Bonds

Munis strengthen after Princeton prices through AAAs

Princeton University revenue bonds saw strong competitive bidding, with yields lower than triple-A benchmarks as high-grade trading picked up and munis gained along with a stronger U.S. Treasury market.

Triple-A benchmark yields were stronger across yield curves while ratios rose slightly. Municipal to UST ratios were at 69% in 10-years and 75% in 30, according to Refinitiv MMD, while ICE Data Services showed ratios at 68% in 10 years and 77% in 30. Treasuries made further gains as the day wore on as equities lost ground after Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen testified before Congress.

Powell repeated his belief that inflation will remain contained, while Yellen said rules would soon be out for state and local governments on how they can use relief funds.

In the competitive markets, the New Jersey Educational Facilities Authority (Aaa/AAA//) sold two deals with compelling spreads to triple-A benchmarks. Morgan Stanley & Co. won the first, $250 million of Princeton University revenue bonds, which saw 5s of 2022 at 0.10%, 5s of 2027 at 0.61%, 5s of 2031 at 1.11%, 5s of 2036 at 1.35%, 5s of 2041 at 1.57%, 5s of 2045 at 1.71% and 2.35s of 2051 at par.

The second, won by Citigroup Global Markets Inc., $182.3 million of Princeton revenue bonds, saw 5s of 2022 at 0.06%, 5s of 2026 at 0.49%, 5s of 2031 at 1.10%, 2s of 2036 at 1.74% and 2s of 2041 at 2.00%.

The deal priced just a day after Moody’s Investors Service changed its outlook for the higher education sector to stable from negative as “U.S. universities and colleges are looking at improving revenue prospects over the next 12-18 months, driven by a rising number of colleges pledging to have students return to campus in greater numbers in fall 2021, stronger investment returns, a funding boost from additional federal aid via the American Rescue Plan, and a steadier outlook for state funding.”

“The Moody’s news was a positive for the sector, but Princeton is gilt-edged and a well-sought-after credit, so those yields are not surprising,” a New York trader said. “But I do think it sends a signal that marquee names will push benchmarks, showing how much investors will give up in yield for high-quality credits.”

J.P. Morgan Securities LLC priced $510 million of senior lien revenue bonds, Series 2021B for the Central Texas Regional Mobility Authority. and was 20 times oversubscribed with $10 billion of orders, according to advisor Hilltop Securities.

The first series, $264.7 million (Baa1/A-//), saw 5s of 2029 at 1.38%, 5s of 2031 at 1.64%, 5s of 2036 at 1.94%, 4s of 2041 at 2.28%, 5s of 2046 at 2.23% and 4s of 2051 at 2.46%. The second, $245 million of subordinate lien revenue bond anticipation notes, Series 2021C, (Baa2/BBB+//), saw 5s of 2027 yield 1.14%.

The strong demand for higher-yielding paper continues, according to John Mousseau, chief executive officer at Cumberland Advisors in Sarasota, Florida. “There is plenty of demand for bonds,” he said Tuesday, noting that higher-yielding bonds are seeing “huge demand” with new deals in general being 10 and 20 times oversubscribed. “It’s just ongoing prospecting for yield.”

How the New York City Transitional Finance Authority’s $1.01 billion future tax-secured subordinate bonds are priced for institutions may tell how investors see the strength holding up.

Ramirez & Co. priced for the second day $1.01 billion of future tax-secured subordinate bonds for the New York Transitional Finance Authority (Aa1/AAA/AAA/). The first series, $888.5 million of refunding bonds, bumped yields by two basis points on the shorter end with 5s of 2023 yielding 0.31%, 5s of 2026 at 0.79%, 5s of 2031 at 1.60%, 4s of 2036 at 2.09% and 4s of 2038 at 2.17%. The second, $121.5 million of future tax secured bonds, had bonds in 2021 with a 2% coupon yield 0.12%, 4s of 2026 at 0.81%, 5s of 2036 at 1.60% and 5s of 2038 at 1.97%.

New York City TFA 5s of 2034 traded at 1.68% Tuesday. The same maturity and coupon was priced to yield 1.80% in the retail order period.

