Muni Update

April 27, 2020


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


Municipal Market Recap

Municipal prices started the week unchanged across key maturities. On Tuesday municipal prices weakened across the curve. On Wednesday municipal prices were mixed, as the front-end was steady, while prices on bonds maturing 10 years and longer weakened. On Thursday municipal prices weakened across the curve. On Friday municipal prices were mixed again, as the front-end strengthened, while prices on bonds maturing 10 years and longer weakened. This week’s projected level of new-issue offerings is $6.23B 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. Also this week, per CreditSights, one would expect that the buying interest in taxable bonds should be particularly robust because the strong performance of the corporate market has pushed yields down, making double-A taxable municipal bond yields attractive for corporate investors in the 21.0% tax bracket.

Investors in municipal bond funds put cash into funds for the second week in a row, as evidenced by the latest tax-exempt weekly reporting funds data showing that funds experienced inflows of $73.844MM after experiencing inflows of $833.388MM the week prior. The four-week moving average was a negative $537.077MM, after being in the red at $3.975B 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 yield on the two-year maturity on the MMD Triple-A Scale fell two basis points (bps) from Thursday to Friday and ended the week at 0.90%. Meanwhile, the yields on the 10- and 30-year maturities on the MMD Triple-A Scale each rose five bps from Thursday to Friday and they ended the week at 1.28% and 2.13%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond rose five bps, while the yield on the 10-year GO rose 21 bps and the yield on the 30-year GO bond rose 23 bps.

Last week the yield on the two-year maturity on the MMA Triple-A Scale fell two bps from Thursday to Friday and ended the week at 1.02%. Meanwhile the yields on the 10- and 30-year maturities each rose five bps on the MMA Triple-A Scale from Thursday to Friday and they ended the week at 1.66% and 2.33%, respectively. Overall, week-over-week the yield on the two-year GO bonds rose one bp, while the yield on the 10-year GO bond rose 18 bps and the yield on the 30-yar GO bond rose 21 bps.


New-Issue Volume is Forecasted to be Just $6.23B for the Week

Total new issuance for the trading week per IHS Markit Ipreo is estimated to be $6.23B. Some of the larger deals scheduled for the week include a $1.11B offering from the New York Power Authority, that has been day-to- the last few weeks.  Other offerings this week include a $582.2MM University of Missouri Revenue Bond offerings; a $350.0MM deal from the Sacramento Municipal Utility District  California, a $242.6MM offering from Howard County, Maryland; and a $163.8MM offering from the Washoe County School District, Nevada.

On the taxable front, a $700.0MM taxable corporate CUSIP offering is expected by Advocate Health and Hospitals Corporation (Aa3/AA/AA/NR) in Illinois for the Advocate Aurora Health Credit Group. The deal is rated Aa3 by Moody’s Investors Service (Moody’s), and AA by both Standard and Poor’s Global Ratings (S&P) and Fitch Ratings (Fitch)


Municipal Bond Funds Post Inflows for the Second Week in a Row

Investors in municipal bond funds put cash into funds for a second week in a row, as tax-exempt weekly reporting funds experienced inflows of $73.844MM in the latest week, after experiencing inflows of $833.388MM the week prior. The four-week moving average was a negative $537.077MM, after being in the red $3.975B the week prior.

Long-term municipal bond funds had outflows of $123.137MM in the latest week after experiencing inflows of $574.947MM the week prior. Intermediate-term funds had outflows of $43.059MM after inflows of $66.903MM the week prior. National funds had inflows of $167.068MM after experiencing inflows of $836.207MM the week prior. High-yield municipal funds reported outflows of $318.769MM in the latest week, after inflows of $292.1953MM the week prior. Exchange traded funds reported outflows of $32.169MM, after inflows of $499.768MM the week prior.


Demand in the Bank Qualified (BQ) Market Remains Strong

The expected increase in the level of new-issue paper this week coupled with secondary market opportunities should provide BQ market participants with numerous 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. Week-over-week, bank qualified spreads widened, with the largest widening occurring in the 30-year maturity, 15 bps.


Daily Overview of the General Market for the Week Ending April 24th

Last Monday, municipal prices on key maturities were steady, as market participants prepped for the $4.0B of new-issue offerings scheduled for the 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.

