Municipals were firmer Wednesday following U.S. Treasury yields lower as economic indicators sent investors the signal the Federal Reserve will likely proceed on its rate-cutting path.
“While this month’s core PCE inflation, data was definitely just a little higher than the Fed would really like it to be, it was very much in step with their and the market’s expectations given the CPI and PPI data we got earlier this month,” said Greg Wilensky, head of U.S. Fixed Income at Janus Henderson Investors. “Given the broad consensus-like reading across the slew of economic data releases today, we don’t see any meaningful impact on the Fed’s upcoming rate decision in December.”
Wilensky said his firm still believes a 25-basis-point reduction to the policy rate is “extremely likely.”
“We feel the chances of a cut are still higher than the 70% currently implied within the futures market,” he said. “In our view, it is going to take a mix of a really strong [non-farm payrolls] print and a higher-than-expected core CPI release to cause a pause on the December meeting.”
Triple-A yields fell as much as to 5 basis points while USTs saw gains of as much as seven basis points.
“The trail for policy rates over the following 12 months is definitely harder to forecast because the economy and markets might be impacted by governmental policy decisions within the U.S. and around the globe; nevertheless, with just a little lower than 75 basis points of cumulative cuts to the fed funds rate priced in over the following 12 months, we predict the chances favor more cuts and this keeps us constructive on the short to intermediate a part of the U.S. Treasury curve,” Wilensky said.
Municipals have mostly outperformed USTs in November and ratios have held mostly regular.
The 2-year municipal to UST ratio Wednesday was at 61%, the five-year at 63%, the 10-year at 66% and the 30-year at 82%, in accordance with Refinitiv Municipal Market Data’s 3 p.m. EST read. ICE Data Services had the two-year at 62%, the five-year at 63%, the 10-year at 67% and the 30-year at 82% at 3 p.m.
The Investment Company Institute reported $1.221 billion of inflows into municipal bond mutual funds for the week ending Nov. 20, following $360 million of inflows the previous week. Exchange-traded funds saw inflows of $836 million after $351 million of inflows the week prior.
Money market funds saw inflows of $298.6 million for the newest reporting week, moving assets under management to $136.405 billion, in accordance with the Money Fund Report, a weekly publication of EPFR.
The common seven-day easy yield for all tax-free and municipal money-market funds fell to 2.73% from 2.95%.
December is historically a “technically positive” environment for munis, with often little or no supply and far demand, said Miguel Laranjeiro, investment director at abrdn.
During the last decade, munis — especially investment-grades — have seen positive returns, he said.
Heading into 2025, he expects a rally, particularly in January, noting technicals are “hugely positive” through the first month of the 12 months.
From a technical standpoint, January sees lots of maturities and lots of interest payments which are “searching for a latest home,” in accordance with Laranjeiro.
And from a requirement perspective, that creates a technically positive environment for investors, driving up prices within the secondary market after which also the first market, he said.
Issuance got here in lower in November than last 12 months’s totals for the month but put the market on pace to interrupt 2020’s records and really likely reach $500 billion.
Bond Buyer 30-day supply sits at $16.24 billion. Next week’s calendar grows to only about $8 billion, led by a $1.5 billion deal from the Latest Jersey Transportation Trust Fund Authority.
Supply may slow in December, potentially even into January 2025, but market strategists are predicting 2025 to be one other heavy 12 months, with most on the road calling for an initial forecast of around $500 billion.
“There is a ton of infrastructure that should be done, and that is generally done locally through the municipal market,” Laranjeiro said. “That along with these high rates of interest, make a very good environment for investors trying to deploy capital and [take advantage] of those elevated tax-exempt yields.”
AAA scales
Refinitiv MMD’s scale was bumped as much as 5 basis points: The one-year was at 2.73% (unch) and a couple of.59% (unch) in two years. The five-year was at 2.61% (-3), the 10-year at 2.78% (-5) and the 30-year at 3.62% (-5) at 3 p.m.
The ICE AAA yield curve was bumped as much as 4 basis points: 2.82% (unch) in 2025 and a couple of.64% (-1) in 2026. The five-year was at 2.62% (-1), the 10-year was at 2.82% (-4) and the 30-year was at 3.62% (-3) at 3 p.m.
Treasuries made gains.
The 2-year UST was yielding 4.207% (-5), the three-year was at 4.149% (-6), the five-year at 4.106% (-7), the 10-year at 4.232% (-7), the 20-year at 4.503% (-7) and the 30-year at 4.419% (-6).
Primary to come back:
The Latest Jersey Transportation Trust Fund Authority (A2/A-/A/A) is ready to cost Thursday $1.5 billion of transportation program bonds, 2024 Series CC, serials 2030-2044, terms 2049, 2055. Barclays Capital Inc.
The Greater Orlando Aviation Authority is ready to cost Thursday $804.515 million of senior and subordinate revenue bonds, consisting of $152.53 million of senior (Aa2/AA/AA/AA+) and $651.985 million of subordinate (Aa3/AA-/AA-/AA). J.P. Morgan Securities LLC.
