Muni Bargains Abound in Rush to Raise Debt Ahead of US Election
(Bloomberg) -- Bargain hunters have a lot to choose from in the municipal bond market as underwriters look to lure in investors with attractive terms.
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State- and local-government bond yields are at the cheapest since late 2023, based on a key gauge of relative value in the market. Ten-year AAA municipal bonds offer about 70% of the yield on similar Treasuries, up from as little as 57% this spring. The higher that ratio, the more attractive munis look in comparison.
At the same time muni-bond sales have hit $315 billion this year— the most over that span since at least 2013 — according to data compiled by Bloomberg. That surge in supply is being driven by state and local governments rushing to put out new issues ahead of the November presidential election in a bid to avoid the market volatility that could follow.
“Primary market deals continue to be priced cheaply enough to really attract a lot of interest,” said Ben Barber, head of municipal bonds at Franklin Templeton. “It’s a function of underwriters not wanting to be long bonds in the secondary market. They’re pricing deals on the cheap side in the primary market to make sure there’s enough demand.”
Take the Texas school districts that have tapped the muni market for example. The schools often receive a guarantee from a $52 billion state-backed fund which provides a AAA credit rating. But recent bond deals by the schools have priced at much higher yields than other top-rated municipal benchmark bonds.
Celina Independent School District sold 30-year bonds that priced with a 4.3% yield. That’s about 70 basis points higher than a gauge of AAA debt. It’s also higher than other Texas school bonds with the so-called Permanent School Fund guarantee. PSF bonds that mature in 30 years are yielding 4.06%, according to a Bloomberg index of the securities.
The buying opportunity isn’t fading anytime soon, according to JPMorgan Chase & Co. strategists led by Peter DeGroot.
“The next two months could offer the best opportunity to buy bonds of the year and possibly the rate cycle,” the strategists wrote in a research note published Monday.
A New York City deal last week priced with 20-year bonds yielding 3.74% — the next day, those securities traded at a rate that was seven basis points lower. “The deal was priced to sell and well received,” according to a Monday note from Nuveen. The influx of new muni bonds “should provide an attractive entry point,” the note said.
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