Participants expect ‘sideways’ market as $4.8B of new issues on tap

Bonds

Municipals ended the week quieter than they began it with a mostly steady to firmer tone in spots Friday, outperforming U.S. Treasuries, which saw small losses. Equities were mixed at the close.

Tax-exempt yields have moved higher with Treasuries, but outperformed on the whole, while municipal to UST ratios have been “largely moving sideways” in the past several weeks, noted Barclays PLC in a weekly report.

The two-year muni-to-Treasury ratio Friday was at 61%, the three-year at 60%, the five-year at 58%, the 10-year at 58% and the 30-year at 82%, according to Refinitiv Municipal Market Data’s 3 p.m. EST read. ICE Data Services had the two-year at 62%, the three-year at 61%, the five-year at 59%, the 10-year at 59% and the 30-year at 81% at 3:30 p.m.

“As munis are quite rich versus their taxable counterparts at the moment, most investors have been sitting on their hands, and it is hard to see what would cheapen the muni market in the near term: supply has been below average, with the 30-day visible supply relatively subdued; fund outflows have been marginal; and rate volatility quite manageable,” said Barclays PLC in a weekly report.

“Even though it is hard to see the market falling out of bed and underperforming in the near term, we are more cautious going into March,” they added.

If there are no “upside surprises” in next week’s consumer price index report, BofA Global Research strategists said they expect muni yields to stay in a “slow and sideways declining pattern in February.” 

“Of course, an upside surprise may lead to slightly higher, but largely contained yields,” they said.

However, BofA strategists Yingchen Li and Ian Rogow expect “low volatilities” that “suggest a reduced likelihood of economic or market shocks and should work well for the soft landing camp.”

Such an environment ”should be ripe for investors to pick and choose muni bonds before inflation more surely approaches the Fed’s desired target,” they said. ”Indeed, it appears to us that successful Fed management of this tightening cycle has made it possible for volatilities to collapse, first in equities and then in bonds.”

As long as there is no credit event, “high-grade yields will decline slowly and any backup will be contained,” they said, adding, muni credit spreads should “continue to recover from the November/December 2023 widening even if AAA benchmark yields begin to fall again.”

The new-issue calendar falls to $4.8 billion, led by Prosper Independent School District, Texas, (Aaa//AAA/) with $400 million of PSF-insured unlimited tax school building bonds and several large housing deals.

The largest competitive deal on the docket is Guilford County, North Carolina, (Aaa/AAA/AAA/) with $180 million of GO school bonds set to sell at 11 a.m. eastern Tuesday.

AAA scales
Refinitiv MMD’s scale was little changed: The one-year was at 2.95% (-2) and 2.73% (unch) in two years. The five-year was at 2.41% (unch), the 10-year at 2.43% (unch) and the 30-year at 3.57% (unch) at 3 p.m.

The ICE AAA yield curve was little changed: 2.98% (unch) in 2025 and 2.76% (unch) in 2026. The five-year was at 2.45% (unch), the 10-year was at 2.45% (unch) and the 30-year was at 3.53% (-1) at 3:30 p.m.

The S&P Global Market Intelligence municipal curve was firmer in spots: The one-year was at 2.98% (-2) in 2025 and 2.76% (-2) in 2026. The five-year was at 2.44% (-2), the 10-year was at 2.45% (-1) and the 30-year yield was at 3.55% (unch), according to a 3 p.m. read.

Bloomberg BVAL was unchanged: 2.92% in 2025 and 2.77% in 2026. The five-year at 2.42%, the 10-year at 2.49% and the 30-year at 3.60% at 3:30 p.m.

Treasuries were slightly weaker.

The two-year UST was yielding 4.455% (+3), the three-year was at 4.247% (+5), the five-year at 4.122% (+6), the 10-year at 4.165% (+6), the 20-year at 4.476% (+6) and the 30-year Treasury was yielding 4.367% (+5) at 3:30 p.m.

Negotiated calendar
The Prosper Independent School District, Texas, (Aaa//AAA/) is set to price Tuesday $400 million of PSF-insured unlimited tax school building bonds, Series 2024. Piper Sandler.

The Illinois Housing Development Authority (Aaa///) is set to price Tuesday $350 million of taxable social revenue bonds, 2024 Series B. Morgan Stanley.

The Tennessee Housing Development Agency (Aa1/AA+//) is set to price Tuesday $175.500 million of taxable social residential finance program bonds, Issue 2024-1B, serials 2025-2034, terms 2039, 2044, 2049, 2054, 2055. Raymond James.

The Gloucester County Improvement Authority, New Jersey, (/AA//) is set to price Thursday $167.240 million of BAM-insured Rowan University projects loan revenue bonds, Series 2024, serials 2034-2044, terms 2049, 2054. Stifel, Nicolaus & Co.

The Humble Independent School District, Texas, (Aaa//AAA/) is set to price Tuesday $147.915 million of PSF-insured unlimited tax school building bonds, Series 2024. Piper Sandler.

The Northern Indiana Commuter Transportation District (A1/A+//) is set to price Wednesday $143.430 million of limited obligation consolidated revenue bonds, Series 2024, serials 2024-2044, terms 2049, 2054. BofA Securities.

The New York State Housing Finance Agency (Aa2///) is set to price Wednesday $133.545 million of sustainability affordable housing revenue bonds, 2024 Series A, serial 2063. RBC Capital Markets.

The Missouri Housing Development Commission (/AA+//) is set to price Thursday $130 million of single family mortgage revenue bonds, consisting of $120 million of non-AMT first place homeownership loan program bonds, 2024 Series A, serials 2025-2036, terms 2039, 2044, 2049, 2054, 2055; and $10 million of taxable first place and next step homeownership loan program bonds, 2024 Series B, serials 2025-2034, terms 2039, 2044, 2049, 2054. Raymond James.

The St. Paul Independent School District No. 625, Minnesota, (Aa1///) is set to price Wednesday  $101.600 million of Minnesota School District Enhancement Program-insured full-term certificates of participation, Series 2024A. Piper Sandler.

Competitive
Guilford County, North Carolina, (Aaa/AAA/AAA/) is set to sell $180 million of GO school bonds, Series 2024, at 11 a.m., Eastern, Tuesday.

Virginia is set to sell (Aaa/AAA/AAA/) $62.175 million of GOs, Series 2024A, and $118.675 million of GO refunding bonds, Series 2024B, at 10:30 a.m. Wednesday.

Glendale, California, is set to sell $153.850 million of electric revenue bonds, at 11 a.m. Thursday, and $53.765 million of electric revenue refunding bonds, at 11:30 a.m. Thursday.

The Cherokee County School System, Georgia, (Aa1/AA+//) is set to sell $100 million of GOs at 10:30 a.m. Thursday.

Jessica Lerner contributed to this report.

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