Muni Update

January 3, 2022



In this week’s Municipal Market Update, we highlight the following:


Municipal Market Recap

Municipal prices were steady on Monday and Tuesday. On Wednesday municipal prices were mixed, as prices on bonds maturing 10-years and in were steady, while prices on the bonds maturing on the long-end weakened. On Thursday and Friday municipal prices were once again steady across the curve.

For December 2021 municipal bond issuance was up nearly 10.0% year-over-year at $38.2B, however, total volume in 2021 just fell shy of 2020’s record. Total issuance in 2021 was $475.3B, which was just 1.9% shy of 2020’s level of $484.6B in insurance.

This week, the first trading week of the New Year, the projected level of new-issue offerings is just $1.13B for the trading week. This light level of issuance to start the year will have market participants looking at both bank qualified (BQ) and general market (GM) offerings in the secondary market, for opportunities to fill their needs, especially as demand continues to outpace supply. This continued strong demand in the municipal market is being driven by redemption activity and inflows into funds, as both are expected to contribute to demand outpacing supply for the year.

For January 2022, the amount of money expected to be redeemed is approximately $20.2B, which is the lowest amount since April 2018. There are later months in the year that have smaller expected redemptions, but those totals will probably grow, as issuers refund older bonds. For January, $1.6B of principal will be from taxable bonds. Bondholders will also receive $13.7B of interest in January, bringing the total amount potentially available for reinvestment to $33.8B.

For 2022, issuers are expected to return $300.0B of maturing and called bond principal and of that amount $195.0B is expected to come from maturing debt, while $105.0B is expected to come from bonds that have already been called or are pre-refunded. The amount of maturing bonds is down slightly from 2021, when $200.0B of bonds matured. Investors will also receive $139.0B of interest payments in 2022, about $593.0MM more than in 2021, according to a report from CreditSights.

For funds latest reporting period, investors in municipal bond funds put cash into funds for a 43rd week in a row, as tax-exempt weekly reporting funds data showed that funds experienced inflows of $1.202B in the latest week, after experiencing inflows of $1.116B the week prior. The four-week moving average was positive at $971.511MM, after being in the green at $680.020MM the week prior.

Last week the yields on the two-, 10-, and 30-year maturities on the MMD Triple-A Scale were unchanged from Thursday to Friday and they ended the week at 0.24%, 1.03%, and 1.49%, respectively. Overall, week-over-week the yields on the two- and 10-year general obligation (GO) bonds were unchanged, while the yield on the 30-year GO bond rose one basis point (bp).

Last week the yields on the two-, 10-, and 30-year maturities on the MMA Triple-A Scale were unchanged from Thursday to Friday and they ended the week at 0.20%, 1.26%, and 1.76%, respectively. Overall, week-over-week the yields on the two-, 10-, and 30-year GO bonds were unchanged.


New-Issue Volume is Forecasted to be $1.13B for the Trading Week

Total new-issue offerings for the first week of trading 2022 per IHS Markit Ipreo are estimated to be $1.13B. No other data on issuance was available at the time of the publication of this sector outlook.


Municipal Bond Funds Posted Inflows for a 43rd Week in a Row

Investors in municipal bond put cash into funds for a 43rd week in a row, as tax-exempt weekly reporting funds experienced inflows of $1.202B in the latest week, after experiencing inflows of $1.116B the week prior. The four-week moving average remained positive at $971.511MM after being in the green at $680.020MM the week prior.

Long-term municipal bond funds had inflows of $1.215B in the latest week, after experiencing inflows of $682.494MM the week prior. Intermediate-term funds had inflows of $179.553MM after inflows of $112.952MM the week prior. National funds had inflows of $1.226B after experiencing inflows of $1.078B the week prior. High-yield municipal funds reported inflows of $424.034MM in the latest week, after inflows of $438.827MM the week prior. Exchange traded funds reported inflows of $478.034MM, after inflows of $547.352MM the week prior.


Demand in the Bank Qualified (BQ) Market Remains Strong

With issuance extremely light for the first full trading week of 2022, BQ participants will have to look to the secondary market for either BQ or general market (GM) opportunities to fill their needs, especially as demand is expected to outpace supply.

