Muni Update

April 20, 2020


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


Municipal Market Recap

Municipal prices strengthened across the curve on Monday and Tuesday. For the rest of the week, daily prices on municipals were steady. This week’s projected level of new-issue offerings is just under $4.0B and 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 put cash into funds for the first time in seven weeks, as evidenced by the latest tax-exempt weekly reporting funds data showing that funds experienced inflows of $833.388MM after experiencing outflows of $2.306B the week prior. The four-week moving average was a negative $3.975B, after being in the red at $7.237B 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 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 0.85%, 1.07%, and 1.90%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond fell eight basis points (bps), while the yield on the 10-year GO fell 13 bps and the yield on the 30-year GO bond fell 11 bps.

Last week the yield on the two-year maturity on the MMA Triple-A Scale fell one bp from Thursday to Friday and ended the week at 1.01%. Meanwhile the yields on the 10- and 30-year maturities were unchanged on the MMA Triple-A Scale from Thursday to Friday and they ended the week at 1.48% and 2.12%, respectively. Overall, week-over-week the yields on the two-, 10-, and 30-year GO bonds each fell 12 bps.


New-Issue Volume is Forecasted to be Just $4.0B for the Week

Total new issuance for the trading week per IHS Markit Ipreo is estimated to be $4.0B, and while this level is nowhere close to the $9.0B to $11.0B the market saw before the COVID-19 pandemic. Market sentiment seems to be normalizing, as evidenced by the recently upsized California issue and more normalized secondary market activity.  The calendar this week contains 12 deals of par size equal to or greater than $100.0M, many are listed as day-to-day on the calendar.

kicking off the week is the County of Riverside, California’s $720.945MM offering of pension obligation refunding bonds on Tuesday. The deal is rated A2 by Moody’s Investors Service (Moody’s) and AA by Standard and Poor’s Global Ratings (S&P).

On Wednesday the Pennsylvania Economic Development Corporation plans to offer $100.0MM of tax-exempt and $180.0MM of taxable UPMC revenue bonds Wednesday. The deals are rated A2 by Moody’s and A by S&P and Fitch Ratings (Fitch). The Maryland Health and Higher Educational Facilities Authority plans to offer $210.0MM of tax-exempt UPMC revenue bonds also on Wednesday. The deal is rated A2 by Moody’s and A by S&P and Fitch.

In the competitive arena, Katy ISD, Texas ISD plans to offer $177.0MM tax-exempt bonds on Tuesday. On Wednesday, the Dublin Unified School District, California is expected to sell $123.0MM of revenue bonds.

Also this week the Power Authority of the State of New York is considering a potential issuance of approximately $1.0B of fixed rate tax-exempt revenue bonds and $110.0MM of fixed rate federally taxable revenue bonds. The deal is rated Aa1 by Moody’s and AA by S&P and Fitch. Whether or not these offerings come to market this week will depend on market conditions.


Municipal Bond Funds Post Reverse Course and Post Inflows for the Week

Investors in municipal bond funds put cash into funds for the first time in seven weeks, as tax-exempt weekly reporting funds experienced inflows of $833.388MM in the latest week, after experiencing outflows of $2.306B the week prior. The four-week moving average was a negative $3.975B, after being in the red $7.237B the week prior.

Long-term municipal bond funds had inflows of $574.947MM in the latest week after experiencing inflows of $1.618B the week prior. Intermediate-term funds had inflows of $66.903MM after outflows of $328.733MM the week prior. National funds had inflows of $836.207MM after experiencing outflows of $1.948B the week prior. High-yield municipal funds reported inflows of $292.953MM in the latest week, after outflows of $960.168MM the week prior. Exchange traded funds reported inflows of $99.768MM, after outflows of $462.099MM the week prior.


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. 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.

While currently you can buy anywhere along the curve and pick up spread over Treasurys, we continue to see bank portfolio managers purchase municipals in the steepest part of the curve (10+ years). Along with outright purchases of Bank Qualified municipals 10 years and out, bank portfolio managers have taken advantage of the yield pickup and larger block size available in General Market (100% TEFRA) municipals in this low cost of funds environment.

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 mixed, Meanwhile, week-over-week bank qualified spreads were mixed as the one-, two-, three-, five-, and 30-year maturities all tightened, with the largest tightening occurring in the three- and five-year maturities, 21 bps each. Meanwhile, the week-over-week bank qualified spreads on the 10- and 15-year maturities widened, with the largest widening occurring in the 15-year maturity, six bps.


