Munis yields fall, new offers bumped, oversubscribed

Tax-exempt yields fell one to 2 foundation points Thursday, the primary time in every week there was motion in triple-A generic benchmark scales, because the imbalance of provide versus the pent-up demand endured and Refinitiv Lipper reported one other multi-billion week of inflows, the 11th consecutive week of inflows.

The Port Authority of New York and New Jersey noticed yields on its exempt and different minimal tax bonds bumped in institutional pricing from Wednesday’s retail providing by as a lot as 10 foundation points in some maturities.

Florida Board of Schooling took its gilt-edged credit score off the day-to-day calendar and competitively bought $134 million to (BofA) Securities at enticing ranges.

Municipals as a proportion of Treasuries had been at 70% in 10 years and 77% in 30 years on Monday, in line with Refinitiv MMD. Ratios dipped under 70% to 68% in 10 years and 79% in 30, in line with ICE Information Companies.

Refinitiv Lipper reported $2.38 billion of inflows into municipal bond mutual funds for the week ending Jan. 20.

“There still seems to be good interest for bonds across the board, and certainly all coupon structures seem to be seeing good activity,” a Charlotte, North Carolina-based dealer stated Thursday.

Credit score spreads proceed to tighten and bid-asked spreads remained tight.

“Depending on the coupon structure, as the week has progressed the amount of opportunity was very limited,” and bid-wanted exercise within the secondary market has slowed, the dealer stated.

“Anyone looking to put money to work has pretty much held the market in check,” he stated. Any new issuance that has come to market has been bought with little effort, as unspent January redemptions from coupon and maturity funds are flush in buyers’ accounts.

Secondary stock absorption has been extra methodical regardless of the elemental bias in place, stated Kim Olsan, senior vp at FHN Monetary. Construction has grow to be much more related with flatter curve slopes.

“Along with optionality and couponing taking part in a lot bigger roles in allocations,” the nuance of credit score selections can be having an impact, she stated.

Olsan famous a number of traits in numerous credit in secondary buying and selling over the earlier 5 days:

• The AA vary captures probably the most exercise on a proportion foundation. Over the survey interval, nearly 55% was traded in AAs. Seller gross sales to prospects had been 30% larger than corresponding seller buys. Credit score considerations have held the AAA vary to about 20% of all quantity. Within the buying and selling interval proven, prospects purchased 44% greater than they bought.
• Buying and selling in single-A bonds reached 13% of all quantity over the survey week, however buyer sells to buys had been extra evenly matched. Yield benefits proceed to slide on this vary on credit score compression the longer decrease charges are in place.
• The non-rated class drew 5% of all quantity — about the identical stage because the BBB vary — as prospects purchased 46% greater than they bought. Flows on this sector communicate to the push in higher-yielding munis the place charges are interesting on an absolute foundation and restoration prospects enhance for the sector later in 2021.

Olsan notes that ICI flows for the reason that March-April 2020 selloff totals almost $70 billion, two months’ worth of latest issuance. The domino impact from such sturdy inflows is that secondary promoting doesn’t have to be so energetic, creating fewer alternatives for brand spanking new inquiry.

“That part, together with the share of taxable provide that has cycled via, are the drivers behind charges holding so regular and so low,” she stated.

Main market
Institutional pricing for the $913 million Port Authority of New York and New Jersey (Aa3/A+/A+) AMT and non-AMT consolidated bonds, books run by (BofA) Securities, noticed ample demand and repriced at decrease yields. Exempts fell as a lot as 10 foundation points. AMT bonds in 2021 with a 5% coupon yield 0.20%, 5 bps decrease than retail scales, 5s of 2026 at 0.64%, 5s of 2031 at 1.35%, 4s of 2036 at 1.84%, 4s of 2040 at 1.99%, 4s of 2046 at 2.17, 4s of 2051 at 2.22%, 4s of 2051 at 2.17%, 5s of 2056 at 2.16%, 4s of 2061 at 2.48%.

Exempts had been priced as 5s of 2030 at 0.95%, 5s of 2031 at 1.07%, 4s of 2036 at 1.58% (10 bps decrease than retail), 4s of 2041 at 1.78%, 4s of 2051 at 2.04%, 5s of 2056 at 1.95% and 4s of 2061 at 2.25%.

One other AMT tranche, $205 million of ahead supply bonds in 2022 with a 5% coupon yield 0.54%, 5s of 2026 at 0.88%, 5s of 2031 at 1.56%, 5s of 2036 at 1.89%, 5s of 2041 at 2.09%.

J.P. Morgan Securities LLC priced $189 million of water income bonds for the Metropolitan Water District of Southern California (Aa1/AAA//). Bonds in 2028 with a 5% coupon yield 0.56%, 5s of 2031 at 0.84%, 5s of 2036 at 1.10%, 5s of 2041 at 1.30%, 5s of 2046 at 1.44% and 5s of 2051 at 1.49%.

