Munis outperform amid solid demand ahead of hefty new-issue slate

Bonds

Municipals were lightly traded in a post-Thanksgiving holiday-shortened session, but the asset class held onto a firmer tone Friday following an improved U.S. Treasury market, ahead of what’s building up to be a sizable new-issue slate for the first week of the last month of 2024.

Demand for paper will be bolstered by the $16 billion of redemptions coming Monday while the 22nd consecutive week of fund inflows signal further investor support. LSEG Lipper reported fund inflows of $559.4 million for the week ending Nov. 27, down from the $1.29 billion the prior week. High-yield municipal bond funds saw inflows of $300.4 million compared to $609.3 million the previous week.

Inflows were dominated by long-term funds at $657 million, with short-term funds were also positive on the week at $75 million, per LSEG Lipper data.

Peter DeGroot, managing director and head of the investment bank’s municipal research and strategy team at J.P. Morgan, noted his firm’s estimates are higher at $1.8 billion total inflows with $737 million going into open-end funds and $1.0 billion into exchange-traded funds, adding that the firm’s observations include reinvestment capital.

J.P. Morgan estimates the vast proportion of inflows were concentrated in long-term funds at $1.5 billion, another signal that retail is engaged at these levels.

Investors will be greeted Monday by an estimated $13 billion calendar with a broad array of new-issues from credits across the spectrum — from transportation and airports to affordable housing and senior living. It’s led by a $1.5 billion New Jersey Transportation Trust Fund Authority deal, $804.515 million of revenue bonds from Greater Orlando Aviation Authority , Connecticut’s $768.78 million of special tax obligation bonds transportation infrastructure purposes, Hawaii’s price Wednesday $750 million of taxable general obligation bonds, as well as tax-exempt and taxable refunding bonds from the Illinois Sales Tax Securitization Corp.

While issuance came in lower in November than last year’s totals for the month, it still has put the market on pace to break 2020’s records and very likely reach $500 billion.

Municipals have gained 1.73% in November, as of Friday morning per the Bloomberg Municipal Index, outperforming USTs by 129 basis points. The investment grade index is returning 2.55% year-to-date. High-yield munis are returning 2.15% in November and 8.12% in 2024 while taxable municipals are now returning 1.66% in November and 4.13% year to date.

USTs are seeing returns of 1.81% in 2024. Corporates are in the black at 0.85% in November and 3.64% in 2024.

November’s closing sessions have also brought “a reversal of a stagnant curve that took hold in the second week of the month,” noted Kim Olsan, senior fixed income portfolio manager at NewSquare Capital.

Benign economic data has buoyed UST yields … and likewise helped munis find a renewed bidside. With just about four full weeks left in the year, the outlook for munis appears supportive,” she said.

Olsan said several factors are lining up to provide a constructive tone for munis early in 2025, including attractive taxable-equivalent yields, a solid municipal credit picture and a more engaged retail investor.

Despite the late-month rally taking “closely watched AAA intermediate and long yields through psychological levels with the 10-year at 3% and 30-year at 4%, taxable equivalent yields are holding attention,” she said. 

“Away from super-specialty state credits, general market yields throw off taxable equivalent yields ranging from 5% to upward of 6% at the longer end of the curve,” she said. ”Against taxable alternatives, the net yield advantage is 75 to more than 150 basis points.”

Recent trading also suggests more smaller trade sizes, even as yields have declined. Olsan analyzed trade data over the last year that showed the average daily par value transacted was $13 billion across 57,000 unique trades. November’s daily par value has also averaged $13 billion but the trade count has risen to 67,000, she said. That increase suggests higher volume is occurring in smaller trades.  

“Should the pattern continue into 2025, it could be inferred that retail participation (via direct and fee-managed profiles) will allow steady to firmer yield performance even if supply does increase from 2024’s levels,” Olsan said. ”The latest Federal Reserve data show the individual-held category within the asset class remains at 45%, or more than twice that of the mutual-fund figure.”

There have also been more ratings upgrades than downgrades this year, Olsan said.

“In a stable economic environment, states’ major sources of revenue including income and sales/use taxes have supported influxes into rainy day funds,” she said, citing Pew Trust research that shows the median number of days states could operate was 48 for fiscal 2024, as compared to 16 days a decade ago.