The New York City TFA is also set to sell three taxable competitive deals Wednesday; $95 million, 2022-2023, at 10:45 a.m.; $67 million, 2022-2026, at 11:15 a.m.; and $163.2 million at 10:45 a.m.

Secondary market
High-grades showed stronger trades across the curve. New York State GO 5s of 2023, at 0.17%, Virginia Beach 5s of 2026 at 0.61%-0.50% versus 0.65% Friday.

California 5s of 2026 at 0.60%. Howard County, Maryland, 5s of 2028 at 0.86%. Wake County 5s of 2028 at 0.83%. Georgia GO 5s of 2028 at 0.84%. Florida 5s of 2028 at 0.86%. Washington 5s of 2029 at 1.13%. Henrico County, Virginia, 5s of 2029 at 0.94%.

New York UDC 5s of 2032 at 1.55%. California 5s of 2033 at 1.34%. Anne Arundel, Maryland, 5s of 2033 at 1.30% versus 1.31% Friday. District of Columbia 5s of 2033 at 1.33%.

University of Washington 5s of 2034 at 1.39%. Ohio water 5s of 2036 at 1.45%. Gwinnett County, Georgia, 4s of 2037 at 1.46%-1.41% versus 1.46% original. Ohio water 5s of 2038 at 1.54%-1.46%. Metro Water District of Southern California 5s of 2039 traded at 1.44%, 5s of 2040 at 1.50% and 5s of 2046 at 1.74%.

California 5s of 2043 at 1.75%. Los Angeles DWP 5s of 2050 at 1.94%.

High-grade municipals were bumped three basis points across the curve on Refinitiv MMD’s scale. Short yields were at 0.11% in 2022 and to 0.14% in 2023. The 10-year fell to 1.13% and the 30-year at 1.78%.

The ICE AAA municipal yield curve showed short maturities fall two basis points to 0.11% in 2022 and two basis points to 0.17% in 2023. The 10-year fell three to 1.11% and the 30-year yield fell three to 1.78%.

The IHS Markit municipal analytics’ AAA curve showed yields three basis points lower at 0.11% in 2022 and 0.16% in 2023, the 10-year fell three to 1.07%, and the 30-year also fell three to 1.75%.

The Bloomberg BVAL AAA curve showed yields fall two basis points to 0.10% in 2022 and to 0.15% in 2023, while the 10-year fell three basis points to 1.09%, and the 30-year yield fell three to 1.79%.

The 10-year Treasury was at 1.62% and the 30-year Treasury was yielding 2.33% at the close. The Dow gained 113 points, the S&P 500 rose 0.79% and the Nasdaq gained 1.45%.

Economy
Regional service sector surveys released Tuesday showed improvement, which feeds into the belief that inflation will rise in the near term.

The Federal Reserve Bank of Philadelphia’s nonmanufacturing index suggested expansion, as the general business conditions index jumped to 38.6 in March from 3.9 in February, while at the firm level, the index soared to 33.5 from 7.5.

The prices paid index dipped to 30.3 from 31.6, while prices received climbed to 25.0 from 11.7.

The number of full-time employees index grew to 9.0 from 2.8.

The Federal Reserve Bank of Richmond’s service sector survey showed big gains in revenues (to positive 16 from negative 6), demand (25 from 18) and local business conditions (27 from 3) in March, while the number of employees index was steady and price indexes soared, paid to 4.73 from 3.10 and received to 2.61 from 1.26. The survey noted that respondents see prices paid continuing to outstrip prices received in the future.

The Richmond Fed’s manufacturing index was also showed improvement in March, with the manufacturing index rising to 17 from 14, shipments increasing to 22 from 12 and new orders and number of employees steady. The price indexes soared, prices paid to 6.15 from 4.17 and received to 3.52 from 2.83. According to the survey, respondents expect the differences in the two indexes to “narrow in the near future.”

Although the markets are yet to get on board with the Federal Reserve’s position that inflation gains will be transitory, “the inflation story is not so simple,” said Anwiti Bahuguna, head of multi-asset strategy at Columbia Threadneedle Investments, “partly because the Federal Reserve has been clear that its reaction to inflationary pressures will be different this time.”

