Calendar Week of 1/31/2022

Primary volume activity remains in balance despite major volatility noted across macro markets as participants adjust strategies for impending rate hikes as inflation levels surge nationwide. Following the FOMC meeting held over the course of last week, Powell indicated market expectations for a rate hike in March was on the table given the Fed's intent to steadily tighten monetary policy given current economic conditions. Stronger language from the Fed has played a major factor in recent volatility as market players prepare for rate hikes dispersed throughout the course of the year, with Fed policies heavily dependent on evolving economic data. Investors continue to analyze potential outcomes from the Fed's decisions, as accelerated tightening throughout the course of a short time frame may result in constrained economic activity and higher degrees of market volatility. The new year has presented various challenges for market players after last week's massive backup in benchmark rates marked a stark contrast to the smooth sailing registered over the course of 2021 after strong market technicals supported nominal fluctuations in muni benchmarks. Buyside accounts navigated rough seas last week after benchmarks bear flattened tremendously, with cuts of 37bps noted in the short end of the curve over the course of the week, coupled with cuts of 23-26bps registered in the 10 and 30YR tenors. Following the hefty movement in rates, Muni/UST ratios adjusted accordingly with the 10YR ratio climbing by +13% WoW and 30YR ratio reaching 95% (+11% WoW), placing increased strain on investors who took down paper at significantly lower levels during the beginning of the year. As participants acclimate to an environment of rising rates, new issue supply fundamentals will be in focus as state and local governments navigate a complex and rapidly evolving landscape, with greater attention surrounding financing needs across various sectors and credits nationwide.

As investors evaluate modified behavior in the primary market, last week's calendar supplied $7.6Bn of new issue paper, with subdued investor activity noted over the course of the week given the heightened volatility across the market, resulting in wider spreads and higher costs of issuance for select issuers. The Brightline West Passenger Rail Project (Aaa/-/-) led last week's negotiated calendar, offering $894mm of economic development bank revenue bonds spanning across two series with a single 01/2023 maturity pricing at .85% or +30bps spread to the interpolated MAC. The Airport Commission of the City and County of San Francisco (A1/-/A+) also tapped into the negotiated arena to sell $538mm of revenue bonds spanning across two series with maturities ranging from 05/2024-05/2052, and cuts of 1-5bps noted across the scale. This week's calendar is slated to supply $9Bn of new issue deals spanning across 159 new issues with the Triborough Bridge and Tunnel Authority, NY (-/AA+/AA+/AA+) leading the negotiated calendar to provide $651mm payroll mobility tax bonds across 05/2034-05/2057; senior managed by Ramirez and selling on Thursday 02/03. The Virginia Small Business Financing Authority (-/BBB-/BBB/-) will also tap into the negotiated market to offer $628mm of senior lien revenue refunding bonds with maturities spanning 01/2032-01/2048; senior managed by JP Morgan. This week's competitive calendar will span across 81 new issues for a total of $2Bn, led by The Commonwealth of Massachusetts (Aa1/AA/AA+) auctioning a combined total of $600mm general obligation bonds across 02/2028-02/2048, selling on Tuesday 02/01.

Posted 31 January 2022 by Matthew Gerstenfeld, Municipal Bond Business Development Specialist, IHS Markit

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