Prices on U.S. Treasurys were mixed, as U.S. stocks finished down for the session amid a historic selloff in the oil market. US oil futures settled in negative territory for the first time in history as demand for the commodity remains thin and storage capacity in the U.S. is at its limit. The May futures contract is also about to expire, which made trading more erratic. The Dow was down 2.4%, or 592 points, while the S&P 500 finished down 1.8% 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 fell two bps and the yield on the 30-year maturity fell four bps. The 10-year municipal-to-Treasury ratio rose to 169.8% on Monday from last Friday’s level of 164.4%, while the 30-year municipal-to-Treasury ratio rose to 154.5% on Monday from last Friday’s level of 149.6%.

Last Tuesday prices on municipals weakened, as several large new-issue offerings came to market, while the demand for the asset class continues to bounce back. On the day, the yield on two-year GO bond rose two bps, 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. Treasurys were mixed, and U.S. stocks closed lower as the oil market collapse weighed on markets and investor sentiment for a second straight day. The three main US benchmarks posted their worst days since April 1st. The Dow closed 2.7%, or 632 points, lower, while the S&P 500 finished down 3.1% and the NASDAQ ended down 3.5%. On the day, the yield on the two-year maturity was unchanged, while the yield on the 10-year maturity fell five bps and the yield on the 30-year maturity fell six bps. The 10-year municipal-to-Treasury ratio rose to 191.4% on Tuesday from Monday’s level of 169.8%, while the 30-year municipal-to-Treasury ratio rose to 165.8% on Tuesday from Monday’s level of 154.5%.

Last Wednesday municipals prices were mixed, as a number of new-issue deals were priced, including offerings from the State of Wisconsin and Riverside, California. On the day, the yield on the two year GO bond was steady, while the yield on the 10-year GO bond rose seven bps and the yield on the 30-year GO bonds rose nine bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys weakened, as U.S. stocks snapped a two-day losing streak and finished higher for the session. Investor sentiment received a boost from additional stimulus measures passed by the Senate and a rebound in oil prices, even though the factors that depressed markets earlier in the week persist. The oil market remains broken amid weak demand and storage problems, while coronavirus continues to weigh on corporate earnings and economic data. The Dow finished up nearly 2.0%, or 457 points, while the S&P was up 2.3% and the NASDAQ was up 2.8%. On the day, the yield on the two-year maturity rose two bps, while the yields on the 10- and 30-year maturities each rose five bps. The 10-year municipal-to-Treasury ratio fell to 187.3% on Wednesday from Tuesday’s level of 191.4%, while the 30-year municipal-to-Treasury ratio bumped up to 166.4% on Wednesday from Tuesday’s level of 165.8%.

Last Thursday municipals prices were steady, as the primary market was back in full force led by offering from the Los Angeles, Unified School District, California and the New York Metropolitan Transportation Authority. On the day, the yields on the two-, 10-, and 30-year GO bonds each rose five bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were mixed, and U.S. stocks also finished mixed, after losing steam into the close. The market once again shrugged off a bleak look at America’s labor market as 4.4MM people applied for first-time unemployment benefits last week, bringing the total over the past five weeks to 26.5MM. The Dow was up 0.2%, or 39 points, while the S&P finished down 0.1% and the NASDAQ ended unchanged. 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 four bps. The 10-year municipal-to-Treasury ratio rose to 201.6% on Thursday from Wednesday’s level of 187.3%, while the 30-year municipal-to-Treasury ratio rose to 176.3% on Thursday from Wednesday’s level of 166.4%.

Last Friday prices on municipals were mixed, as market participants started looking ahead to the expected almost $6.23B in new-issue long-term debt to be offered next week. On the day, the yield on the two-year GO bond fell two bps, while the yields on the 10- and 30-year GO bonds each rose five bps, 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, but the three major indexes recorded weekly losses, snapping a two-week winning streak. he driver behind that underperformance was the oil market carnage at the start of the week, which dragged the stock market down with it. The Dow finished up 1.1%, or 260 points, while the S&P was up 1.4% and the NASDAQ was up 1.7%. 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 rose to 213.3% on Friday from Thursday’s level of 201.6%, while the 30-year municipal-to-Treasury ratio rose to 182.1% on Friday from Thursday’s level of 176.3%.


Taxable Market






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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