Muni Update

April 22, 2019



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

 

Municipal Market Recap

Municipal prices were steady across the curve on Monday. On Tuesday they were mixed, as the front-end was steady, while bonds maturing 10 years and longer weakened. On Wednesday municipal prices weakened across the curve. On Thursday prices were mixed, as the front-end was steady, while bonds maturing 10 years and longer strengthened. Issuance for the week is forecasted to be $5.7B, which is above last week’s revised level of $3.6B in issuance. This week’s projected level of issuance combined with secondary market offerings should provide market participants with a number of opportunities in this trading week, especially given the current demand in the municipal market. Driving this strong demand in the municipal market is a combination of high redemption flows and inflows into municipal bond mutual funds. Due to the early close last week, fund data is limited but does reveal that Investors in municipal bond funds put cash into funds for a fifteenth week, as weekly reporting funds experienced inflows of $679.0MMMM after experiencing inflows of $956.451MMM the week prior.

Last week the yield on the two-year maturity on the MMD Triple-A Scale was unchanged from Wednesday to Thursday and ended the week at 1.56%. Meanwhile the yields on the 10- and 30-year maturities each fell one basis point (bp) on the MMD Triple-A Scale from Wednesday to Thursday and they ended the week at 1.95% and 2.70%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond rose one bp, while the yields on the 10- and 30-year GO bonds each rose two bps.

Last week the yield on the two-year maturity on the MMA Triple-A Scale was unchanged from Wednesday to Thursday and ended the week at 1.56%. Meanwhile the yields on the 10- and 30-year maturities each fell one bp on the MMA Triple-A Scale from Wednesday to Thursday and they ended the week at 2.15% and 2.81%, respectively. Overall, week-over-week the yields on the two-, 10- and 30-year GO bonds each rose one bp.

 

New Issue Volume is Forecasted to be $5.7B for Trading Week

Total new issuance for the trading week per IHS Markit Ipreo is estimated to be $5.7B, which above last week’s trading volume of $3.6B in issuance, according to revised data from Refinitiv. This week’s trading calendar is comprised of $4.3B in negotiated offerings and $1.4B in competitive offerings. This week’s calendar features 10 negotiated deals of a $100.0MM and larger. However, the largest deal of the week is in the short-term sector, as the New York State Thruway Authority is set to competitively bring $1.6B of general revenue junior indebtedness obligation anticipation notes on Tuesday.

On Wednesday the Frisco, Texas, Independent School District plans to offer $278.115MM of unlimited tax school building and refunding bonds. The deal is rated triple A by both Moody’s Investors Service (Moody’s) and Standard and Poor’s Global Ratings (S&P).

On Thursday the Los Angeles Department of Water and Power plans to offer $309.985MM of power system revenue bonds, after a one-day retail order period. The deal is rated AA by both S&P and Fitch Ratings (Fitch). Also on Thursday the Michigan Finance Authority plans to offer $252.530MM of hospital revenue bonds for Henry Ford Health System. The deal is rated A2 by Moody’s and A by S&P.

 

Demand in the Bank Qualified (BQ) Market Remains Strong

Last week, the BQ market had good activity, despite the limited opportunities in the both primary offerings and secondary market bid lists. With rolloffs continuing at a brisk pace, BQ participants are more and more looking to general market (GM) paper to supplement the lack of BQ supply to find opportunities. This week’s projected level of new issue BQ paper, together with GM opportunities in both the primary and secondary markets should provide BQ market participants with additional chances to address their needs, while picking up attractive structures (3.0% coupons and higher), especially those in the long-end of the curve (20 to 25 year range). Participants should also continue to utilize extension swaps, as the bid side for municipals continues to remain strong. Week-over-week, bank qualified spreads were mixed, as the one-year maturity tightened one bp, while the 10 and 15-year maturities were unchanged week-over-week. Finally, the two, three, five and 30-year maturities all widened, with the largest widening occurring in the three-year maturity, two bps.

 

Daily Overview of the General Market for the Week Ending April 19th

Last Monday prices on municipals were steady, as market participants prepped for the $3.6B in new issue offerings scheduled for the holiday shortened trading week. On the day, the yields on the two-, 10- and 30-year GO bonds were steady, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasuries were mixed, as U.S. stocks posted minimal losses for the session. The Dow and NASDAQ posted a 0.10% decline, while the S&P posted a loss of 0.06%. On the day, the yield on the two-year maturity was steady, while the yields on the 10- and 30-year maturities each fell by one bp. The 10-year municipal-to-Treasury ratio bumped up to 75.6% on Monday from last Friday’s level of 75.4%, while the 30-year municipal-to-Treasury ratio bumped up to 90.5% on Monday from last Friday’s level of 90.2%.

Last Tuesday prices on municipals were mixed again, as a number of deals were priced including the negotiated offering of $161.0MM Miami Beach GO and refunding bonds, and the competitively offered $299.6MM California Department of Water Resources central valley project water system revenue bonds. On the day, the yield on the two-year GO bond was steady, while the yields on the 10- and 30-year GO bonds each rose one bp, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasuries were weaker, as U.S. closed up but finished well off of their highs reached early in the session, after a spate of positive corporate earnings failed to hold investors’ optimism throughout the day. The Dow was up 0.26%, while the S&P was up 0.05% and the NASDAQ was up 0.30%. On the day, the yield on the two-year maturity rose one bp, 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 slipped to 74.6% on Tuesday from Monday’s level of 75.6%, while the 30-year municipal-to-Treasury ratio slipped to 90.0% on Tuesday from Monday’s level of 90.5%.

Last Wednesday prices on municipals weakened across the curve, as a few taxable deals came to a market, highlighting the significance of what issuers can tap into by issuing taxable municipals, as opposed to the traditional tax-exempt bonds. On the day, the yield on the two-year GO bond rose one bp, while the yields on the 10- and 30-year GO bonds each rose two bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasuries were mixed, as the majority of U.S. stocks finished slightly down for the session. On the day, the yields on the two- and 10-year maturities each fell one bp, while the yield on the 30-year maturity was steady. The 10-year municipal-to-Treasury ratio rose to 75.7% on Wednesday from Tuesday’s levels of 74.6%, while the 30-year municipal-to-Treasury ratio rose to 90.6% on Wednesday from Tuesday’s level of 90.0%.

Last Thursday prices on municipals were mixed, as market participants were looking ahead to the coming trading week’s $5.7B in new issue offerings. 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.

U.S. Treasury prices finished stronger. On the day, the yields on the two- and 10-year maturities each fell two bps, while the yield on the 30-year maturity fell three bps. The 10-year municipal-to-Treasury ratio bumped up to 75.9% on Thursday from Wednesday’s level of 75.7%, while the 30-year municipal-to-Treasury ratio rose to 91.2% on Thursday from Wednesday’s level of 90.6%.







Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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