Muni Update

April 17, 2017


Municipal Market Update

 

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


Municipal Market Recap 

Municipal bond funds recorded inflows for the week, as weekly reporting funds experienced $1.63B in inflows in the latest reporting week, after experiencing outflows of $287.201MM the week prior. The four-week moving average remained positive at $444.756MM, after being a positive $8.313MM the week prior. All other funds posted inflows and for the high-yield fund we note this was the seventh week of inflows. Investors still facing negative rates overseas continue to find higher-yielding assets attractive. High demand is expected to continue to outpace supply, as reinvestment funds remain constant and traditional and non-traditional market participants continue to look for opportunities, especially if yields rise. Still, the uncertainty surrounding tax reform, infrastructure, and the pace of Fed tightening is causing some market participants to be observers more than buyers at this time.

U.S. Treasury prices started the trading week stronger across the curve and strengthened further on Tuesday. On Wednesday the front-end and long-ends were stable, while the 10-year maturity strengthened. On Thursday ahead of Friday’s close, U.S. Treasury prices strengthened across the curve. Prices for municipals started the trading week steady. On Tuesday they strengthened and continued to strengthen daily through the end of the week. Volume for this trading week is projected to be $6.82B, which is above last week’s holiday shortened trading week of a revised level of $4.57B. This week’s level of new issuance volume coupled with secondary market opportunities should provide market participants with opportunities as they replace rolloffs. The economic calendar for this week is fairly quiet and will be dominated by housing data.

Last week the yield on the two-year maturity on the MMD Triple-A Scale fell on basis point (bp) from Wednesday to Thursday and ended the week at 0.97%. Meanwhile the yield on the 10-year maturity fell four bps and the yield on the  and 30-year maturity fell three bps on the MMD Triple-A Scale from last Wednesday to Thursday, and they finished the week at 2.08% and 2.91%, respectively. Overall, week-over-week the yield on the two-year general obligation (GO) bond fell three bps, while the yield on the 10-year GO bond fell nine bps and the yield on the 30-year GO bond fell six bps.

Last week the yield on the two-year maturity on the MMA Triple-A Scale fell one bp from Wednesday to Thursday and ended the week at 1.04%. Meanwhile the yield on the 10-year maturity fell five bps and the yield on the 30-year maturity fell four bps on the MMA Triple-A Scale from Wednesday to Thursday and they ended the week at 2.24% and 3.08%, respectively. Overall, week-over-week the yield on the two-year maturity fell three bps, while the yield on the 10-year maturity fell five bps and the yield  on the 30-year maturity fell seven bps.

Prices on U.S. Treasuries started last week stronger across the curve. On Tuesday prices on maturities in the front and long-ends of the curve were steady while prices on maturities in the intermediate area of the curve strengthened. On Wednesday and Thursday U.S. Treasury prices were stronger across the curve. Overall, week-over-week the yield on the 10-year maturity fell 13 bps and closed the week at 2.24%. Meanwhile the yield on the two-year maturity fell seven bps week-over-week and closed the week at 1.21%. This resulted in a week-over-week 2s/10’s spread of 103 bps, six bps tighter than last week’s 2s/10’s spread of 109 bps. The yield on the 30-year maturity fell 11 bps and finished the week at 2.89%.


New Issue Volume Jumps to an Estimated $6.82B

Total volume for the trading week is estimated to be $6.82B, which is above the $4.57B in issuance last week, according to revised data from Thomson Reuters. This week’s calendar consists of $5.55B in negotiated deals and approximately $1.27B in competitive sales. There are 20 deals ranging in size from $100.0MM up to $350.0MM, as well as one billion plus offering.

The State of California, the No. 1 municipal issuer in terms of par-amount, will add to its yearly total with $1.25 billion of taxable general obligation high speed passenger train bonds on Thursday. JPMorgan is expected to price the bonds, which are rated Aa3 by Moody’s Investors Service and AA-minus by S&P Global Ratings and Fitch Ratings. The City of Houston plans to offer $350.0MM of combined utility system first lien revenue refunding bonds also on Thursday. The deal is rated Aa2 by Moody’s and AA by Fitch.

The Geisinger Authority, Montour County, Pennsylvania plans to offer $345.25MM of health system revenue bonds for the Geisinger Health System on Wednesday. The deal is rated Aa2 by Moody’s and AA by S&P. Also on Wednesday the Dormitory Authority of the State of New York will offer $300.0MM of New York State University dorm facilities revenue bonds for institutional buyers, after a one day retail order period on Tuesday. The deal is rated Aa3 by Moody’s and A+ by Fitch.