Connecticut (Aa3/AA/AA-/AAA) is ready to cost Wednesday $768.78 million of special tax obligation bonds transportation infrastructure purposes, Series 2024 A-2. Goldman Sachs & Co. LLC.
Hawaii (Aa2/AA+/AA/) is ready to cost Wednesday $750 million of taxable general obligation bonds, Series GN, serials 2025-2043. BofA Securities.
The Sales Tax Securitization Corp., Illinois, is ready to cost Wednesday $546.31 million of sales tax securitization refunding bonds, consisting of $142.09 million of senior lien refunding bonds, Series 1, (/AA-/AAA/AAA), serials 2029, 2031-2044; $ 404.22 million of second-lien Series 2, (/AA-/AA-/AA+), serials 2029-2030, 2032-2041. RBC Capital Markets.
The Industrial Development Authority of Mobile County, Alabama, (Baa3/BBB-//) is ready to cost $480 million of AM/NS Calvert LLC Project solid waste disposal revenue bonds, Series 2024B. BofA Securities.
Austin, Texas, (/AAA/AA+/) is ready to cost Wednesday $434.965 million in three series, consisting of $301.525 million of public improvement and refunding bonds, Series 1, $103.67 million of Series 2024 certificates of participation, and $29.77 million of Series 3 public property finance contractual obligations. Piper Sandler & Co.
The Parish of St. John the Baptist, Louisiana, (A2/A-/A/) is ready to cost Thursday $400 million of Marathon Oil Corporation Project revenue refunding bonds, Series 2017, remarketing, serials 2037. Barclays Capital Inc.
The Latest York City Housing Development Corp. (Aa2/AA+//) is ready to cost Thursday $397.725 million of multi-family housing revenue bonds, consisting of $269.53 million of 2024 Series F-1 sustainable development bonds and $128.195 million of Series F2 sustainable development bonds. Jefferies LLC.
St. Vrain Valley School District, Colorado, (Aa1/AA+//) is ready to cost Wednesday $346.55 million of general obligation bonds, insured by Colorado State Intercept Program, serials 2025-2032, 2034-2039. Stifel, Nicolaus & Company, Inc.
The Latest York City Housing Development Corp. is ready to cost Tuesday $346.1 million of 8 Spruce Street taxable multi-family mortgage revenue bonds consisting of $276.8 million of Series A taxables (Aaa///), serials 2031, $49.6 million of Series B taxables (Aa3///), and $19.7 million of Series C taxables (A2///), serials 2031. BofA Securities.
The Cherry Creek School District No. 5, Colorado, (Aa1/AA+//) is ready to cost Tuesday $316.67 million of general obligation bonds Series 2024, insured by Colorado State Intercept Program, serials 2025-2026, 2032-2044. RBC Capital Markets.
The Latest Jersey Housing and Mortgage Finance Agency (/AA-//) is ready to cost Tuesday (retail Monday) $272.875 million of non-AMT social multi-family revenue bonds. Barclays Capital Inc.
The Cumberland County Industrial Development Facilities and Pollution Control Financing Authority (Aaa///) is ready to cost Thursday $250 million of Project Aero solid waste disposal revenue bonds, serials 2027. Oppenheimer & Co.
The Wisconsin Health and Educational Facilities Authority (nonrated) is ready to cost Wednesday $239.655 million of Chiara Housing and Services, Inc. Project senior living revenue bonds, terms 2035, 2045, 2055, 2060. D.A. Davidson & Co.
The Colorado Bridge and Tunnel Enterprise (Aa1/AA+//) is ready to cost Thursday $238.975 million of senior revenue refunding bonds, Series 2024B, serials 2028-2049. Wells Fargo Bank, N.A. Municipal Finance Group.
The Latest York City Housing Development Corp. is ready to cost Tuesday $203.9 million of 8 Spruce Street tax-exempt multi-family mortgage revenue bonds, consisting of $25.5 million of Series D (Baa1///), serials 2031, $52.5 million of Series E (Baa3///), serials 2031, and $125.9 million of Series F (nonrated), serials 2031. BofA Securities.
The Illinois Housing Development Authority (Aaa///) is ready to cost Tuesday $200 million of non-AMT social revenue bonds, serials 2029, terms 2044, 2050, 2055. Wells Fargo Bank, N.A. Municipal Finance Group.
The Westfield Washington Multi-School Constructing Corp., Indiana, (/AA+//) is ready to cost Tuesday $188.61 million of ad valorem property tax first mortgage bonds, insured by Indiana State Aid Intercept Program, serials 2027-2044. Stifel, Nicolaus & Company, Inc.
Competitive:
Anchorage (/A//) is ready to sell $181.86 million of AMT port revenue bonds, Series 2024A, at 11 a.m. eastern Tuesday.
Jessica Lerner contributed to this report.