Muni Update

April 12, 2021


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


Municipal Market Recap

Municipal prices started the week steady across the curve. On Tuesday they were mixed, as the front-end was steady, while prices on bonds maturing 10 years and longer strengthened. On Wednesday, municipal prices strengthened across the curve. Thursday’s municipal price action was mixed again, as the front end was steady and prices on bonds maturing 10 years and longer strengthened. On Friday, municipal prices were steady.

The projected level of new-issue offerings for the upcoming trading week are $7.33B and coupled with bank qualified (BQ) and general market (GM) offerings in the secondary market should provide market participants with opportunities to fill their needs, especially as demand continues to outpace supply. This strong demand is being driven by redemption activity, as well as inflows into funds, both of which have been contributing to demand continuing to outpace supply so far for the year. For the latest reporting period, investors in municipal bond funds put cash into funds for a fifth week in a row, as tax-exempt weekly reporting funds data showed that funds experienced inflows of $2.122B in the latest week, after experiencing inflows of $160.973MM the week prior. The four-week moving average remained positive at $1.036B, after being in the green at $778.254MM 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 0.13%, 1.03%, and 1.64%, respectively. Overall, week-over-week the yield on the two-year general obligation (GO) bond fell two basis points (bps), while the yield on the 10-year GO bond fell eight bps and the yield on the 30-year GO bond fell nine bps.

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 0.29%, 1.30%, and 1.86%, respectively. Overall, week-over-week the yield on the two-year GO bond fell four bps, while the yields on the 10- and 30-year GO bonds each fell seven bps.


New-Issue Volume is Forecasted to be Around $7.33B for the Week

Total new-issue offerings for the trading week per IHS Markit Ipreo are estimated to be $7.33B. This week’s projected level of bond issuance is comprised of $5.41B in negotiated deals and $1.92B in competitive sales. Leading the way this week will be the Pennsylvania Economic Development Financing Authority’s $827.0MM offering of taxable state system of higher education Act 105 Project revenue bonds on Tuesday. The deal is rated Aa3 by Moody’s Investors Service (Moody’s) and A+ by Fitch Ratings (Fitch). The Public Finance Authority, Wisconsin is set to price $633.5MM of senior secured taxable private activity bonds (Alabama Department of Corrections Facilities Project) on Thursday. Also, this week, the Higher Education Loan Authority of the State of Missouri is set to price $523.9MM of taxable student loan asset-backed notes in three series.

From California this week we get a variety of deals including, but not limited to the $359.1MM offering of lease revenue bonds, 2021 Series by the State Public Works Board of the State of California. The deal is rated Aa3 by Moody’s, A+ by Standard and Poor’s Global Ratings (S&P) and AA- by Fitch. The San Diego County Water Authority plans to offer $299.9MM of water revenue refunding green bonds, Series 2021B. The deal is rated Aa2 by Moody’s, AAA by S&P and AA+ by Fitch. The California Community Housing Agency is set to price $175.8MM of essential housing revenue bonds on Wednesday. Finally, the California Infrastructure and Economic Development Bank is set to price $118.5MM of refunding revenue bonds, Series 2021A this week. The deal is rated Aa1 by Moody’s.

Other notable deals include Summa Health, Ohio plans to offer $325.0MM of taxable corporate CUSIP bonds insured by Assured Guaranty Municipal Corporation on Wednesday. The Deschutes Public Library District, Deschutes County, Oregon is set to price $195.0MM of GO bonds on Tuesday. The deal is rated Aa1 by Moody’s. The Idaho Housing and Finance Association is set to price $170.7MM of GARVEES, Series A 2021. The deal is rated A2 by Moody’s and A+ by Fitch.

In the competitive market, the Metropolitan Council of Minnesota is set to sell $185.8MM of Series 2021B GO grant anticipation notes and $204.1MM of Series 2021C grant anticipation notes on Tuesday. Also, on Tuesday, Palm Beach County, Florida, plans to offer competitively $166.865MM of bonds in three offerings. The deals consist of $68.795MM of Series 2021C taxable public improvement revenue refunding bonds for the Professional Sports Franchise Facility project, $53.2MM of Series 2021A tax-exempt public improvement revenue bonds for the Supervisor of Elections Operations building project and $44.87MM of Series 2021B taxable public improvement revenue refunding bonds. On Wednesday, the State of Delaware is planning on selling $293.1MM of GO bonds. The deal is rated Triple-A by Moody’s, S&P, Fitch, and Kroll Bond Rating Agency (KBRA).


Municipal Bond Funds Posted Inflows for the Fifth Week in a Row

Investors in municipal bond put cash into funds for a fifth week in a row, as tax-exempt weekly reporting funds experienced inflows of $2.122B in the latest week, after experiencing inflows of $160.973MM the week prior. The four-week moving average remained positive at $1.036B, after being in the green $778.254MM the week prior.

Long-term municipal bond funds had inflows of $1.676B in the latest week after experiencing inflows of $179.444MM the week prior. Intermediate-term funds had inflows of $259.233MM after inflows of $107.101MM the week prior. National funds had inflows of $1.976B after experiencing inflows of $273.688MM the week prior. High-yield municipal funds reported inflows of $820.790MM in the latest week, after inflows of $253.058MM the week prior. Exchange traded funds reported inflows of $350.027MM, after inflows of $217.887MM the week prior.