Daily Overview of the General Market for the Week Ending April 17th

Last Monday, municipal prices strengthened, as more dealers are coming around to pricing deals in the primary market as the new-issue calendar continues to grow. On the day, the yield on the two-year GO bond fell six bps, while the yield on the 10-year GO bond fell 10 bps and the yield on the 30-year GO bond fell eight bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were weaker across the curve, as U.S. stocks finished mixed for the session and investors gear up for the start of earnings season this week. The Dow was down 1.4% and the S&P was down 1.0%, while the NASDAQ was up 0.5%. On the day, the yield on the two-year maturity rose two bps, while the yield on the 10-year maturity rose three bps and the yield on the 30-year maturity rose four bps. The 10-year municipal-to-Treasury ratio fell to 144.7% on Monday from last Friday’s level of 164.4%, while the 30-year municipal-to-Treasury ratio fell to 138.9% on Monday from last Friday’s level of 148.9%.

Last Tuesday prices on municipals strengthened, as several new-issue offerings came to market, including triple-A Harvard University. A number of these deals were able to re-price to lower yields. On the day, the yield on two-year GO bond fell two bps, while the yields on the 10- and 30-year GO bonds each fell three bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed, as U.S. stocks closed higher amid optimism over better-than-expected trade data from China. The Dow finished 2.4%, or 559 points, higher, while the S&P 500 was up 3.1% and the NASDAQ was up 4.0%. On the day, the yield on the two-year maturity fell two bps, while the yield on the 10-year maturity was unchanged and the yield on the 30-year maturity rose two bps. The 10-year municipal-to-Treasury ratio fell to 140.8% on Tuesday from Monday’s level of 144.7%, while the 30-year municipal-to-Treasury ratio fell to 134.8% on Tuesday from Monday’s level of 138.9%.

Last Wednesday municipals prices were steady, as the market appeared to take a breather after a week-long rally, amid light new-issue activity. 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 strengthened, as U.S. stocks US stocks closed lower on Wednesday, after weak economic data and earnings weighed on the market all day. Energy stocks led losses, after oil settled below $20 a barrel for the first time since 2002. The Dow finished down 1.9%, or 445 points, and the S&P 500 fell 2.2%. It was the worst day for the two indexes since April 1st. The NASDAQ broke a four-day winning streak, its longest since early February, as it closed down 1.4%. On the day, the yield on the two-year maturity fell three bps, while the yield on the 10-year maturity fell 13 bps and the yield on the 30-year maturity fell 14 bps. The 10-year municipal-to-Treasury ratio rose to 169.8% on Wednesday from Tuesday’s level of 140.8%, while the 30-year municipal-to-Treasury ratio rose to 149.6% on Wednesday from Tuesday’s level of 134.8%.

Last Thursday municipals prices were steady, as the primary market was back in full force led by the State of California’s upsized $1.4B GO bond offering, while the secondary was mostly steady. 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 were mixed, as U.S. stocks clung to slight gains despite a row of weak economic reports. Weekly jobless claims showed another 5.2MM Americans filed for first-time unemployment benefits last week, bringing the total number of initial claims to around 22.0MM since mid-March. The Dow finished up 0.1%, while the S&P 500 was up 0.6% and the NASDAQ was up 1.7%. On the day, the yield on the two-year maturity was unchanged, while the yield on the 10-year maturity fell two bps and the yield on the 30-year maturity fell six bps. The 10-year municipal-to-Treasury ratio rose to 175.4% on Thursday from Wednesday’s level of 169.8%, while the 30-year municipal-to-Treasury ratio rose to 157.0% on Thursday from Wednesday’s level of 149.6%.

Last Friday prices on municipals were steady for a third day in a row, as market participants started looking ahead to the expected almost $4.0B in new-issue long-term debt to be offered next 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 were mixed, as U.S. stocks ended the session up, giving markets their second week of gains in a row. Driving the strong performance on Friday was investors being hopeful about a potential coronavirus treatment that could help fight the pandemic and discussing about reopening parts of the US economy. The Dow finished up nearly 3.0%, or 705 points, while the S&P was up 2.7% and the NASDAQ was up 1.4%. On the day, the yield on the two-year maturity was unchanged, while the yield on the 10-year maturity rose four bps and the yield on the 30-year maturity rose six bps. The 10-year municipal-to-Treasury ratio fell to 164.6% on Friday from Thursday’s level of 175.4%, while the 30-year municipal-to-Treasury ratio fell to 149.6% on Friday from Thursday’s level of 157.0%.


Taxable Market






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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