Muni Update

April 11, 2022


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


Municipal Market Recap

Municipal bond prices were mixed on Monday and Tuesday. On Monday prices on bonds in the front end were steady, while prices on bonds maturing 10-years and longer strengthened, while on Tuesday municipal prices on the front end were steady again, however, prices on bonds maturing 10-years and longer weakened. On Wednesday municipal prices weakened across the curve. On Thursday municipal prices strengthened across the curve. On Friday municipal prices weakened on again.

For the holiday-shortened trading week, the projected level of new issue offerings drops to 4.77BB. This level of new issue offerings coupled with bank qualified (BQ) and general market (GM) offerings in the secondary market should provide market participants with a number of opportunities to fill their needs, especially as demand continues to outpace supply.

April municipal bond redemptions are projected to total $21.0B, which will be $2.0B less than the amount paid out in March, and the smallest monthly total in almost four years. Issuers will also pay out $9.0B of interest in the month. Therefore, for the month, investors will receive a total of $30.0B of cash to be spent or reinvested.

For the week investors pulled cash out of funds for an eighth week in a row, as tax-exempt weekly reporting funds data showed that funds experienced an increase in outflows to $3.247B in the latest week, after experiencing outflows of $2.038B the week prior. The four-week moving average rose to a negative $2.231B, from a negative $1.584B the week prior.

Last week the yields on the two-, 10-, and 30-year maturities on the MMD Triple-A Scale each rose two basis point (bps) from Thursday to Friday and they ended the week at 1.91%, 2.34%, and 2.69%, respectively. Overall, week-over-week the yield on the two-year general obligation (GO) bond rose 14 bps, while the yields on the 10- and 30-year GO bonds each rose 16 bps.

Last week the yields on the two- and 10-year maturities on the MMA Triple-A Scale each rose two bps from Thursday to Friday, and they ended the week at 1.71% and 2.53%, respectively. Meanwhile the yield on the yield on the 30-year maturity on the MMA Triple-A Scale rose three bps from Thursday to Friday and ended the week at 3.09%. Overall, week-over-week the yield on the two-year maturity rose 18 bps, while the yield on the 10-year maturity rose 14 bps and the yield on the 30-year maturity rose 14 bps.


New-Issue Volume is Forecasted to be $4.77B for the Trading Week

Total new issue offerings for the holiday-shortened trading week per IHS Markit Ipreo are $4.77B. This week’s projected level of bond issuance is comprised of $3.43 in negotiated deals and $1.34B in competitive deals. The two largest deals of the week will both offer $500.0MM of bonds. One is a $500.0MM offering of taxable GO bonds, Series 2022 by the Regents of the University of Minnesota. The deal is rated Aa1 by Moody’s Investors Service (Moody’s) and AA by Standard and Poor’s Global Ratings (S&P). The other is a $500.0MM offering of taxable bonds, Series 2022A by the President and Fellows of Harvard College, Massachusetts, on Tuesday. The deal is rated Triple-A by Moody’s and S&P.

Other notable negotiated deals this week include but are not limited to the following offerings, all of them will come on Wednesday. The Anaheim Housing and Public Improvements Authority, California, is set to price $383.410MM of bonds; consisting of $45.285MM of Electric Utility Distribution System Improvements revenue bonds, Series 2022-A, $67.685MM of Electric Utility Generation System Improvements revenue bonds, Series 2022-B, $223.285MM of taxable Electric Utility Distribution System Refunding revenue refunding bonds, Series 2022-D, and $47.155MM of forward-delivery Electric Utility Distribution System Refunding revenue refunding bonds, serials 2022. The deal is rated AA- by S&P and Fitch Ratings (Fitch). Memphis, Tennessee will sell $229.605MM of taxable GO improvement refunding bonds, Series 2022B. The deal is rated Aa2 by Moody’s and AA by S&P. Kansas City, Missouri will price $220.440MM of special obligation bonds consisting of; $2.875MM of Series A, $34.445MM of Series B, and $183.120 million of Series C. The deal Is rated A2 by Moody’s and AA- by S&P.

In the competitive arena the Fremont United School District, California, is set to sell $126.500MM of Election of 2014 GO bonds, Series E, at noon eastern on Tuesday. The deal is rated Aa2 by Moody’s. On Wednesday, the California Public Works Board is set to sell $293.345MM of green/climate-certified California Air Resources Board lease revenue bonds, 2022 Series D, at 11:45 a.m. eastern. The deal is rated Aa3 by Moody’s, A+ by S&P, and AA- by Fitch.


Municipal Bond Funds Posted Outflows for a Eighth Week in a Row

Investors in municipal bond pulled cash out of funds for the week, as tax-exempt weekly reporting funds saw investors pull more money out, as funds experienced outflows of $3.247B in the latest week, after experiencing outflows of $2.038B the week prior. The four-week moving average jumped to a negative $2.231B, after being a negative $1.584B the week prior.

Long-term municipal bond funds had outflows of $2.354B in the latest week, after experiencing outflows of $1.008B the week prior. Intermediate-term funds had outflows of $566.054MM after outflows of $583.351MM the week prior. National funds had outflows of $2.788B after experiencing outflows of $1.727B the week prior. High-yield municipal funds reported outflows of $1.028B in the latest week, after outflows of $485.719MM the week prior. Exchange traded funds reported inflows of $433.995MM, after inflows of $372.255MM the week prior.


