Muni Update

April 18, 2022


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


Municipal Market Recap

Municipal bond prices weakened across the curve last Monday. On Tuesday and Wednesday municipal prices were Mixed. On Tuesday prices on bonds in the front end weakened, while prices on bonds maturing 10 years and longer were steady. On Wednesday prices on bonds in the front end were steady, while prices on bonds maturing 10 years and longer weakened. Thursday municipal prices were steady across the curve.

For the upcoming trading week, the projected level of new issue offerings is $4.8B. 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.

Investors in municipal bond pulled cash out of funds for a ninth week in a row, as tax-exempt weekly reporting funds experienced outflows of $4.1B in the latest week, the fourth-largest weekly outflow on record, according to Refinitiv Lipper US Fund Flows data. The week prior they experienced outflows of $3.247B. This is the second straight week of outflows breaking records.

Last week the yields on the two-, 10- and 30-year maturities on the MMD Triple-A were unchanged from Wednesday to Thursday and they ended the week at 2.03%, 2.46% and 2.81%, respectively. Overall, week-over-week the yields on the two-, 10- and 30-year general obligation (GO) bonds each rose 12 basis points (bps).

Last week the yields on the two- and 10-year maturities on the MMA Triple-A Scale each rose one bp from Wednesday to Thursday, and they ended the week at 1.83% and 2.65%, respectively. Meanwhile the yield on the yield on the 30-year maturity on the MMA Triple-A Scale rose two bps from Wednesday to Thursday and ended the week at 3.22%. Overall, week-over-week the yields on the two-and 10-year maturities each rose 12 bps, while the yield on the 30-year maturity rose 13 bps.


New Issue Volume is Forecasted to be $4.8B for the Trading Week

Total new issue offerings for the trading week per IHS Markit Ipreo are $4.8B. This week’s projected level of bond issuance is comprised of $3.2B in negotiated deals and $1.8B in competitive deals. The largest deal of the week will come from the Iowa Finance Authority, which will price $854.325MM of tax-exempt, non-alternative minimum tax Iowa Fertilizer Company Project midwestern disaster area revenue refunding bonds, Series 2022 on Thursday. The deal is rated Ba1 by Moody’s Investors Service (Moody’s), BBB- by Standard and Poor’s Global Ratings (S&P) and BB+ by Fitch Ratings (Fitch). Other deals on Thursday include the New Jersey Higher Education Student Assistance Authority offering of $266.345MM of student loan revenue and refunding bonds, Series 2022, consisting of; $22.245MM of senior bonds, Series A, $202.420MM of senior bonds, Series B, and $41.500 million of subordinate bonds, Series C. The two senior bond series are rated Aa1 by Moody’s and the subordinate series is rated A2 by Moody’s. The San Juan Unified School District, California, will also offer $150.0MM of Election of 2016 GO bonds, Series 2022, consisting of: $139.180MM of bonds, Series 2022, and $10.820MM of taxable bonds, Series 2022 on Thursday.

The state of Texas will price $272.170MM of GO bonds, consisting of: $100.325MM of water financial assistance bonds, Series 2022A, $140.615MM of water financial assistance refunding bonds, Series 2022B, $13.210MM of water financial assistance refunding bonds, Series 2022C, and $18.020MM of taxable water financial assistance refunding bonds, Series 2022D on Wednesday. The deal is rated Triple-A by Moody’s, S&P and Fitch. Also on Wednesday, Frisco Independent School District, Texas, is set to price $205.115MM of unlimited tax school building bonds, Series 2022, guaranteed by the Permanent School Fund Guarantee Program. The Unified Government of Wyandotte County and Kansas City, Kansas, will price $153.960MM of Village East Project Areas 2B, 3 And 5 of sales tax special obligation revenue bonds, Series 2022, on Wednesday.

In the competitive arena on Tuesday, the City and County of Denver, Colorado, will sell three offerings: $246.080MM of GO Elevate Denver bonds, Series Interest 2022A, at 10:30 a.m. eastern; $81.710MM of GO RISE Denver bonds, Series 2022B, at 11 a.m. Eastern and $38.600MM of taxable GO RISE Denver bonds, Series 2022C at 11:30 a.m. eastern. On Wednesday, the Virginia Public School Authority (Aa1/AA+/AA+/) is set to sell $216.460MM of school financing bonds (1997 Resolution), Series 2022A, at 10:30 a.m. easter. The deal is rated Aa1 by Moody’s and AA+ by S&P and Fitch.


