Muni Update

April 26, 2021


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


Municipal Market Recap

Municipal prices were steady across the curve on a daily basis for the week. The Biden administration is considering raising the tax rates on capital gains, as well as increasing the marginal income tax rate to 39.6% from 37%. The latter would help spur additional demand for tax-free bonds, forcing valuations even higher for a sector already experiencing several tailwinds. The greatest change would be in the 30-year portion of the curve, where an after-tax municipal rate of 2.67% at a 39.6% tax rate would best the yield on U.S. Treasurys by 42 basis points (bps), an 11 bps improvement from the current 37% tax.

The projected level of new-issue offerings for the upcoming trading week are $5.51B and coupled with bank qualified (BQ) and general market (GM) offerings in the secondary market should provide market participants with various opportunities to fill their needs, especially as demand continues to outpace supply. The continuing strong demand in the municipal market is being driven by redemption activity, as well as inflows into funds, both of which continue to contribute to demand outpacing supply so far for the year. For the latest reporting period, investors in municipal bond funds put cash into funds for a seventh week in a row, as tax-exempt weekly reporting funds data showed that funds experienced inflows of $1.889B in the latest week, after experiencing inflows of $2.255B the week prior. The four-week moving average remained positive at $1.607B, after being in the green at $1.282B the week prior.

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 0.07%, 0.93%, and 1.55%, respectively. Overall, week-over-week the yields on the two-, 10-, and 30-year general obligation (GO) bonds were unchanged.

Last week the yields on the two-, 10- and 30-year maturities on the MMA Triple-A Scale were unchanged from Thursday to Friday and they ended the week at 0.23%, 1.22%, and 1.77%, respectively. Overall, week-over-week the yields on the two-, 10-, and 30-year GO bonds were unchanged.


New-Issue Volume is Forecasted to be Around $5.51B for the Week

Total new-issue offerings for the trading week per IHS Markit Ipreo are estimated to be $5.51B. This week’s projected level of bond issuance is comprised of $4.20B in negotiated deals and $1.31B in competitive sales. Leading the way this week will be the New Jersey Transportation Trust Fund Authority’s offering of $1.57B on Wednesday in four separate deals. Other notable deals this week include the Massachusetts Clean Water Trust is if offering $354.7MM on Thursday in two series. The first is a $142.8MM offering of state revolving fund bonds in Series 23 A green bonds and the other is for $211.8MM of Series 23B sustainability bonds. The State of Oregon is set to issue $234.2MM in two issues of taxable GO bonds for higher education on Thursday.


Municipal Bond Funds Posted Inflows for the Seventh Week in a Row

Investors in municipal bond put cash into funds for a seventh week in a row, as tax-exempt weekly reporting funds experienced inflows of $1.889B in the latest week, after experiencing inflows of $2.255B the week prior. The four-week moving average remained positive at $1.607B, after being in the green $1.282B the week prior.

Long-term municipal bond funds had inflows of $1.489B in the latest week after experiencing inflows of $2.137B the week prior. Intermediate-term funds had inflows of $200.490MM after inflows of $162.601MM the week prior. National funds had inflows of $1.801B after experiencing inflows of $2.157B the week prior. High-yield municipal funds reported inflows of $641.783MM in the latest week, after inflows of $1.279B the week prior. Exchange traded funds reported inflows of $318.711MM, after inflows of $478.221MM the week prior.


Demand in the Bank Qualified (BQ) Market Remains Strong

BQ participants continue to be focused on both BQ and general market (GM) new-issue offerings to fill their needs, as well as secondary market offerings in both BQ and GM paper. In addition, we are seeing a pickup in 3% coupon buying from market participants, as the yield on 3% coupons is moving buyers away from 4% and 5% coupons at this time. Also, significant demand continues to be the story this year and is being driven in part by investors having to replace rolloffs due to continued strong redemption activity and flows into funds. 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 review their portfolios and look to sell shorter maturities to take gains and extend out the curve, especially as overall credit quality stabilizes and improves in the municipal market. Week-over-week, BQ spreads were mixed as the one, two-, three-, and 30-year maturities all tightened, with the largest tightening occurring in the two-year maturity, six bps. Meanwhile, the spreads on the five-, 10-, and 15-year maturities all widened, with the largest widening in the 15-year maturity, three bps.


