More Municipal Bond Sales Pause As Yields Jump To Highest Since 2011

Which deals are on ice

Los Angeles put a $1.8 billion financing for the Los Angeles Convention Center on hold, switching it to day-to-day status with no firm pricing date as markets turned choppy. The city's finance office did not respond to requests for comment, and Morgan Stanley, the underwriter, declined to comment.

In Nashville, the Convention Center Authority of the Metropolitan Government of Nashville and Davidson County also moved an approximately $777 million sale to day-to-day after initially aiming to price on Sept. 24. The deal's lead underwriter, Goldman Sachs Group Inc., declined to comment, and the authority's spokespeople did not respond right away.

A person familiar with the plan said New Jersey's Transportation Trust Fund Authority halted roughly $1.7 billion of bonds owing to the current state of the market. New Jersey's Transportation Trust Fund Authority likewise put roughly $1.7 billion of bonds on hold due to market turbulence, said a person familiar with the plan. A Barclays Plc spokesperson, the manager, declined to comment, and authority representatives didn't immediately provide a comment.

Why issuers are pausing

Muni yields have been grinding higher, with the benchmark 30-year reaching 5.18% by midafternoon Monday in New York. That is the most since at least January 2011, and roughly a 0.60 percentage point rise for the month. It marked a fifth consecutive session of increases as bond markets weighed the chance of another Federal Reserve rate hike and volatile oil prices that could fuel inflation.

Those richer yields are convincing some borrowers, including would-be refunders looking to cut debt-service costs, to wait for a calmer tape. "Market conditions continue to become more challenging," said Kim Olsan, senior fixed-income portfolio manager at NewSquare Capital. She estimated that as of Monday, around $2.3 billion of municipal offerings had slid to day-to-day status, and roughly $1.5 billion of that looked like refundings aimed at savings.

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Huntington Capital Markets' head of public finance, Samantha Costanzo, said, "Many issuers are being more strategic and thoughtful about how and when they access the market." "Today, it's no longer taboo to hit pause and wait for a more stable tone to avoid messy market days."

Market-wide effects and the numbers

At the start of the month, the North Texas Tollway Authority pushed back about $797 million that was scheduled for the week of Sept. 7, pointing to recent rate moves and volatility. Underwriter Loop Capital Markets said the agency would revisit the sale when conditions improve. The agency did not return requests for comment.

A team of JPMorgan Chase & Co. strategists headed by Peter DeGroot wrote Monday that the bond rout trimmed supply as deals were pulled or downsized. They maintained their forecast, but said weekly issuance could run $1 billion to $3 billion below top-line estimates if current conditions stick. The roughly $4 trillion state and local debt market, long considered a sleepy corner of fixed income, is now seeing sharper intraday swings as geopolitical and economic surprises push issuers to be more flexible on timing and pricing.

What this means for your portfolio

When yields jump and big borrowers like Los Angeles, Nashville and New Jersey step back, the new-issue calendar becomes a moving target. Refundings on hold add to the stop-start feel. For investors who track munis for income and tax advantages, the setup today is simple to describe and tricky to navigate: higher yields and a schedule that can change by the hour.

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