Bonds

Municipals were firmer to close out the month, outperforming U.S. Treasury market losses Thursday, while the California Community Choice Financing Authority jumped into the primary with $1 billion-plus of clean energy revenue bonds, joining other issuers that moved up deals to take advantage of the strong market conditions.

Municipals are poised to return well over 6% for the month as investment grade munis were in the black at 6.08%, high-yield at 7.54% and taxables at 5.57% as of Thursday morning before the day’s moves, per Bloomberg muni indices.

Triple-A yields fell up to five basis points Thursday while UST saw losses of up to 10 basis points, sending muni to UST ratios lower.

November has been an “impressive month,” said Greg Gizzi, head of U.S. fixed income and head of municipal bonds at Macquarie Asset Management.

The two-year muni-to-Treasury ratio Thursday was at 60%, the three-year at 60%, the five-year at 60%, the 10-year at 61% and the 30-year at 84%, according to Refinitiv Municipal Market Data’s 3 p.m., ET, read. ICE Data Services had the two-year at 62%, the three-year at 61%, the five-year at 61%, the 10-year at 64% and the 30-year at 84% at 4 p.m.

Overall, November has been an “impressive month,” said Greg Gizzi, head of U.S. fixed income and head of municipal bonds at Macquarie Asset Management.
Triple-A yields have fallen up to 95 basis points in the month, supply is up 7.8% year-over-year for November and the month is posting positive returns, which has, in turn, led to positive returns year-to-date. The month’s moves put year-to-date returns at 3.72% as of Thursday.

That, Gizzi said, has happened without a substantial return of inflows.

However, outflows have been “mitigating,” he said.

LSEG Lipper reported Thursday investors pulled $63.7 million from muni mutual funds for the week ending Wednesday after inflows of $292.5 million the week prior.

High-yield saw inflows of $64.8 million after inflows of $126.4 million the week prior.

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If Treasury rates stabilize or remain in a range, Gizzi expects to see some inflows into the muni space by yearend.

The last day of the month proved to be active on the buy side of the municipal market — and the year should end just as fruitful, according to Peter Delahunt of Stone X.

Separately managed accounts and exchange-traded funds “continue to see strong inflows while the outflows from the mutual funds have abated,” he said.

The overall attractiveness of the market has helped buoy demand among investors.

“Rates and ratios have come in quite a bit, yet rates are still above the median for the year,” Delahunt said. 

The strongest demand has been observed in the seven- to 10-year area of the curve, Delahunt noted.

As a result, he said rates have come in further than the long end, pushing the curve steeper from 10 years to 30 years.

“At 111 basis points, the 10- to 30-year Refinitiv MMD curve is the steepest it’s been since mid-December of 2016,” Delahunt said.

On an after-tax basis for individuals in the highest tax bracket, munis out to 10 years are a slight push higher versus U.S. Treasuries and less so versus investment-grade corporates, according to Delahunt.

“The often maligned belly of the curve in the 15- to 20-year range now represents some of the better relative value,” he said. “Rich ratios provide those institutions subject to a lower corporate tax rate with an opportunity to pick up significant yield swapping out of tax-exempt munis into taxable munis.”

The coming month should remain steady and attractive.

December, according to Delahunt, is a month with large redemptions and current estimates are for a negative net supply of about $14 billion.

“So ratios may not adjust anytime soon,” he added. 

Gizzi expects the market to stabilize in December. However, he said a lot will ride on the unemployment figure next Friday.

If the employment figure behaves, and the consumer price index “also comes in, heading in the right direction, then we’ll continue to see some performance out of rates, but I think the market is going to need to digest it.”

Heading into next year, technicals will remain favorable, he said.

The market usually sees “good performance” from November through January, so he said he expects to have a “decent start to next year as technicals turn positive.”

Along with the possible return of inflows into muni mutual funds, supply may tick up in 2024.

While next year will not be a “big supply year,” Gizzi said volume could increase by single digits in 2024, “assuming some of this infrastructure money starts to get spent.”

Furthermore, he said current refundings may have a marginal impact on supply.

“It’s looking like for a good start to the year next year, but a lot’s going to ride on the data,” he said.

Some market participants believe the Treasury market has recovered a little too fast.

“We’ll see some consolidation, but the highs of rates is in the rearview mirror,” Gizzi said. “The highs in October were the highs for the cycle.”

“We will [still] experience volatility as the market and economy consolidates, but investors should use volatility as an opportunity to learn about getting involved in the market,” he said.

In the primary market, Goldman Sachs priced for the California Community Choice Financing Authority (A2///) $1.039 billion of Clean Energy Project revenue bonds. The first tranche, $1.014 billion of Series 2023G-1, with 5.25s of 4/2030 at 4.45%, callable 1/1/2030, and 5.35s of 11/2054 with a mandatory tender date of 4/1/2030 at 4.48%, callable 1/1/2030.

