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Primary volume levels will remain quiet in the coming week after
last week's calendar supplied limited issuance ahead of the Holiday
weekend. Persistent interest rate volatility across macro markets
has presented challenges across the new issue market as
participants seek to discover value amidst a turbulent landscape.
Given the unpredictable nature of the primary arena, issuers remain
reluctant to price new issue deals despite the potential benefits
associated with securing rates ahead of any further rate hikes.
Following the 25 basis point rate hike last month, participants are
preparing for tighter monetary policy and a sequence of additional
hikes over the course of the year in order to combat inflation
nationwide. Ascending yields across the new issue landscape
highlights a fundamental shift in pricing activities, affirmed by
larger mutual fund outflows and greater demand for bids wanted in
the secondary market as select broker/dealers off-load older
inventory at a loss. While the current environment presents
challenges, investors seeking greater tax-exempt returns have begun
to methodically take down paper and ladder durations to maximize
income potential. As the market adjusts to rising rates, treasuries
demonstrated mixed performance over the course of last week, with
bumps noted in the first several tenors, coupled with cuts of 15bp+
in the long end of the curve as volatility across the global market
remains pronounced. Muni benchmarks outperformed the movement noted
across US treasuries, with cuts of 11-14bps spread throughout all
tenors, with the greatest cut noted in the 2025 maturity. Muni/UST
ratios shifted accordingly, with the front end experiencing the
largest shift (105%) in the first year coupled with 87% and 97% in
the 10 & 30 year respectively. As the market braces for
elevated yields, issuers are continuously modifying budgets and
corresponding financing needs to adequately adjust for higher costs
for goods and services in order to successfully maintain
operations.
New issue offerings will remain subdued over the course of the
week after last week's calendar offered
$6.5Bn falling below the volumes
witnessed across the first quarter. The Maryland Economic
Development Corporation (Baa3/-/BBB) led last week's negotiated
calendar to sell $643mm private activity green bonds for the Purple
Line Light Rail project across 11/2028-06/2055 with cuts of 5bp
noted in the last several maturities, with the 2055 maturity
offering a spread of +181bps to the interpolated MAC or 4.59% YTW.
The Regents of the University of Minnesota (Aa1/AA/-) also came to
the negotiated market to offer $500mm of general obligation taxable
bonds with a single 04/2052 maturity witnessing strong investor
demand, suppressing the yield by 15bps and supplying investors a
4.05% return. This week's calendar is slated to supply
$6.6Bn spanning across 184 new issues with
$.9Bn on day-to-day status. The Iowa Finance Authority
(Ba1/BBB-/BB+) will lead this week's negotiated calendar to offer
$854mm of midwestern disaster revenue refunding bonds across three
maturities ranging across 12/2032-12/2050, senior managed by Citi
and pricing on Thursday 04/21. The Southeast Energy Authority
(A2/-/-) will also tap into the negotiated arena to sell $646mm of
commodity supply revenue bonds across 08/2023-08/2028, senior
managed by Goldman Sachs and expected to price as early as tomorrow
04/19. This week's competitive calendar will span across 115
new issues for a total of $2Bn, led by the City and
County of Denver Colorado (Aaa/AAA/AAA) auctioning $246mm of
general obligation bonds across 08/2022-08/2039, selling tomorrow
04/19 at 10:30AM EST.
Posted 18 April 2022 by Matthew Gerstenfeld, Municipal Bond Business Development Specialist, IHS Markit
IHS Markit provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.
This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.
