Municipal secondary trading was light and triple-A benchmark yields left unchanged as the large primary diverted attention while U.S. Treasuries were weaker again and equities rallied.

Trading was down 18% from Monday, which was already a light day at $5.6 billion par traded, as new issues were the focus and provided some direction.

The day’s moves led to ratios falling again with the five-year muni to UST ratio at 47%, the 10 at 72% and the 30 at 83%, according to ICE Data Services. Refinitiv MMD’s 3 p.m. read had them at 48% in five years, 70% in 10 and 82% in 30.

Chicago priced its upsized deal with some small concessions in a repricing but the 10-year yield showed a 61 basis point spread to AAA benchmarks, which compares to a 109 basis point spread on its 2020 10-year bond. Golden State Tobacco priced, the Bay Area Toll Authority priced $615 million of San Francisco Bay Area Toll Bridge revenue bonds, the Maine Turnpike Authority priced forward delivery bonds and Little Rock, South Dakota, sold short-call refunding bonds.

The 30-day visible supply dropped to $13.54 billion with still a large chunk of new issues to be priced Wednesday and Thursday. The bulk of the month’s new issues are likely front-loaded and most analysts expect the primary to quiet down closer to the holidays.

In the primary, Jefferies priced for the Golden State Tobacco Securitization Corp. $2.799 billion of senior taxable current interest bonds, consisting of $2.274 billion of Series 2021A-1 from +60 UST in 20222 to +245 in 2050, callable in 12/1/2031, and $525 million of subordinate taxable Series 2021B-1, terms 2031 and 2050.

Jefferies also priced for the Golden State Tobacco Securitization Corp. $1.387 billion of tobacco settlement asset-backed bonds, Series 2021B-2 subordinate capital appreciation zero coupon bonds, maturing in 6/2066 at 3.75%, callable 12/1/2031.

BofA Securities priced for the LBJ Infrastructure Group (Baa2//BBB/) $608.5 million of taxable senior secured corporate CUSIP, maturing 12/31/2057 at 3.797% par, callable 6/30/2057.

Loop Capital Markets priced and repriced $444.875 million of GOs for Chicago (/BBB+/BBB-/A) with some concessions in the repricing, with yields rising on bonds by two to five basis points and spreads of 33 to 86 basis points to Refinitiv MMD’s early scale. Bonds with a 5% coupon in 1/2024 yield 0.62% (+33), 5s of 2027 at 1.05% (+45), 5s of 2031 at 1.64% (+61), and 4s of 2036 at 2.01% (+86 bps, +77 bps to MMD 4%).

Citigroup Global Markets priced for the Bay Area Toll Authority, California (Aa3/AA/AA/) $338.5 million of San Francisco Bay Area Toll Bridge revenue bonds with bonds maturing in 4/2056 at 2.6% par, callable 4/1/2031.

J.P. Morgan Securities priced for the Bay Area Toll Authority (Aa3/AA/AA/) $276.715 million of San Francisco Bay Area Toll Bridge revenue bonds, consisting of $150 million of 2021 Series D, maturing in 4/2056 with a mandatory tender 4/1/2027 at SIFMA +30, callable 4/1/2026, and $126.715 million of 2021 Series E, maturing in 4/2056 with a mandatory tender 4/1/2028, at SIFMA +41, callable 4/1/2027.

Citigroup Global Markets priced for Lakeland, Florida, (/AA/AA/) $129.46 million of energy system revenue bonds. Bonds in 10/2022 with a 5% coupon yield 0.17%, 5s of 2026 at 0.64%, 5s of 2031 at 1.17%, 5s of 2036 at 1.40%, 4s of 2041 at 1.66%, callable 10/1/2031, and 5s of 2048 at 2.35% (noncall).

BofA Securities priced for the Maine Turnpike Authority (Aa3/AA-/AA-/) $102.555 million of forward delivery turnpike revenue refunding bonds. Bonds in 7/2023 with a 5% coupon yield 0.35%, 5s of 2026 at 0.83%, 5s of 2031 at 1.37%, 5s of 2036 at 1.54%, 4s of 2041 at 1.86%, 4s of 2042 at 1.89%, callable 7/1/2032.

In the competitive market, Little Rock, South Dakota, (Aa2///) sold $315.94 million of refunding and construction bonds to Wells Fargo Corporate & Investment Banking. Bonds in 2/2023 with a 5% coupon yield 0.35%, 5s of 2026 at 0.70%, 3s of 2031 at 1.44%, 2s of 2036 at 2.07%, 2.25s of 2041 at par, 3s of 2046 at 2.13%, 3s of 2051 at 2.18% and 2.5s of 2052 at 2.645%, callable 2/1/2027.

Secondary trading
Tennessee 5s of 2022 at 0.13%. Ohio water 5s of 2022 at 0.17%-0.15%. Utah 5s of 2023 at 0.26%-0.25%. Columbus, Ohio, 4s of 2023 at 0.27%. Mecklenburg County, North Carolina, 5s of 2023 at 0.26%. North Carolina 5s of 2023 at 0.28%.

