A softer tone emerges out long, some concessions had on new deals

Bonds

Municipals played catch up to U.S. Treasuries and were softer outside of 10 years, but the primary was the focus Tuesday with several large new issues repriced to lower and higher yields.

Triple-A benchmarks rose one to two basis points, USTs were little changed on the day in the 10-year and off a basis point on the 30, while equities lost ground as participants in all markets await tomorrow’s Federal Open Market Committee meeting.

In the primary, the New York City Housing Development Corp. bumped bonds inside 10 years and the San Mateo-Foster City Public Financing Authority saw one to five basis point bumps while issues from Colorado’s portion of the AdventHealth deal saw three- to five-basis-point cuts to its longer-dated maturities and the University of South Carolina saw its deal reprice to higher yields out long by as much as 10 basis points, indicative of the broader market’s aversion to such low rates.

Municipal to UST ratios were at 59% in 10 years while the 30-year was at 65%, according to Refinitiv MMD. ICE Data Services had the 10-year muni-to-Treasury ratio at 59% and the 30-year ratio stood at 65%.

“It’s the start of summer and I think there’s not a lot of new deals for the buyers to sink their teeth into,” a New York trader said. Although flows have been positive for months, the trader said rates on plain-vanilla high-quality bonds are too low and percentages are too tight.

“For the most part, munis are kind of unattractive and people are sitting on money, which makes it tough,” he added, noting even with some large volume weeks on the calendar of late, supply has not been enough.

“People don’t want to sell because they can’t replace their bonds, and on the other hand they don’t want to take the gains,” he said.

In the primary, J.P. Morgan Securities LLC repriced $714.6 million of hospital revenue refunding bonds in three offerings for the AdventHealth Obligated Group.

The first, $485.8 million for Series 2021A hospital revenue bonds the Colorado Health Facilities Authority saw three- to five-basis-point cuts to scales. Bonds in 2037 with a 5% coupon yield 1.40% (+3), 5s of 2041 at 1.53% (+3), 4s of 2046 at 1.84% (+5), 4s of 2050 at 1.88% (+5) and 3s of 2051 at 2.19% (+5), callable in 11/15/2031.

The second, $178.6 million of Series 2021 B&C hospital revenue bonds for the Kansas Development Finance Authority, mature in 2054 with a mandatory put on 11/15/2028 with a 5% coupon and yield 0.87% and another tranche matures in 2054 with an 11/15/2031 mandatory put with a 5% coupon to yield 1.19%.

The last, $50.2 million for the Orange County, Florida, Health Facilities Authority ( Aa2/AA/AA/), mature 11/15/2052 with a mandatory put on 11/15/2026 with a 5% coupon yield 0.58%.

Morgan Stanley & Co. LLC priced $660 million of commodity supply revenue bonds (Project No. 2) for the Southeast Energy Authority, a Cooperative District, Alabama (A1///). Bonds in 2022 with a 4% coupon yield 0.14%, 4s of 2026 at 0.68%, 4s of 6/2031 at 1.44%, 4s of 12/2031 at 1.49%, callable in 9/1/2031. Bonds in 12/2051 with a 12/1/2031 mandatory put date with a 4% coupon yield 1.50%, callable in 9/1/2031.

J.P. Morgan Securities LLC priced $500 million of sustainable development multifamily housing bonds for the New York City Housing Development Corp. (Aa2/AA+//). The first $258.3 million, saw all bonds priced at par, in 5/2023 at 0.15% (-5), 11/2023 at 0.20% (-5), 5/2026 at 0.60% (-5), 11/2026 at 0.65% (-5), 5/2031 at 1.65%, 11/2031 1.70%, 11/2036 at 2.10%, 11/2041 at 2.25%, 11/2051 at 2.50%, 11/2056 at 2.60% and 11/2061 at 2.70%. The second, $241.89 million, saw bonds mature in 5/2061 with a mandatory tender on 7/1/2024 yield 0.70%, callable in 7/1/2023.

BofA Securities repriced $349 million of 2021 wastewater revenue notes for the San Mateo-Foster City Public Financing Authority. The first, $62.8 million of Series 2021A Estero Municipal Improvement District (Aa2/AA//) saw bonds in 2025 with a 5% coupon yield 0.39%, bumped 3 basis points. The second, $272.1 million of Series 2021B City of San Mateo (Aa2/AA-//) saw 5s of 2025 yield 0.40% (-5 basis points) and $14.5 million of Series A refunding bonds (Aa2///) saw 2s of 2022 yield 0.07% (-1), 5s of 2026 at 0.43% (-2), 5s of 2031 at 0.92% (-3), 4s of 2036 at 1.29% and 3s of 2041 at 1.65%.