AAA scales
Refinitiv MMD’s scale was unchanged: The one-year was at 2.73% (unch) and 2.59% (unch) in two years. The five-year was at 2.61% (unch), the 10-year at 2.78% (unch) and the 30-year at 3.62% (unch) at 1 p.m.

The ICE AAA yield curve was bumped up to four basis points: 2.79% (-3) in 2025 and 2.60% (-4) in 2026. The five-year was at 2.58% (-4), the 10-year was at 2.78% (-4) and the 30-year was at 3.58% (-4) at 2 p.m.

The S&P Global Market Intelligence municipal curve was unchanged: The one-year was at 2.80% (unch) in 2025 and 2.62% (unch) in 2026. The five-year was at 2.56% (unch), the 10-year was at 2.80% (0) and the 30-year yield was at 3.58% (unch) at 3 p.m.

Treasuries made gains.

The two-year UST was yielding 4.161% (-5), the three-year was at 4.092% (-6), the five-year at 4.05% (-7), the 10-year at 4.174% (-7), the 20-year at 4.451% (-6) and the 30-year at 4.365% (-6) at 2 p.m.

Primary to come:
The New Jersey Transportation Trust Fund Authority (A2/A-/A/A) is set to price Thursday $1.5 billion of transportation program bonds, 2024 Series CC, serials 2030-2044, terms 2049, 2055. Barclays Capital Inc.

The Greater Orlando Aviation Authority is set to price Thursday $804.515 million of senior and subordinate revenue bonds, consisting of $152.53 million of senior (Aa2/AA/AA/AA+) and $651.985 million of subordinate (Aa3/AA-/AA-/AA). J.P. Morgan Securities LLC.

Connecticut (Aa3/AA/AA-/AAA) is set to price Wednesday $768.78 million of special tax obligation bonds transportation infrastructure purposes, Series 2024 A-2. Goldman Sachs & Co. LLC.

Hawaii (Aa2/AA+/AA/) is set to price Wednesday $750 million of taxable general obligation bonds, Series GN, serials 2025-2043. BofA Securities.

The Sales Tax Securitization Corp., Illinois, is set to price Wednesday $546.31 million of sales tax securitization refunding bonds, consisting of $142.09 million of senior lien refunding bonds, Series 1, (/AA-/AAA/AAA), serials 2029, 2031-2044; $ 404.22 million of second-lien Series 2, (/AA-/AA-/AA+), serials 2029-2030, 2032-2041. RBC Capital Markets.

The Sales Tax Securitization Corp., Illinois, is also set to price Thursday $133.37 million of taxable second lien sales tax securitization refunding bonds, serials 2025, 2027-2029, 2039. RBC Capital Markets.

The New York City Housing Development Corp. (Aa2/AA+//) is set to price Thursday $397.725 million of multi-family housing revenue bonds, consisting of $269.53 million of 2024 Series F-1 sustainable development bonds and $128.195 million of Series F2 sustainable development bonds. Jefferies LLC.

The New York City Housing Development Corp. is also set to price Tuesday $346.1 million of 8 Spruce Street taxable multi-family mortgage revenue bonds consisting of $276.8 million of Series A taxables (Aaa///), serials 2031, $49.6 million of Series B taxables (Aa3///), and $19.7 million of Series C taxables (A2///), serials 2031. BofA Securities.

The Industrial Development Authority of Mobile County, Alabama, (Baa3/BBB-//) is set to price $480 million of AM/NS Calvert LLC Project solid waste disposal revenue bonds, Series 2024B. BofA Securities.

Austin, Texas, (/AAA/AA+/) is set to price Wednesday $434.965 million in three series, consisting of $301.525 million of public improvement and refunding bonds, Series 1, $103.67 million of Series 2024 certificates of participation, and $29.77 million of Series 3 public property finance contractual obligations. Piper Sandler & Co.

The Parish of St. John the Baptist, Louisiana, (A2/A-/A/) is set to price Thursday $400 million of Marathon Oil Corporation Project revenue refunding bonds, Series 2017, remarketing, serials 2037. Barclays Capital Inc.

St. Vrain Valley School District, Colorado, (Aa1/AA+//) is set to price Wednesday $346.55 million of general obligation bonds, insured by Colorado State Intercept Program, serials 2025-2032, 2034-2039. Stifel, Nicolaus & Company, Inc.

