis points higher than where 10-year triple-A benchmark yields opened on Tuesday.
Trading showed more moves to higher yields. Maryland general obligation bonds, 5s of 2024, traded at 0.32%. Maryland GOs, 5s of 2031 traded at 1.09%. Compare that to 0.72% to open the month.
The state is set to sell three competitive loans Wednesday, which could give even more price discovery for the high-grade space.
Puerto Rico GOs, 8s of 2035, traded as high as 78.125 cents on the dollar after a debt deal was announced between the island and its bondholders. Texas issues were trading weaker, but mostly in line with market moves showing the power and water crisis there has not had a meaningful effect on its debts.
Other trades of note: Minnesota 5s of 2023 traded at 1.19%, Washington Suburban Sanitation District 5s of 2024 at 0.28%, Maryland 5s of 2025 at 0.45%, New York City GOs, 5s of 2025, traded at 0.43%. North Carolina GOs, 5s of 2025 at 0.46%-0.45%. Energy Northwest Washington 5s of 2025 at 0.46%. Iowa green bonds 5s of 2025 at 0.45%-0.44%. Virginia Resources Authority 5s of 2025 at 0.48%-0.47%.
Denver City and County 5s of 2027 at 0.72%-0.71% versus 0.63% Monday and 0.38% a week ago. Maryland 5s of 2027 traded at 0.64%-0.63% versus 0.42% last Wednesday.
California GOs, 5s of 2030 at 1.05%. Dallas Texas waters 5s of 2032 traded at 1.25%-1.24%. Austin ISD 4s of 2033 at 1.16%-1.14%.
Washington GOs, 5s of 2041, traded at 1.60% versus 1.51% Monday.
Texas water 4s of 2045 traded at 1.90%-1.89% versus 1.83% Monday and 1.49%-1.43% last Wednesday.
New York City Transitional Finance Authority 2.25s of 2051 traded at 2.55% versus 2.47% Monday.
In the primary, Citigroup Global Markets Inc. priced $537.4 million of subordinate sales tax revenue short-term notes (limited tax bonds) 2021 Series A, serials 2022 for the San Diego County Regional Transportation Commission (//AA/). Notes with a 5% and 3% coupon in 2022 yield 0.20%.
Barclays Capital Inc. priced $523 million of water and sewer system second general resolution revenue bonds, Fiscal 2021 Series CC, $221 million of Series CC-1, terms 2051, $150 million of Series CC-2, serials 2027-2028 and $152 million of Series CC-3, terms 2032 for the New York City Municipal Water Finance Authority (Aa1/AA+/AA+/)
BofA Securities priced $261 million of Grand View Hospital Project hospital revenue bonds for the Bucks County Industrial Development Authority, Pennsylvania, (/BB+//). Bonds in 2025 with a 5% coupon yield 1.70%, 5s of 2026 at 1.86%, 5s of 2031 (noncall) at 2.63%, 5s of 2036 at 2.88%, 5s of 2041 at 3.11%, 4s of 2046 at 3.40%, 4s of 2051 at 3.45% and 5s of 2054 at 3.33%.
Mecklenburg County, North Carolina, (Aaa/AAA/AAA/) sold $225 million of general obligation school bonds to Wells Fargo Securities LLC. Bonds in 2022 with a 5% coupon yield 0.12%, 5s of 2026 at 0.30%, 5s of 2031 at 1.10%, 2s of 2036 at 1.70% and 2s of 2041 at 1.93%.
The consumer confidence index ticked up more than expected in February.
The index rose to 91.3 from 88.9 a month earlier, the Conference Board reported. Economists polled by IFR Markets expected a 90.0 read.
The present situation index gained to 92.0 from 85.5 and the expectations index slipped to 90.8 from 91.2. The rebound in the present situation index “suggests economic growth has not slowed further,” according to Lynn Franco, senior director of economic indicators at the company. “While the expectations Index fell marginally in February, consumers remain cautiously optimistic, on the whole, about the outlook for the coming months.”