And with lockdowns easing and ending, the nation is primed “for a period of high growth,” causing “inflation hawks have begun sounding alarms,” she said, noting the potential for higher inflation “is something to take seriously.”

A year after the lockdowns began, causing the economy to tank, year-over-year numbers will be skewed by the low numbers last year.

And while stimulus and growth will “certainly” create inflationary pressures,” Bahuguna said, “we don’t think it will be enough to push inflation above the Fed’s comfort level on a sustained basis, and the Fed’s new paradigm for responding to inflation is a critical piece of the puzzle.”

The Fed, for its part, shifted to an inflation averaging method, which will allow the economy to run hot for a time to make up for past misses.

While the Philadelphia report numbers suggest a “short-term inflation bump,” according to Dave Wagner, portfolio manager and analyst at Aptus Capital Advisors, he sees them as “transitory.” But in general, the report was on target with expectations, “showing that optimism surrounding the vaccine and re-opening continues to strengthen.”

But it was the employment numbers that “surprised” him the most. “I think one of the most overlooked items with employment is that people will have a higher propensity to spend, but, most importantly, one of the biggest drivers of inflation is actual wage growth.”

The report’s wages and benefits costs rose to 26.6 from 21.7 in the month. While wages have grown, “it’s driven by a smaller portion of the workforce.”

The report suggests “the service sector is becoming very optimistic,” said Ed Moya, senior market analyst at OANDA.

Elsewhere, new homes sales plummeted 18.2% to a seasonally adjusted 775,000 level in February, from an upwardly revised January pace of 948,000 million, first reported as 923,000, the Commerce Department said on Tuesday.

Economists polled by IFR Markets expected 876,000 sales in the month.

Year-over-year, sales are up 8.2% from the pace of 716,000 in February 2020.

But the decline isn’t “a warning sign of what is to come,” said Ralph McLaughlin, chief economic advisor at Kukun. “One month does not make a trend, and often these month-to-month assessments can be very volatile.”

After being a star of the economy during the pandemic, this report could signal “the housing market is returning to some normality.”

A shortness of inventory and rising prices have not helped sales levels, he said. Incomes, he said, are not rising at the same pace as home prices. “At some point you will tap out the potential buyers for homes,” McLaughlin said, but not yet.

Bad weather and a short month hit the sales figures, said Colin McBurnette, senior portfolio manager for Angel Oak Capital Advisors. “Supply is constraining, but the number this month does not concern us,” he said. “There are strong, systemic tailwinds at play that will benefit the housing market for a long time. We see long, sustainable growth ahead.”

Also released Tuesday, the U.S. current account deficit grew to $188.5 billion in the last quarter of 2020 from $180.92 billion, according to the Commerce Department.

Economists estimated the deficit correctly.

Primary market
The State Public Works Board of the State of California (Aa3/A+/AA-/) is set to price $694.8 million of lease revenue refunding bonds (Department of Corrections and Rehabilitation, Kern Valley State Prison) forward delivery. First series, $585.2 million, serials: 2022-2036. Second, $109.6 million, serials: 2023-2028. UBS Financial Services Inc. is lead underwriter.

The Tennergy Corp. (A1///) is set to price $580.9 million of gas supply revenue bonds, serials: 2022-2028. Morgan Stanley & Co. LLC will run the books.

The Black Belt Energy Gas District (Aa2///) is set to price $550 million of gas supply revenue refunding bonds, serials: 2021-2032, term: 2051. RBC Capital Markets is head underwriter.

The Mayo Clinic (Aa2/AA//) is set to price $500 million of taxable Series 2021 bonds on Tuesday. BofA Securities is lead underwriter.

The Geo L. Smith II Georgia World Congress Center Authority is set to price $479.5 million of convention center hotel first tier revenue bonds, series 2021a $253 million (/BBB-//), terms: 2031, 2036, 2054, and convention center hotel second tier revenue bonds (///) $253.9 million Series 2021B, term: 2031, 2036, 2054. Citigroup Global Markets Inc. is head underwriter.