Ramirez & Co., Inc. priced $286.9 million of clean water and drinking water revolving funds revenue bonds (New York City Municipal Water Finance Authority projects — second resolution bonds) Series 2021 A, Subordinated SRF bonds, on behalf of the New York State Environmental Facilities Corp. (Aaa/AAA/AAA/). Bonds in 2022 with a 5% coupon yield 0.08%, 5s of 2026 at 0.42%, 5s of 2031 at 0.94%, 3s of 2036 at 1.46% and 3s of 2041 at 1.65%.

Barclays Capital Inc. repriced $170.1 million of Campus Village Project taxable higher education revenue bonds for the University of South Carolina (Aa2//AA/). Bonds in 2026 with a 5% coupon yield 0.45%, 5s of 2031 at 1.02% (+3), 5s of 2036 at 1.30% (+7), 5s of 2041 at 1.49% (+10), 5s of 2046 at 1.65% (+10) and 4s of 2051 at 1.83% (+10).

Wells Fargo Securities priced $125.3 million of waterworks and sewer system refunding revenue bonds for the city of Charleston, South Carolina, (Aaa/AAA//). Bonds in 2026 with a 4% coupon yield 0.37%, 4s of 2031 at 0.92% and 4s of 2035 at 1.32%.

In the competitive arena, the South Carolina Transportation Infrastructure Bank sold $317.8 million of revenue refunding bonds to Morgan Stanley & Co. LLC. Bonds in 2022 with a 5% coupon yield 0.05%, 5s of 2026 at 0.50% and 5s of 2031 at 1.05%.

The Pennsylvania Higher Educational Facilities Authority (Aa3//A+/) sold $142.7 million of taxable state system of higher education revenue bonds to R.W. Baird. Bonds in 2022 with a 3% coupon yield 0.20%, 3s of 2026 at 1.05%, 3s of 2031 at 2.00%, 2.5s of 2036 at par and 2.75s of 2041 at par, 3s of 2047 at par.

Secondary trading and scales
Trading showed a softer tone out longer, but steady up front.

Austin, Texas, 5s of 2022 at 0.09%. Anne Arundel, Maryland, 5s of 2025 traded at 0.35%. Maryland 5s of 2025 at 0.32%-0.31%. South Carolina 5s of 2025 at 0.31%. New York Dorm PIT 5s of 2024 at 0.31%. New York City 5s of 2026 at 0.38%. New York City water 5s of 2026 at 0.39%.

Maryland 5s of 2027 at 0.51%. Loudoun County, Virginia, 5s of 2030 at 0.92%-0.91%. Denver City and County 5s of 2035 at 1.07%-1.05%. Hawaii 5s of 2036 at 1.14%.

Fairfax County water and sewer 4s of 2041 at 1.32%-1.31%. Washington 5s of 2043 at 1.42%-1.41%.

New York Dorm PIT 5s of 2049 at 1.64%-1.63%.

High-grade municipals were weaker on Monday, according to Refinitiv MMD’s AAA. Short yields were steady at 0.06% and 0.08% in 2021 and 2022. The yield on the 10-year remained at 0.89% while the yield on the 30-year rose two basis points to 1.41%.

The ICE AAA municipal yield curve showed short maturities steady in 2022 at 0.04% and 0.08% in 2023. The 10-year maturity was flat at 0.90% and the 30-year yield was two basis points higher at 1.43%.

The IHS Markit municipal analytics AAA curve showed short yields at 0.06% and 0.09% in 2021 and 2022, respectively, with the 10-year one higher at 0.88% and the 30-year yield rose one basis point to 1.42%.

Bloomberg BVAL AAA curve showed short yields at 0.05% and 0.07% in 2021 and 2022, with the 10-year one basis point higher at 0.87% and the 30-year yield at 1.42%, up one.

In late trading, the 10-year Treasury was yielding 1.50% and the 30-year Treasury was yielding 2.20%. Equities were off near the close, with the Dow Jones losing 64 points, the S&P 500 down 0.13% and the Nasdaq lost 0.71%.

Indicators abound
Tuesday’s data may not be indicative of where the economy is going and will likely be written off by the Federal Open Market Committee at its meeting.

The panel will continue to see the larger-than-expected producer price index gain as transitory, while a “soft” retail sales read for May, partly offset by an upward revision to April’s figures, won’t faze the central bank, analysts said.

“Because of the unique characteristics of this cycle and where we are in terms of returning to some semblance of normal consumer activity, [the retail sales report] may not be the best barometer for a few months,” according to Tim Quinlan, senior economist and Shannon Seery, economist at Wells Fargo Securities.

Retail sales fell 1.3% in May after an upwardly revised gain of 0.9% in April, originally reported as flat. Excluding autos sales slid 0.7% after an unrevised flat read in April.

Economists polled by IFR Markets predicted sales would decline 0.8%, with ex-autos ticking up 0.4%.

The report suggested consumers are shifting from online purchases and items for their homes to vacations and meals out, Quinlan and Seery said.

Berenberg chief economist for the U.S., Americas and Asia Mickey Levy said, “The April-May retail sales data suggest that, as the economy reopens, consumer spending on services (particularly food services and drinking places) is rebounding rapidly while sales of goods has cooled.”