The number of respondents who see business conditions as good rose, while those who see them as bad fell. The number who say jobs are plentiful inched up while those thinking jobs are hard to get slipped.
Separately, the Federal Reserve Bank of Philadelphia’s nonmanufacturing survey showed improvement as the general business conditions index at the firm level reversed to positive 7.5 in February from negative 14.3 in January, while the regional index rebounded to positive 3.9 from negative 17.5.
Meanwhile, a Federal Reserve Bank of Dallas survey showed the service sector “picked up at a modest pace in February, with revenue and labor market indicators improving slightly compared with last month,” according to Christopher Slijk, Dallas Fed associate economist.
The report’s general business activity index reversed to positive 5.0 from negative 1.2, while the company outlook grew to 2.7 from 1.0, the revenues index rose to 2.6 in February from 0.8 in January, while the employment index gained to 2.7 from 1.8.
The Federal Reserve Bank of Richmond saw “mixed conditions” in service sector activity in February, with the revenues index declining to negative 6 from negative 3 in January, while the demand index gained to 18 from 7. “Many survey participants also reported increased capital spending over the month,” according to the Fed. “Survey respondents were optimistic that conditions would improve in the next six months.”
The Richmond Fed’s manufacturing survey reported continued improvement in February, with the composite index steady at 14. The local business conditions index slipped to 5 in February from 10 in January.
Also released Tuesday, the S&P CoreLogic Case-Shiller index showed home prices rose 10.4% in December on an annual basis, up from the 9.5% increase in the prior month’s read. The 10-city composite grew 9.8% after 8.9% the month before, while the 20-city composite jumped 10.1% year-over-year after 9.2% growth reported a month earlier.
High-grade municipals were weaker across the scale, according to final readings on Refinitiv MMD’s AAA benchmark scale. Short yields were at 0.10% in 2022 and 0.16% in 2023, both up two basis points. The 10-year rose to 1.02% and the 30-year to 1.63%, both five basis point cuts.
The ICE AAA municipal yield curve showed short maturities rise to 0.12% in 2022 and 0.19% in 2023. The 10-year rose six basis points to 1.00% while the 30-year yield rose five to 1.68%.
The IHS Markit municipal analytics AAA curve showed yields at 0.12% in 2022 and at 0.15% in 2023 while the 10-year rose seven basis points to 0.96% and to 30-year rose six to 1.64%.
The Bloomberg BVAL AAA curve showed yields at 0.10% in 2022 and up one basis point to 0.15% in 2023, while the 10-year rose six basis points to 0.99%, and the 30-year yield rose six basis points to 1.69%.
The three-month Treasury note was yielding 0.09%, the 10-year Treasury was yielding 1.36% and the 30-year Treasury was yielding 2.19% near the close. Equities ended the day mixed with the Dow up 96 points, the S&P 500 up 0.30% and the Nasdaq down 0.36%.
The Regents of the University of California (Aa2/AA/AA/) has several large deals with Jefferies LLC running the books on all of them.
It is set to price $1.09 billion taxable general revenue bonds in two series. The first, $615.6 million, serials 2022-2041, term 2051. The second series, $475 million, serials in 2051.
The Regents of the University of California will also price $892.9 million of limited project revenue bonds 2021 Series Q (Aa3/AA-/AA-/), serials 2022, 2024, 2032-2041, terms 2046, 2051 and 2056.
The Regents of the University of California will price $448.9 million of taxable limited project revenue bonds 2021 Series R (Aa3/AA-/AA-/), serials 2022-2041, term 2051.
The Regents of the University of California is set to price $397.4 million of limited project forward delivery revenue bonds 2022 Series S (Aa3/AA-/AA-/, serials 2023-2042.
The San Diego County Regional Transportation Commission (//AA/) is set to price $537.4 million of subordinate sales tax revenue short-term notes (limited tax bonds) 2021 Series A, serials 2022. Citigroup Global Markets Inc. heads the deal.