Maryland 5s of 2024 0.36%. Cambridge, Massachusetts, 5s of 2024 at 0.36%. Georgia 5s of 2025 at 0.42%.

Maryland 5s of 2029 at 0.89%. District of Columbia 5s of 2031 at 1.05%-1.04%. Georgia 5s of 2032 at 1.07%. Georgia 5s of 2032 at 1.06%. University of NC Chapel Hill 5s of 2032 at 1.11%-1.08%. Washington 5s of 2033 at 1.17%. Washington 5s of 2035 at 1.24%.

Los Angeles DWP 5s of 2046 at 1.51%, the same as Monday. Ohio water green 4s of 2046 at 1.67%-1.64% (1.71% original). Ohio water green 5s of 2046 at 1.51% versus 1.47%-1.46% Friday and 1.54% original.

New York City TFA 4s of 2048 at 1.91%. New York City water 5s of 2051 at 1.66%-1.65%.

AAA scales
Refinitiv MMD’s scale was unchanged: the one-year at 0.15% and 0.24% in 2023. The 10-year sat at 1.03% and at 1.48% in 30.

The ICE municipal yield curve showed yields unchanged at 0.17% in 2022 and up one to 0.28% in 2023. The 10-year maturity sat at 1.04% and the 30-year yield was steady at 1.49%.

The IHS Markit municipal analytics curve was steady: 0.17% in 2022 and at 0.25% in 2023. The 10-year was at 1.02% and the 30-year at 1.49% as of a 3 p.m. read.

The Bloomberg BVAL curve was steady at 0.17% in 2022 and 0.22% in 2023. The 10-year yield sat at 1.04% and the 30-year yield sat at 1.48%.

Treasuries were weaker and equities rallied.

The five-year UST was yielding 1.259%, the 10-year at yielding 1.480%, the 20-year at 1.882% and the 30-year Treasury was yielding 1.806% at the close. The Dow Jones Industrial Average gained 492 points or 1.40%, the S&P was up 2.07% while the Nasdaq gained 3.03% at the close.

All eyes on inflation, Fed
With the Federal Open Market Committee meeting next week, the market remains focused on inflation and what the Federal Reserve will do about it.

Fed Chair Jerome Powell told Congress the panel will discuss accelerating the taper of asset purchases and with a new Summary of Economic projections, the market will get a clearer picture of what the decision makers expect in terms of rate hikes.

“The scale and longevity of the global inflation shock has taken most forecasters and central banks by surprise and is bringing forward the start of global monetary policy normalization,” according to an outlook published by Fitch Ratings.

Demand continues to outpace production, with supply chain issues holding back GDP and creating price pressures, they said.

As a result, Fitch cut its estimate for 2021 growth to 5.7% and 2022 GDP to a 3.7% gain.

“There are now signs that price level shocks related to pandemic shortages are starting to morph into ongoing inflation,” said Fitch Chief Economist Brian Coulton. “With monetary policy settings still super-loose, this is worrying central bankers.”

Inflation forecasts have been revised higher, Fitch said, “and the increasing prospect of inflation pressures broadening is making central banks nervous.” Core consumer price index “inflation is expected to settle at around 3% in late 2022 and 2023, significantly higher than pre-pandemic rates.”

As a result, Fitch sees the Fed raising rates in September 2022. “The Omicron COVID-19 variant of concern represents a downside risk to growth but could adversely affect supply leading to further price increases, implying risks if central banks delay normalization.”

Fiscal stimulus and Fed intervention “provided a much-needed bridge” early in the COVID era. But one side effect has been rising inflation and wages, according to Grant Thornton Chief Economist Diane Swonk.

“The question for the Federal Reserve is whether what we are enduring will morph into a more entrenched, wage-price spiral, in which wage hikes start to feed into inflation,” she said. “That would require an aggressive jump in rates.”

The firm expects an announcement of an accelerated taper, with a March conclusion of purchases, which will allow the first rate hike in June, followed by two others in 2022.

In recent Congressional testimony, Powell “underscored his concern inflation is becoming broad-based,” Swonk said. “He is not alone. Fed officials as a group have grown far more concerned about the persistence of inflation, even as commodity prices have cooled. This could prompt them to act much more aggressively than currently forecast.”

And inflation, at the highest rates in a generation “shows few if any signs of slowing in the near term,” said Wells Fargo Securities Chief Economist Jay Bryson, Senior Economist Sarah House and Economist Michael Pugliese. “Along with the rapidly tightening labor market, the persistence of inflation pressures has committee members rethinking where policy needs to be positioned to balance the current risks to the outlook.”

They see the FOMC speeding up taper and asset “purchases wrapping up in April 2022 instead of June 2022.”