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

Investors in municipal bonds pulled cash out of funds for a ninth week in a row, as tax-exempt weekly reporting funds reported outflows of $4.1B in the latest week, the fourth-largest weekly outflow on record, according to Refinitiv Lipper US Fund Flows data. The week prior they experienced outflows of $3.247B. This is the second straight week of outflows breaking records.

High-yield funds also reported outflow of $719.0MM, the 20th-largest weekly withdrawal on record, according to Refinitiv. Long-term municipal funds lost about $1.9B.


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 three-year maturities all widened, with the largest widening occurring in the two-year maturity, nine bps. Meanwhile the spreads on the five-, 10-, 15- and 30-year maturities all tightened, with the largest tightening occurring in the 30-year maturity, 19 bps.


Daily Overview of the General Market for the Week Ending April 15th

On Monday municipal prices weakened across the curve, as the first of the holiday-shortened trading week’s $4.77B in new issue long-term debt was offered. On the day, the yields on the two-, 10- and 30-year GO bonds each rose eight bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasuries were mixed on Monday, while U.S. Stocks fell for the session on inflation concerns. The Dow was down 413 points or 1.2%, while the S&P was down 1.7% and the NASDAQ was down 2.2%. On the day, the yield on the two-year maturity fell three bps, while the yield on the 10-year maturity rose seven bps and the yield on the 30-year maturity rose eight bps. The 10-year municipal-to-Treasury ratio rose to 86.7% on Monday from last Friday’s level of 86.0%, while the 30-year municipal-to-Treasury was unchanged on Monday from last Friday’s level of 97.5%.

On Tuesday municipal prices were mixed and underperformed the rally in the U.S Treasury market, as a number of new negotiated and competitive offerings including the $144.0MM competitive offering of the Florida Department of Transportation’s turnpike revenue bonds, Series 2022. On the day, the yield on the two-year GO rose four bps, while the yields on the 10- and 30-year GO bonds were unchanged, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasuries strengthened on Tuesday, while U.S. Stocks fell for the session. The Dow was down 88 points or 0.3% and the S&P and the NASDAQ were also each down 0.3%. On the day, the yield on the two-year maturity fell 11 bps, while the yield on the 10-year maturity dell seven bps and the yield on the 30-year maturity fell two bps. The 10-year municipal-to-Treasury ratio rose to 89.0% on Tuesday from Monday’s level of 86.7%, while the 30-year municipal-to-Treasury rose to 98.2% on Tuesday from Monday’s level of 97.5%.

On Wednesday municipals were mixed, as the majority of the week’s offering came to market. 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 strengthened on Wednesday, while U.S. Stocks rose for the session. The Dow closed up 344 points or 1.0%, while the S&P was up 1.1% and the NASDAQ was up 2.0%. On the day, the yields on the two- and 10-year maturities each fell two bps, while the yield on 30-year maturity fell one bp. The 10-year municipal-to-Treasury ratio rose to 91.1% on Wednesday from Tuesday’s level of 89.0%, while the 30-year municipal-to-Treasury rose to 100.0% on Wednesday from Tuesday’s level of 98.2%.

Last Thursday, municipal prices were steady, as the holiday-shortened trading week ended, and investors looked ahead to next week’s $4.8B in new issue offerings. 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 weakened on Thursday, as U.S. Stocks fell for the session. The Dow was down 113 points or 0.3%m, while the S&P was down 1.2% and the NASDAQ was down at 2.1%. On the day, the yield on the two-year maturity rose 10 bps, while the yield on the 10-year maturity rose 13 bps and the yield on the 30-year maturity rose 11 bps. The 10-year municipal-to-Treasury ratio fell to 86.9% on Thursday from Wednesday’s level of 91.1%, while the 30-year municipal-to-Treasury ratio fell to 96.2% on Thursday from Wednesday’s level of 100.0%.






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks

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