The largest competitive deal will take place on Tuesday, when Miami-Dade County School District is set to sell $250.0MM of GO school bonds. The deal is rated Aa3 by Moody’s.


Municipal Bond Funds Reversed Course and Reported Outflows for the Week    

Municipal bond funds reversed course and posted inflows, as market participants put cash back into funds, according to the latest data from Lipper. Weekly reporting funds reported $1.63B of inflows for the most recent week. These followed outflows of $287.201MM the week prior, according to Lipper. The four-week moving average was still in the green at positive $444.756MM, after being in the green at a positive $8.313MM the week prior.

Long-term municipal bond funds also had inflows, gaining $1.09B in the latest week after falling $166.361MM the week prior. Intermediate-term funds had inflows of $505.697MM after experiencing outflows of $79.763MM the week prior. National funds had inflows of $1.699B after outflows of $135.789MM the week prior. High-yield municipal funds reported inflows of $604.105MM in the latest reporting week, after inflows of $68.334MM the week prior. Exchange traded funds saw inflows of $113.902MM, after inflows of $81.089MM the week prior.


Demand in the Bank Qualified (BQ) Market Remains Strong 

Last week, new issue activity was good for a holiday-shortened trading week and was a key driver of activity in the BQ market, as the secondary market was relatively quiet. BQ spreads were wider across the curve, with the largest widening occurring in the two-year maturity, 17 bps.


 Daily Overview of the General Market for the Week Ending April 13th

Last Monday prices on municipal bonds finished flat, as participants positioned themselves for the upcoming holiday-shortened trading week’s new issue supply and others prepped for the start of the Passover Holiday. On the day, the yields on the two-, 10- and 30- year GO bonds were all steady, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasuries were stronger across the curve, as both the Dow and S&P ended less than 0.1% changed after early gains gave way to midday weakness and an afternoon push higher proved to be short-lived. On the day, the yields on two-, 10- and 30-year maturities each fell one bp. The 10-year municipal-to-Treasury ratio rose to 92.0% on Monday from the prior Friday’s level of 91.6%, while the 30-year municipal-to-Treasury ratio rose to 99.3% on Monday from the prior Friday’s level of 99.0%.

Last Tuesday prices on municipal bonds finished stronger, as the majority of the week’s new issue offerings came to market, including a combined $1.0B offering from the New York City Transitional Finance Authority.  On the day, the yield on the two-year GO bond fell two bps, while the yield on the 10-year GO bond fell four bps and 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. Treasuries were stronger as yields fell to the low end of the trading range of the past few weeks and the geopolitically-driven risk-off pressure on U.S. stocks eased during the day. On the day, the yield on the two-year maturity fell four bps, while the yields on the 10- and 30-year maturities each fell six bps. The 10-year municipal-to-Treasury ratio rose to 92.6% on Tuesday from Monday’s level of 92.0%, while the 30-year municipal-to-Treasury ratio rose to 100.3% on Tuesday from Monday’s level of 99.3%.

Last Wednesday prices on municipals finished mixed, as the State of California competitively sold about $604.0MM of GO bonds. On the day, the yields on the two- and 30-year GO bonds were each unchanged, while the yield on the 10-year GO bond fell one bp, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices also finished last Wednesday mixed, as the aversion to risk continued and gold and the Yen rallied past Tuesday’s five-month highs. U.S. stocks were underwater the entire session with sectors responsible for the post-election run higher ending at the bottom of the S&P. On the day the yields on the two- and 30-year maturities were unchanged, while the yield on the 10-year maturity fell one bp. Both the 10- and 30-year municipal-to-Treasury ratios were unchanged on Wednesday from their Tuesday’s level of 92.6% and 100.3%, respectively.

Last Thursday’s early close ahead of the Good Friday Holiday saw prices on municipals finish stronger, as market participants prepped for the following week’s new issue offerings. On the day, the yield on the two-year GO bond fell one bp, while the yield on the 10-year GO bond fell four bps and the yield on the 30-year GO bond fell three bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices also finished stronger on the day, as major equity averages managed daily gains but were well off of session highs by the time trading closed. On the day, the yield on the two-year maturity fell two bps, while the yield on the 10-year maturity fell five bps and the yield on the 30-year maturity fell four bps. The 10-year municipal-to-Treasury ratio rose to 92.9% on Thursday, from Wednesday’s level of 92.6%, while the 30-year municipal-to-Treasury ratio rose to 100.7% on Thursday, from Wednesday’s level of 100.3%.

 

Taxable Market





Dennis Porcaro

Senior Vice President

Vining Sparks IBG, L.P.

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