And the dot plot, to be released after the Dec. 14-15 FOMC meeting may show “a more hawkish tilt,” possibly projecting “at least two 25 basis point rate hikes in 2022, followed by an additional three hikes in both 2023 and 2024,” they said. “That would put the median estimate for the fed funds target range at the end of 2024 at 2.00%-2.25%. Although below the FOMC’s longer-term estimated rate of 2.50%, that is above current market pricing and could feel to some at the party that the punchbowl is being removed.”

In data released Tuesday, the international trade deficit narrowed to $67.1 billion in October from $81.4 billion in September. This was the second largest gain on record (which began in the early 1990s), and was driven by rising exports.

“Our best read is that today’s narrowing in the trade deficit is likely more a story of monthly volatility rather than the start of a sustained narrowing in the deficit,” said Wells Fargo Securities Senior Economist Tim Quinlan and Economist Shannon Seery.

Separately, third quarter productivity was revised to a 5.2% drop from the 5.0% decline initially reported. Productivity rose 2.4% in the second quarter.

Unit labor costs were 9.6% higher in the quarter, up from the 8.3% gain seen in the initial report, after a 5.9% gain in the second quarter. This suggests price pressures will linger.

Also, consumer credit climbed $16.9 billion in October after jumping $27.8 billion in September.

Primary to come
The San Joaquin Hills Transportation Corridor Agency (/A/BBB/) is set to price Wednesday $1.185 billion of taxable senior lien tolls road refunding revenue bonds, Series 2021A and Series 2021B. Goldman Sachs & Co.

The Sales Tax Securitization Corp., Illinois, (/AA/AA-/AA+/) is set to price Wednesday $791.070 million of taxable second lien sales tax securitization bonds, Series 2021B. Loop Capital Markets.

The Sales Tax Securitization Corp. (/AA/AA-/AA+/) is also set to price Wednesday $276.335 million of second lien sales tax securitization bonds, Series 2021A. Loop Capital Markets.

The Massachusetts Water Resources Authority (Aa1/AA+/AA+//) is set to price Thursday $694.09 million of taxable general revenue refunding green bonds, 2021 Series C, serials 2022-2036, terms 2041 and 2044. Citigroup Global Markets.

The Metropolitan Atlanta Rapid Transit Authority (Aa2/AA+//) is set to price Wednesday $381.805 million of taxable sales tax revenue refunding bonds, Series 2021D (green bonds). Goldman Sachs & Co.

Oregon Health and Science University (Aa3/AA-/AA-//) is set to price Thursday $334.115 million of revenue green bonds, Series 2021A. J.P. Morgan Securities.

The New York City Housing Development Corp. (Aa2/AA+///) is set to price Wednesday $319.725 million of corporation multi-family housing revenue bonds, consisting of $137.25 million, 2021 Series K-1 (sustainable development bonds), serials 2026-2033, terms 2036, 2041, 2046 and 2051 and $182.475 million of 2021 Series K-2 (sustainable development bonds), term 2060. Jefferies.

The New York City Housing Development Corp. (Aa2/AA+//) is set to price Wednesday $100 million of taxable index floating rate sustainable development multi-family housing revenue bonds, 2021 Series L. Wells Fargo Corporate & Investment Banking.

Omaha, Nebraska, is set to price Wednesday $146,195 million, consisting of $92.82 million of various purpose and refunding bonds, Series 2021A and $55.375 million of taxable general obligation refunding bonds, Series 2021B. D.A. Davidson & Co.

Pompano Beach, Florida, (//BBB/) is set to price $139.885 million of revenue bonds (John Knox Village Project), Series 2021, consisting of $89.885 million of Series 2021A, $25.43 million of Series B-1 and $24.57 million of Series B-2. HJ Sims & Co.

The New Hope Cultural Education Facilities Finance Corp., Texas, is set to price Thursday $125 million of Jubilee Academic Center education revenue bonds. D.A. Davidson & Co.

Santa Maria Joint Union High School District (Santa Barbara and San Luis Obispo Counties, California) (Aa2///) is set to price Wednesday $114.43 million, consisting of $67 million of Series 2021, serials 2023-2026 and 2030-2042 and $47.43 million of taxables, serials 2022-2037. Raymond James & Associates.

The Massachusetts Housing Finance Agency (Aa1///) is set to price Wednesday $100 million of non-AMT single family housing notes, Series 2021, serial 2022. Citigroup Global Markets.

Competitive
The San Francisco Public Utilities Commission is set to sell $51.145 million of power revenue green bonds, 2021 Series A at 11 a.m. Tuesday and $73.855 million of power revenue bonds, 2021 Series B at 11:30 a.m. Wednesday.

The Dormitory Authority of the State of New York will sell $2.469 billion of personal income tax revenue bonds consisting of $2.141 billion of tax-exempts and $328.08 million of taxables on Thursday.

Pulaski County Special School District, Arkansas, is set to sell $108.75 million of refunding and construction bonds, tax exempt, Series 2021B at noon Thursday.