Demand in the Bank Qualified (BQ) Market Remains Strong

BQ participants continue to be focused on both BQ and general market (GM) new-issue offerings to fill their needs, as well as secondary market offerings in both BQ and GM paper. This significant demand is being driven in part by investors having to replace rolloffs due to continued strong redemption activity. Larger BQ participants (in particular C-Corps), continue to find attractive opportunities, both in size and structure in general market paper, due in part to the lower tax rates from tax reform, attractive spreads, and lower costs of funds currently.

We continue to encourage participants to review their portfolio’s and look to sell shorter maturities to take gains and extend out the curve, especially as overall credit quality stabilizes and improves in the municipal market. Week-over-week, BQ spreads were mixed as the one, two-, three-, five-, and 15-year maturities all widened, with largest widening occurring in the five-year maturity, six bps. Meanwhile, the spread on the 10-year maturity was unchanged and the spread on the 30-year maturity tightened, three bps, week over week.


Daily Overview of the General Market for the Week Ending April 9th

Last Monday municipals prices were steady, as the first of the trading week’s $8.12B in new-issue long-term debt was offered. 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, and U.S. Stock prices rose for the session. The Dow finished up 374 points, or 1.1% while the S&P was up 1.4% and the NASDAQ was up 1.7%. On the day, the yield on the two-year maturity fell two bps, while the yields on the 10- and 30-year maturities each rose one bp. The 10-year municipal-to-Treasury ratio slipped to 64.2% on Monday from last Friday’s level of 64.5%, while the 30-year municipal-to-Treasury ratio slipped to 73.3% on Monday from Last Friday’s level of 73.6%.

Last Tuesday municipals prices were mixed, as a variety of new-issue offerings came to market including the pricing of $10.0MM of Forsyth County, North Carolina, GO public improvement bonds and the repricing of $547.0MM of senior lien refunding revenue bonds for the Central Florida Expressway Authority which experienced bumps of one to eight bps. 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 one bp, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys strengthened on Tuesday, as U.S. stock prices fell for the session. The Dow was down 97 points or 0.3%, while the S&P and NASDAQ were barely down 0.01% and 0.05%, respectively. On the day, the yield on the two-year maturity fell one bp, while the yield on the 10-year maturity fell six bps and the yield on the 30-year maturity fell four bps. The 10-year municipal-to-Treasury ratio rose to 65.9% on Tuesday from Monday’s level of 64.2%, while the 30-year municipal-to-Treasury ratio rose to 74.1% on Tuesday from Monday’s level of 73.3%.

Last Wednesday municipals prices strengthened across the curve, as several new-issue offerings were priced including the $389.0MM offering of refunding revenue financing system bonds for the Board of Regents of the University of Texas System and the $325.0MM offering of senior sales tax revenue bonds for the Los Angeles County, California, Metropolitan Transportation Authority. On the day, the yield on the two- and 10-year GO bonds each fell two bps, while the yield on the 30-year GO bond fell three bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed on Wednesday, as were U.S. stock prices for the session. The Dow was up just 16 points or 0.05%, while the S&P was down 0.1% and the NASDAQ was down just 0.07%. On the day, the yield on the two-year maturity was unchanged, while the yield on the 10-year maturity rose one bp and the yield on the 30-year maturity rose three bps. The 10-year municipal-to-Treasury ratio fell to 64.3% on Wednesday from Tuesday’s level of 65.9%, while the 30-year municipal-to-Treasury ratio fell to 71.9% on Wednesday from Tuesday’s level of 74.1%.

Last Thursday municipals prices were mixed, as the last of the week’s diverse new-issue offerings came to market and several of them were repriced to lower yields. 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 five bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices strengthened on Thursday, as did U.S. equity prices for the session. The Dow was up 57 points or 0.2%, while the S&P was up 0.5% and the NASDAQ was up 1.0%. On the day, the yield on the two-year maturity fell two bps, while the yield on the 10-year maturity fell four bps and the yield on the 30-year maturity fell three bps. The 10-year municipal-to-Treasury ratio fell to 62.8% on Thursday from Wednesday’s level of 64.3%, while the 30-year municipal-to-Treasury ratio fell to 70.7% on Thursday from Wednesday’s level of 71.9%.

Last Friday municipal prices were steady for the session, as market participants were looking ahead to the $7.33B in expected new-issue offerings in the upcoming trading 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 weakened on Friday, as the US Stock market rose for the session. The Dow was up 297 points or 0.9%, while the S&P was up 0.8% and the NASDAQ was up 0.5%. On the day, the yields on the two- and 30-year maturities each rose two bps, while the yield on the 10-year maturity rose three bps. The 10-year municipal-to-Treasury ratio fell to 61.7% on Friday from Thursday’s level of 62.8%, while the 30-year municipal-to-Treasury ratio fell to 70.1% on Friday from Thursday’s level of 70.7%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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