The Indianapolis Local Public Improvement Bond Bank (A2//A+) is set to price $390.1 million of revenue bonds on Tuesday. BofA Securities is lead underwriter.
The Sacramento County Sanitation Districts Financing Authority, California, (Aa2/AA/AA-/) is set to price $258.2 million of refunding revenue bonds Wednesday. BofA Securities is head underwriter.
The Municipal Improvement Corp. of Los Angeles (/AA-//AA) is set to price $256 million of taxable capital equipment and real property lease revenue refunding Series 2021-A bonds on Wednesday. Goldman Sachs & Co. LLC is bookrunner.
The New York City Housing Development Corp. (Aa2/AA+//) is set to price $212 million of taxable multifamily housing revenue bonds on Wednesday. Serials 2024-2032, terms 2036, 2041, 2046. Citigroup Global Markets Inc. is head underwriter.
The New York City Housing Development Corp. will also price $181.3 million of exempt multifamily housing revenue bonds, $167.5 million Series A-1, serials 2026-2033, terms 2036, 2041, 2044, and Series A-2, $13.7 million, serials 2025-2026. Barclays Capital Inc. is bookrunner.
The San Mateo-Foster School District, San Mateo County, California, (Aaa/AA+//) is set to price $145 million of Election of 2020 general obligation bonds, Series A and election of 2015 general obligation bonds, Series B on Wednesday. RBC Capital Markets will run the books.
The Nebraska Public Power District (A1/A+/A+/) is set to price $139 million of general revenue forward delivery bonds, Series 2021 A, serials 2023, 2025, 2027, 2030-2040, Series 2021 B, serials 2023, 2029-2041, terms 2044, on Tuesday. BofA Securities is head underwriter.
The Upper Merion Area School District, Montgomery County, Pennsylvania, is set to price $129.5 million of general obligation bonds and school revenue bonds in two series on Tuesday. The first series, $99.76 million of Series 2021A (Aa1///) serials 2022-2026, 2039-2051, terms 2032, 2038.
The second series, $29.76 million of Series 2021B (Aa3///), serials 2022-2051. RBC Capital Markets is bookrunner.
The California Public Finance Authority (/BBB-//) is set to price $118.6 million of Henry Mayo Newhall Hospital refunding revenue bonds on Tuesday. Insured by Assured Guaranty Municipal Corp. Ziegler is head underwriter.
The Clear Creek Independent School District (Aaa//AAA/) is set to price $108.7 million of unlimited tax school building bonds, PSF guaranteed, on Wednesday. Piper Sandler & Co. is head underwriter.
The Northeast Ohio Regional Sewer District (Aa1/AA+//) is set to price $107 million of taxable wastewater improvement refunding revenue bonds on Tuesday. BofA Securities will run the books.
Worcester, Massachusetts, (Aa3/AA-//) is set to price $101.7 million of taxable general obligation ballpark project bonds in two series on Wednesday. The first series, $88 million of taxable bonds, serials 2022-2036, terms 2039. The second series, $13.6 million of taxable general obligation refunding bonds, serials 2023-2036, terms 2042, 2050. UBS Financial Services Inc. is head underwriter.
The San Francisco Unified School District is set to price $100 million of tax and revenue anticipation notes, serial 2021, on Tuesday. Stifel, Nicolaus & Company Inc. is head underwriter.
Brookline, Massachusetts, (Aaa/AAA//) is set to sell $167.9 million of general obligation municipal purpose loan of 2021 bonds at 11 a.m. Wednesday.
Maryland (//AAA/) is set to sell three competitive loans Wednesday. The first, $207.4 million of GOs, at 10 a.m. The second, $217.5 million of GOs, at 10:30 a.m. The last, $50 million of taxable general obligation bonds at 11 a.m.
Gary Siegel contributed to this report.