At this time of year, we encourage participants to review their portfolio and clean-up any odd lots (on-going monitoring of line items), as well as credit clean-up for any credits on negative credit watches or recent downgrades. Finally, extension swaps present an opportunity to sell short duration municipals and extend on out the yield curve, while maintaining or improving the overall credit quality of the portfolio, especially, as overall credit quality continues to stabilize and improve in the municipal market. Week-over-week, BQ spreads were mixed, as the spreads on the one-, two-, five-, 10-, and 15-maturities tightened, with the largest tightening occurring in the two-year maturity, four bps. Meanwhile, the spreads on the three-year maturity widened one bp and the spread on the 30-year maturity was unchanged week-over-week.


Daily Overview of the General Market for the Week Ending December 31st

On Monday municipals prices were steady, as activity was light to start the holiday-shortened last trading week of the year.  On the day, the yields on the two-, 10-, and 30-year maturities were unchanged, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed on Monday, while U.S. stocks continued their end of year rise. The Dow was up 352 points or 1.0%, while the S&P and NASDAQ both rose 1.4%. On the day, the yield on the two-year maturity rose five bps, while the yield on the 10-year maturity fell two bps and the yield on the 30-year maturity fell three bps. The 10-year municipal-to-Treasury ratio rose to 69.6% on Monday from last Thursday’s level of 68.7%, while the 30-year municipal-to-Treasury ratio rose to 78.7% on Monday from last Thursday’s level of 77.5%.

On Tuesday municipals prices were steady again, as activity was light for the second day of the week. On the day, the yields on the two-, 10- and 30-year GO bonds were unchanged, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed on Tuesday, as was the activity for U.S. stocks for the session. The Dow was up 96 points or 0.3%, while the S&P was barely down 0.1% and the NASDAQ was down 0.6%. On the day, the yield on the two-year maturity fell two bps, while the yield on the 10-year maturity rose one bp and the yield on the 30-year maturity rose two bps. The 10-year municipal-to-Treasury ratio fell to 69.1% on Tuesday from Monday’s level of 69.6%, while the 30-year municipal-to-Treasury ratio fell to 77.9% on Tuesday from Monday’s level of 78.7%.

On Wednesday municipals prices were mixed, as activity was sparse ahead of the end of the year. On the day, the yields on the two- and 10-year GO bonds were steady, while the yield on the 30-year GO bond rose one bp, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys weakened on Wednesday, as U.S. stocks seesawed for the session; falling in the morning before posting mixed results by the close. The Dow finished up 90 points or 0.3%, while the S&P was up 0.1% and the NASDAQ was down 0.1%. On the day, the yield on the two-year maturity rose one bp, while the yields on the 10- and 30-year maturities each rose six bps. The 10-year municipal-to-Treasury ratio fell to 66.5% on Wednesday from Tuesday’s level of 69.1%, while the 30-year municipal-to-Treasury ratio fell to 76.0% on Wednesday from Tuesday’s level of 77.9%.

Last Thursday municipals prices were steady, as activity was once again sparse for the session. On the day, the yields on the two-, 10- and 30-year GO bonds were unchanged, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices strengthened on Thursday, as U.S. stocks fell for the session. The Dow was down 91 points or 0.3%, while the S&P was also down 0.3% and the NASDAQ was down 0.2%. On the day, the yield on the two-year maturity fell two bps, while the yields on the 10- and 30-year maturities each fell three bps. The 10-year municipal-to-Treasury ratio rose to 67.8% on Thursday from Wednesday’s level of 66.5%, while the 30-year municipal-to-Treasury ratio rose to 77.2% on Thursday from Wednesday’s level of 76.0%.

Last Friday municipals prices were steady, as 2021 ended and market participants looked ahead to the first full trading week of 2022 and the limited $1.13B in new-issue supply projected for the week. On the day, the yields on the two-, 10- and 30-year GO bonds were unchanged, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were mixed, while U.S. stocks fell for the session. The Dow was down 60 points or 0.2%, while the S&P was down 0.3% and the NASDAQ was down at 0.6%. On the day, the yields on the two- and 10-year maturities were unchanged, while the yield on the 30-year maturity fell three bps. The 10-year municipal-to-Treasury ratio was unchanged on Friday from Thursday’s level of 67.8%, while the 30-year municipal-to-Treasury rose to 81.3% on Friday from Thursday’s level of 77.2%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks

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