Supply shortages and “insufficient inventories” are largely responsible for the slow sales of goods.

Separately, the producer price index gained 0.8% in May, after an unrevised gain of 0.6% in April and the core grew 0.7%, the same percentage increase as in April. Year-over-year PPI rose 6.6% and the core grew 4.8%.

Economists expected the headline number and the core to each rise 0.6% in the month and 6.3% and 4.8% for the annual growth.

The numbers, Levy said, are “further evidence of mounting inflation pressures.”

As production costs accelerate, he said, “businesses have the flexibility provided by strong product demand to raise product prices and maintain margins. The pipeline for higher consumer inflation is still filling.”

Elsewhere, New York manufacturing expanded at a slower pace in June, according to the Federal Reserve Bank of New York. The general business conditions index fell to 17.4 in June from 24.3 in May. Economists anticipated a reading of 22.0.

Price indexes in the survey slipped but remain elevated, “suggesting ongoing significant price increases.”

Prices paid decreased to 79.8 from 83.5 and prices received dropped to 33.3 from 37.1.

Also released Tuesday, industrial production climbed 0.8% in May, after a downwardly revised increase of 0.1%, first reported as a 0.5% gain.

Economists expected a 0.6% increase.

Capacity utilization rose to 75.2% in May from an unrevised 74.6% in April.

Economists predicted a 75.0% level.

Also released, business inventories dipped 0.2% in April after a revised gain of 0.2% in March, originally reported as a 0.3% rise.

Economists projected inventories would slip 0.1%.

Business sales ticked up 0.6% in April after a jump of 5.8% in March.

Finally, the National Association of Home Builders’ housing market index fell two points to 81 in June 83 in the prior month.

Economists estimated a reading of 83.

“While builders have adopted a variety of business strategies including price escalation clauses to deal with scarce building materials, labor and lots, unavoidable increases for new home prices are pushing some buyers to the sidelines,” said NAHB chief economist Robert Dietz. “Moreover, these supply-constraints are resulting in insufficient appraisals and making it more difficult for builders to access construction loans.”

Primary market
The Dormitory of the State of New York (/AA+/AA+/) is set to price $1.858 billion of taxable and tax-exempt state personal income tax general purpose revenue bonds. Jefferies LLC is head underwriter.

The Port of Seattle is set to price $811 million of refunding bonds on Thursday with first lien revenue refunding bonds and intermediate lien revenue and refunding bonds and consists of Series 2021 (Aa2/AA-/AA/) and Series 2021 A, B, C and D (A1/A+/AA-/). Barclays Capital Inc. is bookrunner.

The Commonwealth Financing Authority, Pennsylvania, (A1/A/A+/) is set to price on Wednesday $343.5 million of revenue bonds. Piper Sandler & Co. is lead underwriter.

The Oklahoma Municipal Power Authority (/A/A/) is set to price on Thursday $261.1 million of taxable power supply system revenue refunding bonds, serials 2025-2047. BofA Securities is lead underwriter.

The Metropolitan Water District of Southern California (/AA+/AA+/) is set to price $222.1 million of taxable variable rate subordinate revenue refunding bonds on Tuesday. BofA Securities will run the books.

Norfolk, Virginia, (/AAA//) is set to price $210.8 million of taxable general obligation bonds on Tuesday. BofA Securities is lead underwriter.

The Santa Monica-Malibu Unified School District SFID No. 1 (Aa1/AA+//) is to price on Thursday $194 million of general obligation bonds, election of 2018. Raymond James & Associates, Inc. is head underwriter.

Lee County, Florida, (A2//A/A+) is set to price on Thursday $140.8 million of AMT airport revenue refunding bonds. BofA Securities is head underwriter.

The Yamhill County Hospital Authority (////) is set to price on Wednesday $132.6 million of revenue and refunding bonds. Ziegler is head underwriter.

The Los Rios Community College District (Aa2/AA//), California, is set to price on Wednesday $130 million of general obligation bonds, serials 2022-2035. UBS Financial Services Inc. is lead underwriter.

Forsyth County, North Carolina, (Aa1/AA+/AA+/) is set to price on Thursday $125.2 million of taxable limited obligation bonds. PNC Capital Markets LLC is head underwriter.

The Philadelphia Authority for Industrial Development (Aa2/AA//) Is set to price on Thursday $125 million of Children’s Hospital of Philadelphia Project hospital revenue refunding bonds. J.P. Morgan Securities LLC will run the books.

On Thursday, New Mexico is selling $307.665 million of Series 2021A severance tax bonds. Fiscal Strategies Group and Public Resources Advisory Group are the financial advisors. Rodey, Dickason and Sherman & Howard are the bond counsel.

The University of Illinois is set to sell $137.48 million of taxable facility systems revenue bonds at 11:30 a.m. eastern.

Christine Albano contributed to this report.

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