Demand in the Bank Qualified (BQ) Market Remains Strong

BQ participants continue to be focused on potential opportunities and with this week’s level of both BQ and general market (GM) new issue paper, together with secondary market offerings, should provide BQ market participants with opportunities to fill their needs as demand remains strong. This strong demand for all types of municipal paper is being driven in large part by investors having to replace rolloffs due to continued redemption activity and until the past several weeks, strong demand by funds for paper. We note that customers should be watching the current outflows from funds, because the bond funds will have to “liquidate” or sell to meet redemptions and when they do, they typically sell their high-grade credits to get the most value possible when liquidating. This may create opportunities for our bank customers.

We encourage participants to continue 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 continue to 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. Tax loss swaps are also presenting opportunities, as are fixed-to-floating rate swaps, especially in the expected rising rate environment we face. Week-over-week, BQ spreads were mixed, as the spreads on the one-, two- and 30-year maturities all widened, with the largest widening occurring in the two-year maturity, seven bps. Meanwhile the spreads on the three-, five-, 10-, and 15-year maturities tightened, with the largest tightening occurring in the 15-year maturity, 29 bps.


Daily Overview of the General Market for the Week Ending April 8th

On Monday municipal prices were mixed, as the first of the trading week’s $10.17B in new issue long-term debt was offered, including a one-day retail order period for the New York Power Authority’s $626.465MM of green transmission project revenue bonds, Series 2022A. On the day, the yield on the two-year GO bond was unchanged, while the yields on the 10- and 30-year GO bonds each fell two bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasuries were also mixed on Monday, while U.S. Stocks rose for the session. The Dow was up 104 points or 0.3%, while the S&P was up 0.8% and the NASDAQ was up 1.9%. On the day, the yield on the two-year maturity fell one bp, while the yields on the 10- and 30-year maturities each rose four bps. The 10-year municipal-to-Treasury ratio fell to 89.3% on Monday from last Friday’s level of 91.6%, while the 30-year municipal-to-Treasury ratio fell to 101.2% on Monday from last Friday’s level of 103.7%.

On Tuesday municipal prices were mixed and they outperformed the selloff in U.S Treasuries, as a number of new negotiated and competitive offerings were priced. On the day, the yield on the two-year GO bond was unchanged, while the yields on the 10- and 30-year GO bonds each rose four bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasuries weakened on Tuesday, while U.S. Stocks fell for the session. The Dow was down 281 points or 0.8%, while the S&P was down 1.3% and the NASDAQ was down 2.3%. On the day, the yield on the two-year maturity rose eight bps, while the yield on the 10-year maturity rose 12 bps and the yield on the 30-year maturity rose nine bps. The 10-year municipal-to-Treasury ratio fell to 86.6% on Tuesday from Monday’s level of 89.3%, while the 30-year municipal-to-Treasury fell to 99.26% on Tuesday from Monday’s level of 101.2%.

On Wednesday municipals sold off, as municipal prices weakened across the curve and a number of new issue offerings came to market. On the day, the yields on the two-, 10-, and 30-year GO bonds each rose 12 bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasuries were mixed on Wednesday, while U.S. Stocks fell for the session. The Dow finished down 144 points or 0.4%, while the S&P was down 1.0% and the NASDAQ was down 2.2%. On the day, the yield on the two-year maturity fell one bp, while the yield on the 10-year maturity rose seven bps and the yield on the 30-year maturity rose six bps. The 10-year municipal-to-Treasury ratio rose to 88.9% on Wednesday from Tuesday’s level of 86.6%, while the 30-year municipal-to-Treasury rose to 101.5% on Wednesday from Tuesday’s level of 99.2%.

On Thursday, municipal prices were steady across the curve, as the last of the trading week’s new issue offerings came to market. On the day, the yields on the two-, 10-, and 30-year GOs were unchanged, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were mixed on Thursday, as U.S. Stocks rose for the session. The Dow was up 88 points or 0.3%m, while the S&P was up 0.4% and the NASDAQ was up at 0.1%. On the day, the yield on the two-year maturity fell three bps, while the yield on the 10-year maturity rose five bps and the yield on the 30-year maturity rose six bps. The 10-year municipal-to-Treasury ratio fell to 87.2% on Thursday from Wednesday’s level of 88.9%, while the 30-year municipal-to-Treasury ratio fell to 99.3% on Thursday from Wednesday’s level of 101.5%.

Last Friday municipals prices weakened as a difficult week came to close and market participants looked ahead to the $4.77BB in expected new issue offerings for the upcoming holiday-shortened trading week. On the day, the yields on the two-, 10- and 30-year GO bonds each rose two bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices also weakened on Friday, while U.S. Stocks rose for the session. The Dow was up 138 points or 0.4%, while the S&P was up 0.3% and the NASDAQ was up 1.3%. On the day, the yields on the two- and 10-year maturities each rose six bps, while the yield on the 30-year maturity rose seven bps. The 10-year municipal-to-Treasury ratio fell to 86.0% on Friday from Thursday’s level 87.2%, while the 30-year municipal-to-Treasury fell to 97.5% on Friday from Thursday’s level of 99.3%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks

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