The second tranche, $24.520 million of taxable Series 2023G-2, saw 6.125s of 4/2030 price at par, make whole call.

BofA Securities priced for Manatee County, Florida (Aaa//AA+/), $175 million of revenue improvement bonds, with 5s of 10/2026 at 2.73%, 5s of 2028 at 2.63%, 5s of 2033 at 2.76%, 5s of 2038 at 3.33%, 5s of 2043 at 3.69%, 5.25s of 2048 at 4.03% and 5.5s of 2053 at 4.06%, callable 10/1/2033.

Raymond James & Associates priced for the Fort Bend County Public Facilities Corp., Texas (Aa2//AA/), $103.880 million of lease revenue bonds, with 5s of 3/2025 at 3.05%, 5s of 2028 at 2.84%, 5s of 2033 at 3.01%, 5s of 2038 at 3.53%, 5s of 2043 at 3.92%, 5s of 2048 at 4.15% and 5s of 2053 at 4.24%, callable 3/1/2033.

In the competitive market, Westchester County, New York, sold $114.220 million of tax-exempt GOs, 2023 Series A, to Morgan Stanley, with 5s of 12/2025 at 2.65%, 5s of 2028 at 2.41%, 4s of 2033 at 2.58% and 4s of 2038 at 3.15%, callable 12/1/2031.

The county also sold $25.065 million of tax-exempt GOs, 2023 Series B, to Citigroup Global Markets, with 5s of 12/2025 at 2.65%, 6s of 2028 at 2.41%, 4s of 2033 at 2.55%, 4s of 2038 at 3.15% and 4s of 2041 at 3.35%, callable 12/1/2031.

The county sold $34.005 million of taxable GOs, 2023 Series C, to J.P. Morgan, with 5s of 12/2025 at 4.89%, 5s of 2028 at 4.69%, 5s of 2033 at 5.05% and 5.25s of 2036 at 5.27%, callable 12/1/2031, as well.

Additionally, Westchester County sold $15.625 million of taxable GOs, 2023 Series D, to Raymond James & Associates, with 5.5s of 12/2025 at 4.80%, 5.5s of 2028 at 4.60%, 5s of 2033 at par, 5.3s of 2038 at 5.32% and 5.5s of 2041 at par, callable 12/1/2031.

Secondary trading
NYC TFA 5s of 2024 at 3.08% versus 3.14% Tuesday and 3.21% on 11/21. Connecticut 4s of 2025 at 2.95%. San Antonio electric, Texas, 5s of 2026 at 2.89%.

Washington 4s of 2028 at 2.74%. California 5s of 2028 at 2.58%. DASNY 5s of 2029 at 2.64%.

Connecticut 4s of 2032 at 2.92%. California 5s of 2033 at 2.66%-2.67% versus 2.88% Tuesday and 2.90% Monday. NYC 5s of 2034 at 2.88% versus 3.21% on 11/17 and 3.26% on 11/16.

NYC 5s of 2047 at 3.94%-3.93% versus 4.02%-3.96% Wednesday and 4.04% Tuesday. Massachusetts 5s of 2053 at 4.03%-4.05% versus 4.12%-4.09% Wednesday and 4.23%-4.18% Tuesday.

AAA scales
Refinitiv MMD’s scale was bumped two to five basis points: The one-year was at 3.00% (-2) and 2.84% (-2) in two years. The five-year was at 2.59% (-2), the 10-year at 2.63% (-5) and the 30-year at 3.77% (-2) at 3 p.m.

The ICE AAA yield curve was bumped one to three basis points: 3.01% (-1) in 2024 and 2.87% (-2) in 2025. The five-year was at 2.61% (-2), the 10-year was at 2.71% (-3) and the 30-year was at 3.77% (-3) at 4 p.m.

The S&P Global Market Intelligence municipal curve was bumped three to four basis points: The one-year was at 2.93% (-3) in 2024 and 2.80% (-3) in 2025. The five-year was at 2.65% (-4), the 10-year was at 2.72% (-4) and the 30-year yield was at 3.73% (-4), according to a 3 p.m. read.

Bloomberg BVAL was bumped two to four basis points: 2.91% (-3) in 2024 and 2.84% (-3) in 2025. The five-year at 2.59% (-3), the 10-year at 2.67% (-3) and the 30-year at 3.73% (-2) at 4 p.m.

Treasuries were weaker.

The two-year UST was yielding 4.718% (), the three-year was at 4.483% (+8), the five-year at 4.306% (+9), the 10-year at 4.364% (+10), the 20-year at 4.713% (+10) and the 30-year Treasury was yielding 4.535% (+10) near the close.

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