The Triborough Bridge and Tunnel Authority (Aa3/AA-/AA-/AA) is set to price $400 million of MTA bridges and tunnels general revenue bonds, Series 2021A. J.P. Morgan Securities LLC will run the books.

The City of San Jose, California, (A2/A-/A/) is set to price $297.5 million of taxable airport revenue refunding bonds. Morgan Stanley & Co. LLC is head underwriter.

San Jose (A2/A-/A/) is also set to price $140.1 million of AMT and non-AMT airport revenue refunding bonds, both series serials 2024-2034. Citigroup Global Markets Inc. is set to price the deal on Tuesday.

The Carrollton-Farmers Branch Independent School District (Dallas and Denton Counties, Texas) (Aaa/AAA//) is set to price on Thursday $225.8 million of unlimited tax school building bonds, Series 2021, insured by Permanent School Fund Guarantee Program, serials: 2021-2041; terms: 2046, 2051. Siebert Williams Shank & Co. is lead underwriter.

The Pennsylvania Economic Development Financing Authority (A2/A/A/) is set to price $225.9 million of UPMC revenue bonds, series 2021A, serials: 2022-2041; terms: 2046, 2051. RBC Capital Markets will run the books.

The Arizona Board of Regents of Arizona State University (Aa2/AA//) is set to price on Wednesday $161.8 million of taxable series 2021A and 2021B bonds. Goldman Sachs & Co. LLC is head underwriter.

The Arizona Board of Regents of Arizona State University (Aa2/AA//) is also set to price on Wednesday $118 million of system revenue bonds. Goldman Sachs & Co. LLC is lead underwriter.

The Tennessee Housing Development Agency (Aa1/AA+//) is set to price on Tuesday $149.9 million of residential finance program refunding bonds, non-AMT, serials: 2022-2033; terms: 2036, 2041, 2046, 2051. Raymond James & Associates, Inc., is lead underwriter. Retail pricing Tuesday, institutional pricing Wednesday.

The Rhode Island Housing and Mortgage Finance Corp. (Aa1/AA+//) is set to price $135.1 million of homeownership opportunity social bonds on Wednesday. Serials: 2022-2033; terms: 2036, 2041, 2043, 2049. RBC Capital Markets is set to run the books.

The City of New York (Aa2/AA/AA-/) is set to price $129.6 million of tax-exempt general obligation adjustable rate remarketed securities, term in 2042. Barclays Capital Inc. is lead underwriter.

New York City is also set to price $129. 6 million of fiscal 2021 tax-exempt GO adjustable rate remarketed securities on Monday, led by BofA Securities.

The Wisconsin Public Finance Authority (Ba2///) is set to price $126.2 million of Noorda College of Osteopathic Medicine Project taxable educational facilities revenue bonds on Wednesday. $47.96 million Series A, term: 2050. $78.31 million Series B, term: 2045. Oppenheimer & Co. is lead underwriter.

The City of Montgomery, Alabama, (/AA//) is set to price on Tuesday $126.1 million of general obligation warrants, Series 2021-A, general obligation refunding warrants, Series 2021-B, taxable general obligation refunding warrants, Series 2021-C. J.P. Morgan Securities LLC is set to run the books.

The Ohio Housing Finance Agency (Aaa///) is set to price on Wednesday $125 million of mortgage-backed securities program residential mortgage revenue bonds, 2021 Series A (Non-AMT) Social Bonds, serials: 2022-2033; terms: 2036, 2041, 2046, 2051, 2052. Citigroup Global Markets Inc. is bookrunner.

On Wednesday, Palo Alto, California, is set to sell $100 million of certificates of participation at noon, serials 2023-2050.

Knoxville, Tennessee, (Aa2/AA+//) is set to sell three competitive deals Thursday; $34 million of water system revenue bonds at 10:15 a.m.; $198.9 million of water system revenue bonds, 2022-2043 at 11:15 a.m.; $73 million of electric system revenue bonds 2023-2044 at 10:15 a.m.; $42 million of gas system revenue bonds 2022-2033.

Aaron Weitzman and Christine Albano contributed to this report.

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