The Cherry Creek School District No. 5, Colorado, (Aa1/AA+//) is set to price Tuesday $316.67 million of general obligation bonds Series 2024, insured by Colorado State Intercept Program, serials 2025-2026, 2032-2044. RBC Capital Markets.

The New Jersey Housing and Mortgage Finance Agency (/AA-//) is set to price Tuesday (retail Monday) $272.875 million of non-AMT social multi-family revenue bonds. Barclays Capital Inc.

The Cumberland County Industrial Development Facilities and Pollution Control Financing Authority (Aaa///) is set to price Thursday $250 million of Project Aero solid waste disposal revenue bonds, serials 2027. Oppenheimer & Co.

The Wisconsin Health and Educational Facilities Authority (nonrated) is set to price Wednesday $239.655 million of Chiara Housing and Services, Inc. Project senior living revenue bonds, terms 2035, 2045, 2055, 2060. D.A. Davidson & Co.

The Colorado Bridge and Tunnel Enterprise (Aa1/AA+//) is set to price Thursday $238.975 million of senior revenue refunding bonds, Series 2024B, serials 2028-2049. Wells Fargo Bank, N.A. Municipal Finance Group.

The New York City Housing Development Corp. is set to price Tuesday $203.9 million of 8 Spruce Street tax-exempt multi-family mortgage revenue bonds, consisting of $25.5 million of Series D (Baa1///), serials 2031, $52.5 million of Series E (Baa3///), serials 2031, and $125.9 million of Series F (nonrated), serials 2031. BofA Securities.

The Illinois Housing Development Authority (Aaa///) is set to price Tuesday $200 million of non-AMT social revenue bonds, serials 2029, terms 2044, 2050, 2055. Wells Fargo Bank, N.A. Municipal Finance Group.

The Westfield Washington Multi-School Building Corp., Indiana, (/AA+//) is set to price Tuesday $188.61 million of ad valorem property tax first mortgage bonds, insured by Indiana State Aid Intercept Program, serials 2027-2044. Stifel, Nicolaus & Company, Inc.

The Maryland Community Development Administration (Aaa///) is set to price Tuesday $178 million of Villages at Marley Station sustainability multifamily development revenue bonds, consisting of $95.22 million of Series D-1 Fannie Mae MBS-secured, serials 2029-2036, terms 2039, 2044, and $82.78 million of Series D2, term 2029. Jefferies LLC. 

The Karegnondi Water Authority, Michigan, (/AA//) is set to price $166.135 million of Karegnondi Water Pipeline water system refunding bonds, insured by BAM. J.P. Morgan Securities LLC.

The Capital Projects Finance Authority, Florida, is set to price Thursday $144.4 million of PRG – Unionwest Properties LLC Project student housing revenue bonds, consisting of $108.385 million of Series 24A-1 (Ba1///), serials 2033-2044, terms 2049, 2054, 2058, $7.455 million of Series Taxable (Ba1///), serials 2026-2033, and $28.56 million of Series Subordinate B (nonrated), term 2062. BofA Securities.

Chicago (/BBB+/A-/A) is set to price Thursday $126.595 million of general obligation refunding bonds, serials 2025, 2029, 2031-2035. RBC Capital Markets.

The FAU Finance Corp., Florida, (A1//A+/) is set to price Thursday $117.75 million of capital improvement revenue bonds, serials 2027-2044, terms 2049, 2054. BofA Securities.

The Westfield Washington Multi-School Building Corp., Indiana, (/AA+//) is set to price Tuesday $115.205 million of ad valorem property tax first mortgage bonds, Series 2024 B, insured by Indiana State Aid Intercept Program, serials 2027-2044. Stifel, Nicolaus & Company, Inc.

The Adams County General Authority, Pennsylvania, (//BBB+/) is set to price Thursday $110.815 million of The Brethren Home Community Project Series 2024 revenue bonds. HJ Simms & Co.

The Illinois Housing Development Authority (Aaa///) is set to price $100 million of taxable revenue social bonds, Series J, serials 2025-2036, terms 2039, 2041. Ramirez & Co., Inc.

Competitive:

Anchorage (/A//) is set to sell $181.86 million of AMT port revenue bonds, Series 2024A, at 11 a.m. eastern Tuesday.

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