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All eyes on the primary

Original Source: https://www.bondbuyer.com/news/all-eyes-on-the-primary

Municipal benchmark yield curves were little changed to a touch firmer Tuesday as all eyes were on the primary in which several larger competitive loans were sold and New York City Transitional Finance Authority offered nearly $1 billion to retail investor for the second day with some concessions.

U.S. Treasury yields rose slightly and ratios held to recent levels with the 10-year muni-to-Treasury ratio at 71% and the 30-year at 79%, according to Refinitiv MMD. The 10-year muni-to-Treasury ratio was at 73% while the 30-year was at 78%, according to ICE Data Services.

Daily bid-wanted totals per Bloomberg have fallen to an average par value below $450 million, a steady decline from $640 million per day during the first quarter and $549 million in the second, noted FHN Financial’s Kim Olsan. Bid-wanteds on Monday were $423 million and $219 million on Friday. Trading on Tuesday showed par volume of about $3.6 billion near the close.

“That aspect, combined with fund inflows, has proven to be the linchpin of support and why most spot levels are holding at such low relative value ratios,” she said.

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While not much is expected to change with either metric, September’s trading history can be more volatile, she said, and in recent years has brought a weaker tone in the first half of the month.

“Any adjustment to generic yields sets up better buying conditions and the need for focused premarketing of larger issues,” Olsan said.

Recent deals point to smaller oversubscriptions “as investors weigh comparative values across credit sectors and the reward of any particular structure in a low-rate environment,” she said.

Olsan has noticed an increase in inquiry for 3s and 4s in the intermediate range, where the first 1% yield hits in shorter maturities than in 5s and the premium outlay is more moderate.

“The curve slope is likely to start the new month about 10 basis points steeper than where it ended in July — giving some impetus to modest extension on a coupon-neutral basis or lending some incentive toward lower, shorted-dated coupons,” she said.

In the primary, RBC Capital Markets priced for retail investors for the second day the New York City Transitional Finance Authority (Aa1/AAA/AAA/) $950 million of future tax-secured subordinate bonds with one basis point cuts to maturities inside 20 years: Bonds in 8/2023 with a 3% coupon yield 0.15%, 5s of 2026 at 0.51%, 5s of 2035 at 1.37%, 4s of 2036 at 1.59%, 4s of 2041 at 1.82%, 5s of 2045 at 1.80%, 3s of 2048 at 2.24% and 4s of 2048 at 2.00%.

BofA Securities priced for the New Jersey Healthcare Facilities Authority (/AA-/AA-/) $217.135 million of Atlanticare Health System Obligated Group revenue bonds. Bonds in 7/2023 with a 5% coupon yield 0.11%, 5s of 2026 at 0.43%, 5s of 2031 at 1.07%, 2s of 2036 at 2.18%, 3s of 2041 at 2.15%, 3s of 2046 at 2.30%, 2.375s of 2046 at 2.53% and 3s of 2051 at 2.34%, callable July 1, 2031.

In the competitive market Tuesday, Harrisonburg, Virginia, (Aa2/AA+//) sold $156.97 million of general obligation bonds to BofA Securities: Bonds in 7/2022 with a 5% coupon yield 0.08%, 5s of 2026 at 0.43%, 5s of 2031 at 1.02%, 1.75s of 2036 at 1.85%, 2s of 2041 at 2.05%, and 2s of 2046 at 2.23%, callable July 15, 2031.

Cary, North Carolina, (Aaa/AAA/AAA/) sold $125 million of general obligation bonds to Wells Fargo. Bonds in 9/2022 with a 5% coupon yield 0.07%, 5s of 2026 at 0.44%, 5s of 2031 at 0.96%, 1.75s of 2036 at 1.78% and 2s of 2041 at 1.93%.

Miami-Dade County, Florida, (/AA/AA/) sold $113.73 million of Public Health Trust general obligation bonds to Citigroup Global Markets Inc. Bonds in 7/2023 with a 5% coupon yield 0.13%, 5s of 2026 at 0.48%, 5s of 2031 at 1.10%, 4s of 2036 at 1.51%, 4s of 2041 at 1.76%, 4s of 2044 at 1.85% and 4s of 2050 at 2.00%, callable July 1, 2031.

Secondary trading and scales

A steady to stronger tone was had in the secondary. South Carolina 5s of 2022 traded at 0.07% versus 0.10% Monday. North Carolina 5s of 2026 at 0.38%-0.37%. Tennessee 5s of 2026 at 0.42%-0.41%. Utah 5s of 2026 at 0.39%-0.38%.

Loudoun County, Virginia, 5s of 2027 at 0.48%. Delaware 5s of 2027 at 0.47%. Fairfax County, Virginia, 5s of 2028 at 0.70%. Maryland 5s of 2028 at 0.63% versus 0.65% last Wednesday.

Maryland 5s of 2033 traded at 1.05%-1.04% versus 1.07%-1.05% Thursday.

Fairfax County 4s of 2044 at 1.57%-1.48%. New York City TFA 4s of 2046 at 1.92%.