Daily Overview of the General Market for the Week Ending April 23rd

Last Monday municipals prices were steady, as the first of the trading week’s $10.19B in new-issue long-term debt was offered. 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 were mixed, as U.S. Stock fell for the session. The Dow finished down 123 points, or 0.4% while the S&P was down at 0.5% and the NASDAQ was down 1.0%. On the day, the yield on the two-year maturity was unchanged, while the yield on the 10-year maturity each rose two bps and the yield on the 30-year maturity rose three bps. The 10-year municipal-to-Treasury ratio fell to 57.8% on Monday from last Friday’s level of 58.5%, while the 30-year municipal-to-Treasury fell to 67.7% on Monday from Last Friday’s level of 69.6%.

Last Tuesday municipals prices were steady across the curve, as a variety of new-issue offerings totaling almost $3.0B came to market including the pricing and repricing of the almost $1.0B of Triborough Bridge & Tunnel Authority payroll mobility tax senior lien bonds in two series and the $1.079B State of California GO forward-delivery bonds. 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 on Tuesday, as U.S. stock prices fell for the session. The Dow was down 256 points or 0.8%, while the S&P was down 0.7% and the NASDAQ was down 0.9%. On the day, the yield on the two-year maturity fell one bp, while the yield on the 10-year maturity fell three bps and the yield on the 30-year maturity fell two bps. The 10-year municipal-to-Treasury ratio rose to 58.9% on Tuesday from Monday’s level of 57.8%, while the 30-year municipal-to-Treasury ratio rose to 68.3% on Tuesday from Monday’s level of 67.7%.

Last Wednesday municipals prices were steady across the curve, as several new-issue offerings were priced including the two offerings totaling $380.6MM of Charlotte Douglas International Airport Revenue bonds for Charlotte, North Carolina. The first offering was for $272.0MM Series 2021A non-alternative minimum tax (AMT) bonds and the second was for $108.0MM of Series 2021B AMT bonds.  In the competitive market, the City and County of Denver, Colorado sold $287.6MM of revenue bonds. 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 were mixed on Wednesday, as U.S. stock prices rose for the session. The Dow was up 316 points or 0.9%. The S&P was also up 0.9% and the NASDAQ was up 1.2%. On the day, the yield on the two-year maturity was unchanged, while the yields on the 10- and 30-year maturities each fell one bp. The 10-year municipal-to-Treasury ratio bumped up to 59.2% on Wednesday from Tuesday’s level of 58.9%, while the 30-year municipal-to-Treasury ratio bumped up 68.6% on Wednesday from Tuesday’s level of 68.3%.

Last Thursday municipals prices were steady, as a number of new-issue offerings were priced including a $400.0MM offering of State of New Jersey various purpose GO bonds and a $183.0MM of tax-exempt and taxable revenue and revenue refunding bonds for the Board of Regents of the University of Arizona. 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. equity prices fell for the session. The Dow was down 321 points or 0.9%. The S&P was also down 0.9%, as was the NASDAQ.  On the day, the yield on the two-year maturity rose one bp, while the yield on the 10-year maturity was unchanged and the yield on the 30-year maturity fell two bps. The 10-year municipal-to-Treasury ratio was unchanged on Thursday from Wednesday’s level of 59.2%, while the 30-year municipal-to-Treasury ratio rose to 69.2% on Thursday from Wednesday’s level of 68.6%.

Last Friday municipal prices were steady across the curve for the session, as the last of the week’s new-issue offering were priced and market participants were also looking ahead to the $5.51B in expected new-issue offerings in the upcoming trading 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 on Friday, as the U.S. stock market rose for the session. The Dow was up 228 points or 0.7%, while the S&P was up 1.1% and the NASDAQ was up 1.4%. On the day, the yield on the two-year maturity was unchanged, while the yields on the 10- and 30-year maturities each rose one bp.  The 10-year municipal-to-Treasury ratio slipped to 58.8% on Friday from Thursday’s level of 59.2%, while the 30-year municipal-to-Treasury ratio slipped to 68.9% on Friday from Thursday’s level of 69.2%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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