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New issue activity will remain subdued over the course of the
holiday-shortened week as market players navigate fluctuations in
rates coupled with greater volatility across the macro markets.
Rising geopolitical tensions fueled by a Russia-Ukraine conflict
has sparked concerns among investors, triggering a flight to safety
after treasuries rallied into the close of last week. The potential
for catastrophic overseas conflict coupled with climbing inflation
levels across the nation has shifted investor perception and
outlook towards primary market activities. As cash on the sideline
expands, investors continue to narrow down purchases of new issue
paper during windows of opportunity, a challenging task given the
wide fluctuations in benchmarks over the course of the new year.
Muni yields bear flattened over the course of last week by 1-9bps,
lagging the movement across treasuries with the 10YR ratio settling
at 85%, climbing 300bps higher from the week prior as the 30YR
remains unchanged at 90%. As credit spreads fluctuate and state and
local governments evaluate market conditions, mutual funds have
witnessed polarized movements as demand for sub investment grade
credits oscillate and cash deployed towards short term durations
ascends due to the uncertainty of rate momentum. While the market
prepares for a rate hike in March, investors in search of higher
returns are set to step up to the plate and take down paper in an
effort to ladder their portfolio and mitigate diminished
performance driven by rising inflation figures. Looking ahead,
market participants will continue to monitor evolving market
conditions amidst the lack of new issue supply triggered by greater
uncertainty surrounding the trajectory of national economic
success, monetary policy and the potential for war in Europe.
Primary volume was muted ahead of the Presidents Day Holiday
weekend with last week's calendar supplying
$4.6Bn of deals, with the majority of par
size located in the long end of the curve. The University of
Washington (Aaa/AA+/-) experienced mixed investor demand, with
bumps of 5bps noted in the short end paired with cuts of 5bps
across the intermediate range of the scale with the greatest yield
housed in the 2041 maturity at 3.35%. The Pennsylvania Housing
Finance Agency (Aa1/AA+/-) also tapped into the negotiated arena
last week to price $207mm of revenue bonds spanning 10/2022-10/2052
with investor demand suppressing yields across the scale with the
2042 maturity falling +106bps off the interpolated MAC. This week's
holiday-shortened calendar will supply $5.4Bn
across 172 new issues with $2.4Bn of day-to-day deals as issuers
remain on the sideline given the heightened level of volatility
across the primary arena and beyond. The Virginia Small Business
Financing Authority (Baa1/-/-/BBB+) will lead this week's
negotiated calendar to sell $304mm of senior lien revenue and
refunding bonds across 06/2038-12/2057, presenting opportunity for
sub-investment grade focused investors; selling on Thursday 02/24
with JP Morgan as lead manager. The District of Columbia Water
& Sewer Authority (Aa2/AA+/AA) will also tap into the
negotiated market to sell a combined $367mm across two tranches
with maturities spanning 10/2022-10/2051 with a portion of the
bonds carrying a green bond label; selling on Thursday 02/24 and
senior managed by Goldman Sachs. This week's competitive calendar
will span across 94 new issues for a total of
$2Bn, led by the Gwinnett County School District of
Georgia (Aaa/AAA/-) auctioning $230mm of general obligation sales
tax bonds across three maturities (08/25-08/27) on Thursday
02/24.
Posted 22 February 2022 by Matthew Gerstenfeld, Municipal Bond Business Development Specialist, IHS Markit
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