Short yields were steady at 0.08% in 2022 and 0.11% in 2023 on Refinitiv MMD’s scale. The yield on the 10-year was steady at 0.92% while the yield on the 30-year sat at 1.52%.

The ICE municipal yield curve showed bonds steady in 2022 at 0.08% and down one to 0.11% in 2023. The 10-year maturity sat at 0.93% and the 30-year yield was steady at 1.50%.

The IHS Markit municipal analytics curve showed short yields steady at 0.08% and 0.10% in 2022 and 2023. The 10-year yield stayed at 0.93% and the 30-year yield steady at 1.52%.

The Bloomberg BVAL curve showed short yields steady at 0.07% and 0.07% in 2022 and 2023. The 10-year yield stayed at 0.92% and the 30-year yield at 1.51%.

In late trading, Treasuries were slightly weaker as equities were mixed.

The 10-year Treasury was yielding 1.303% and the 30-year Treasury was yielding 1.924%. The Dow Jones Industrial Average lost 36 points or 0.10%, the S&P 500 fell 0.14% while the Nasdaq lost 0.07%.

Jobs data eyed

The market is focusing on Friday’s employment report, which could have a big impact on the Federal Reserve’s taper plans.

Economists polled by IFR Markets expect 728,000 jobs to have been added.

It could go either way, said John Farawell, head trader and EVP at Roosevelt & Cross. “Friday’s number could move the Fed to taper sooner than later or follow the present course of patience and data dependence.”

While the prior report showed 943,000 jobs added, that was before the Delta variant started progressing. Farawell expects about 700,000 jobs added. “Watch the reaction of the 10 year and equity markets,” he said, “this may give us a read on the Fed’s intentions.”

With the consensus expecting fewer jobs added in August, Luke Tilley, chief economist at Wilmington Trust, said, “Unless job growth surprises markedly to the upside, we would expect the Fed to remain on track for a taper announcement at the November rather than September meeting.”

While COVID cases appear to be “plateauing,” he said, “it will be important to monitor whether it continues to improve going forward.”

But, Delta took a bite out of consumer confidence, which could also play in the Fed’s taper deliberations.

Consumer confidence dropped to 113.8 in August from a downwardly revised 125.1 in July, first reported as 129.1. Economists expected a 124.0 reading.

The index hadn’t been this low since posting a 95.2 read in February.

The present situation index declined to 147.3 from 157.2 and the expectations index dropped to 91.4 from 103.8.

“There was no shortage of things to worry about, which weighed on consumers’ collective psyche in August,” said Wells Fargo Securities Senior Economist Tim Quinlan and Economic Analyst Sara Cotsakis. “It was the first month showcasing the full extent of the Delta variant on confidence.”

The rise in COVID cases, including among vaccinated people, and “an unwelcome reinstatement of mask mandates and other restrictions … have dashed consumers’ hopes of a swift return to normal — at least in the near term,” they said.

Other factors could be the complicated withdrawal from Afghanistan and continued price gains, Quinlan and Cotsakis said.

On a positive note, they said, “the readings from this measure are not as glum as in the University of Michigan’s index of consumer sentiment, which dipped to its lowest since 2011 in the same month.” And of course, stocks being near record high levels and jobless claims sliding also help consumers.

Additionally, the drop in confidence hasn’t translated into a decline in consumer activity, they note.

But Wilmington Trust’s Tilley said consumer spending in July was disappointing. “Total spending adjusted for inflation posted a slight decline in July, as higher prices took a bite out of consumer spending,” he said.

“With consumer spending starting off the quarter on weak footing, and the Delta variant appearing to hit spending further in August,” Tilley said, “there is downside risk to GDP estimates for 3Q, and the remainder of the year.”

The numbers, he added, support the notion inflation will be transitory “and gives some breathing room to wait on a taper announcement if desired.”

Separately, housing prices continued to rise at record levels, with the S&P CoreLogic Case-Shiller national index up 18.6% in June on an annual basis, after rising 16.8% in the month ended May. The 20-city index was 19.1% higher than a year ago and to 10-city gained 18.5%.

For the month, the national index rose 2.2%, the 20-city climbed 1.8% and the 10-city gained 1.6%.

The prices keep climbing “due to the chronic supply and demand mismatch of single-family housing,” said Sam Dunlap, CIO of public strategies at Angel Oak Capital Advisors. “The rise of the millennial and the lack of investment after the global financial crisis combined with the pandemic and all-time low mortgage rates have home prices surging,” he said. “We don’t see this ending anytime soon.”

Also released Tuesday, the Chicago Business Barometer fell to 66.8 in August from 73.4, below the estimated drop to 68.0.

“Order backlogs rose sharply while production sank,” the report said. “Firms say the available supply of raw materials and workers isn’t sufficient to keep up with new orders.”

Also of note, prices paid jumped to 93.9, the highest it’s been since 1979.

Finally, Texas service sector activity slowed in August. “Revenue growth slowed and business sentiment was notably less optimistic,” said Christopher Slijk, Dallas Fed associate economist. “Labor market indicators suggested faster growth in employment and hours worked. Price pressures softened but remain elevated, while wage pressures rose to their highest readings on record for the survey.”