Within the aggressive market, J.P. Morgan Securities LLC received priced $155.Eight million of public well being belief program normal obligation bonds from Miami-Dade County, Florida (/AA/AA/). Bonds in 2021 with a 2% coupon yield 0.10%, 5s of 2026 yield 0.36%, 5s of 2031 at 0.93%, 5s of 2036 at 1.22%, 5s of 2041 at 1.43%, 5s of 2046 at 1.62% and 5s of 2049 at 1.65%.

(BofA) Securities received $134 million of PECOs from the Florida Board of Schooling (Aaa/AAA/AAA/). The deal was structured with 5% coupons from 2023 to 2032, yielding 0.17% in 2023, 0.33% in 2026, 0.87% in 2031 and 0.95% in 2032.

Secondary market
Excessive-grade municipals fell one to 2 foundation points, in line with closing readings on Refinitiv MMD’s AAA benchmark scale. Quick yields had been regular at 0.12% in 2022 and 0.13% in 2023. The 10-year fell to 0.76% and the 30-year fell 2 bps to 1.45%.

The ICE AAA municipal yield curve confirmed brief maturities fell a foundation level to 0.12% in 2022 and 0.14% in 2023. The 10-year fell a foundation level to 0.75% whereas the 30-year yield fell to 1.47%.

The IHS Markit municipal analytics AAA curve confirmed yields at 0.14% in 2022 and 0.15% in 2023 whereas the 10-year fell two foundation points to 0.75% and the 30-year yield at 1.44%, additionally two decrease.

The Bloomberg BVAL AAA curve confirmed yields at 0.12% in 2022 and 0.14% in 2023 whereas the 10-year fell a foundation level to 0.74% and the 30-year yield at 1.48%, two foundation points decrease.

The three-month Treasury word was yielding 0.09%, the 10-year Treasury was yielding 1.11% and the 30-year Treasury was yielding 1.87%, three foundation points increased. The Dow rose 23 points, the S&P 500 rose 0.15% and the Nasdaq rose 0.66%.

Financial indicators

The housing and manufacturing sectors remained sturdy, whereas the variety of folks submitting for unemployment advantages, regardless of dipping, remained fairly excessive.

Housing begins and constructing permits jumped in December, as low mortgage charges fueled the expansion, however consultants warn regulation and the price of lumber may grow to be headwinds.

Housing begins gained 5.8% to a seasonally adjusted 1.669 million unit annual charge in December from 1.578 million in November, whereas permits rose 4.5% to 1.709 million from 1.635 million a month earlier.

Economists polled by IFR Markets anticipated 1.560 million begins and 1.604 million permits.

Whereas the coronavirus throttled components of the financial system, housing has remained sturdy, as has manufacturing.

The rise in begins and permits will present “much-needed housing supply to a tight market seeing record-low levels of inventory and rapidly-rising home prices,” stated Joel Kan, Mortgage Bankers Affiliation AVP of Financial and Trade Forecasting.

“Builder considerations a couple of altering regulatory panorama may have triggered many to maneuver up their plans to drag permits and put shovels to the bottom,” stated Nationwide Affiliation of Home Builders (NAHB) chairman Chuck Fowke. “Our newest builder sentiment survey suggests considerably softer numbers forward as a result of rising constructing prices and an unsure regulatory local weather.”

Single-family housing begins had been the very best since September 2006, in line with NAHB Chief Economist Robert Dietz. “And whereas NAHB is forecasting additional manufacturing will increase in 2021, the good points will likely be tempered by ongoing supply-side challenges associated to materials prices and supply occasions, a dearth of buildable tons and regional labor shortages that proceed to exacerbate affordability woes.”

Nonetheless, “the worst of the housing scarcity may quickly come to an finish,” stated Nationwide Affiliation of Realtors Chief Economist Lawrence Yun. “More inventory is clearly needed to lessen the heat of multiple offers and the consequent frustration of multiple losing bids.”

Individually, preliminary jobless claims remained elevated, though barely decrease than the earlier week.

The manufacturing sector continued enlargement, in line with the Federal Reserve Bank of Philadelphia’s Enterprise Outlook Survey. The final enterprise exercise index surged to 26.5 in January from 9.1 in December, whereas the six months from now index climbed to 52.Eight from 43.1.

New orders soared to 30.Zero from 1.9, shipments elevated to 22.7 from 12.Zero and unfilled orders reversed to optimistic 25.6 from unfavorable 0.1.

Costs paid rose to 45.Four from 24.9, whereas costs obtained gained to 36.6 from 16.1.

Preliminary claims within the week ended Jan. 16 slid to 900,000 from 926,000 every week earlier, the Labor Division reported Thursday. `Persevering with claims fell to five.054 million within the week ended Jan. 9 from 5.181 million every week prior.

Christine Albano contributed to this report.