Muni Update

April 13, 2020


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


Municipal Market Recap

Municipal prices strengthened daily across the curve for the week and outperformed both the Treasury and corporate bond markets, as trading volume has picked up. Issuance for the trading week is projected to be just over $2.8B. This week’s projected level of new-issue offerings together with secondary market opportunities should provide market participants with several opportunities to meet demand, especially given the continued strong demand in the municipal market due to high redemption flows.

Investors in municipal bond funds pulled cash out of funds for a sixth week in a row. The latest tax-exempt weekly reporting funds data shows that funds experienced outflows of just $2.3B after experiencing outflows of $749.185MM the week prior. The four-week moving average remained negative, after being negative the week prior. Investors still facing low or negative rates overseas continue to find positive-yielding U.S. assets attractive despite the recent outflows.

Last week the yield on the two-year maturity on the MMD Triple-A Scale fell six basis points (bps) from Wednesday to Thursday and it ended the week at 0.93%. Meanwhile, the yields on the 10- and 30-year maturity each fell 10 bps on the MMD Triple-A Scale from Wednesday to Thursday and they ended the week at 1.20% and 2.01%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond fell 25 bps, while the yield on the 10-year GO bond fell 43 bps and the yield on the 30-year GO bond fell 43 bps.

Last week the yield on the two-year maturity on the MMA Triple-A Scale fell seven bps from Wednesday to Thursday and ended the week at 1.13%. Meanwhile the yields on the 10- and 30-year maturities each fell 10 bps on the MMA Triple-A Scale from Wednesday to Thursday and they ended the week at 1.60% and 2.24%, respectively. Overall, week-over-week the yield on the two-year GO bond fell 29 bps, while the yield on the 10-year GO bond fell 33 bps and the yield on the 30-year GO bond fell 39 bps.


New-Issue Volume is Forecasted to be Just $2.8B for the Week

Total new issuance for the trading week per IHS Markit Ipreo is estimated to be just over $2.8B and will be comprised of $2.0B in negotiated offerings and just over $800.0MM in the competitive new-issue offerings.

Negotiated market offerings this week are listed day-to-day. The two largest deals of the week that are listed are the $450.0MM offering from the Massachusetts Development Finance Authority and the $360.0MM offering from the Illinois Finance Authority.

In the competitive arena, the largest deal scheduled for the week will come from Jonson County USD #229, Kansas and is comprised of two offerings totaling $137.765 on Monday. The first is a $12.765MM of GO refunding bonds and the second is $125.0MM of GO bonds.


Municipal Bond Funds Post Outflows for the Sixth Week in a Row

Investors in municipal bond funds pulled cash out of funds for the sixth week in a row, as tax-exempt weekly reporting funds experienced outflows of $2.3B in the latest week, after experiencing outflows of $749.185MM the week prior. The four-week moving average remained negative, after being negative the week prior. As of the publication of this report, no other funds data was available.


Demand in the Bank Qualified (BQ) Market Remains Strong

The expected level of new-issue paper this week coupled with secondary market opportunities should provide BQ market participants with opportunities to fill their needs, especially in the new-issue BQ deals that has recently been coming at attractive levels and wider spreads. BQ participants continue to have significant demand for municipal paper due in large part to having to replace rolloffs due to redemptions. 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 utilize extension swaps, as a way to pick up more yield with little to no drop-off in credit quality. Week-over-week, bank qualified spreads were mixed, as the spreads on the one-, three-, five-, 10-, 15-, and 30-year maturities all tightened, with the largest tightening occurring in the 30-year maturity, 32 bps. The week-over-week spread on the two-year maturity was unchanged.


Daily Overview of the General Market for the Week Ending April 10th

Last Monday, municipal prices strengthened across the curve, as market participants anticipated the Federal Reserve would be stepping in as a buyer of last resort for municipals, though how much, which credits, and what durations were still needed to be decided. In addition, market participants were prepping for the projected $2.9B in new-issue long-term debt to be offered during this holiday-shortened trading week. On the day, the yield on the two-year GO bond fell eight bps, while the yields on the 10- and 30-year GO bonds each fell 15 bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys weakened, as U.S. stocks closed near session highs on optimism about a slowdown in new coronavirus infections. It was the stock market’s best day since March 24th. The Dow finished up 7.7%, or 1,627 points, while the S&P closed 7.0% higher and the NASDAQ ended up 7.3% higher.  On the day, the yield on the two-year maturity rose four bps, while the yield on the 10-year maturity rose five bps and the yield on the 30-year maturity rose three bps. The 10-year municipal-to-Treasury ratio fell to 220.9% on Monday from last Friday’s level of 262.9%, while the 30-year municipal-to-Treasury ratio fell to 180.3% on Monday from last Friday’s level of 196.8%.

Last Tuesday prices on municipals strengthened, as issuers begin to test the primary market and dealers opened their balance sheets after weeks of inactivity. On the day, the yield on two-year GO bond fell six bps, while the yields on the 10- and 30-year GO bonds each fell 10 bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys weakened, as U.S. stocks posted gains throughout most of the session only to lose steam into the close and finish down for the day. The Dow was down 0.1%, or 26 points, at its highest point in the day it was up 937 points. The S&P closed down 0.2% and the NASDAQ was down 0.3%. On the day, the yield on the two-year maturity rose one bp, while the yield on the 10-year maturity rose eight bps and the yield on the 30-year maturity rose five bps. The 10-year municipal-to-Treasury ratio fell to 184.0% on Tuesday from Monday’s level of 220.9%, while the 30-year municipal-to-Treasury ratio fell to 165.9% on Tuesday from Monday’s level of 180.3%.

Last Wednesday municipals prices strengthened across the curve for the fourth day in a row, and as yields have fallen market conditions have continued to move toward a more normal operating environment and a stable tone. Several new-issues were priced and bid volume was moderate for the session. On the day, the yield on the two-year GO bond fell five bps, while the yields on the 10- and 30-year GO bonds each fell eight bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed, as U.S. stocks ended higher on Wednesday, buoyed by investors’ optimism about slight improvement in new coronavirus infections data. The Dow was up 3.4%, or 780 points, while the S&P finished 3.4% higher and the NASDAQ closed up 2.6% for the session. On the day, the yield on the two-year maturity fell one bp, while the 10-year maturity rose two bps and the yield on the 30-year maturity rose five bps. The 10-year municipal-to-Treasury ratio fell to 168.80% on Wednesday from Tuesday’s level of 184.0%, while the 30-year municipal-to-Treasury ratio fell to 154.0% on Wednesday from Tuesday’s level of 165.9%.

Last Thursday municipals prices strengthened to close the week, as the FED announced it was creating a Municipal Liquidity Facility with up to $500.0B in loans and $35.0B in credit protection in order to help state and local governments manage cash flow stresses caused by the coronavirus pandemic. On the day, the yield on the two-year GO fell six bps, while the yields on the 10- and 30-year GO bonds each fell 10 bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices also strengthened, as U.S. stocks closed higher, as investors shrugged off the largest number of initial jobless claims in history due in part to the  FED announcing a new $2.3T round of loans that include even more support for small businesses and consumers and, for the first time for states, cities and municipalities, too. The Dow finished the session up 1.2%, while the S&P rose 1.5% and the NASDAQ was up 0.8%. On the day, the yields on the two- and 10-year maturities each fell four bps, while the yield on the 30-year maturity fell two bps. The 10-year municipal-to-Treasury ratio fell to 164.4% on Thursday from Wednesday’s level of 168.8%, while the 30-year municipal-to-Treasury ratio fell to 148.9% on Thursday from Wednesday’s level of 154.0%.


Taxable Market






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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