Muni Update

April 4, 2022


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


Municipal Market Recap

Municipal bond prices weakened across the curve on Monday. On Tuesday municipal prices were mixed, as prices on bonds in the front end weakened, while prices on bonds maturing 10-years and longer were steady. On Wednesday municipal prices were steady across the curve. On Thursday municipal prices strengthened across the curve. On Friday municipal prices were mixed again, as bonds in the front end of the curve weakened, while bonds maturing 10 years and longer were steady.

For March, municipal issuance fell 17.6% year-over-year. Contributing to the decline in issuance for the month was a drop in refunding volumes amid continuing market volatility and a rising-rate environment. Total March issuance was $39.363B on 793 deals versus $47.763B on 1,218 issues a year earlier. Taxable issuance totaled $8.725B on 114 issues, down 6.3% from $9.308B on 238 issues a year ago. Finally, new-money issuance was up 3.5% to $32.922B on 644 transactions from $31.800B a year ago, while refunding volume decreased 72.7% to $2.907B from $10.648B in 2021.

For the trading week, the projected level of new-issue offerings are $10.17B. 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.

For April, municipal bond redemptions will 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. Total announced redemptions for this year already total 8% of the market, but that amount is likely to grow if issuers refinance older bonds. CreditSights notes that reinvestment demand should pick up in May and June as redemption flows surge. The net supply of municipals was negative in February, as issuers redeemed $34.0B of bonds, but issued only $29.0B. Preliminary Data for March, reflects that due to a slowdown in redemptions and an increase in issuance, net supply for March was $16.0B plus.

For the week investors pulled cash out of funds for a seventh week in a row, as tax-exempt weekly reporting funds data showed that funds experienced outflows of $2.038B in the latest week, after experiencing outflows of $1.503B the week prior. The four-week moving average dropped to a negative $1.584B, from a negative $1.781B the week prior.

Last week the yield on the two-year maturity on the MMD Triple-A Scale rose one basis point (bp) from Thursday to Friday and ended the week at 1.77%. Meanwhile, the yields on the 10- and 30-year maturities were unchanged on the MMD Triple-A Scale from Thursday to Friday, and they finished the week at 2.18% and 2.53%, 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 was unchanged and the yield on the 30-year GO bond fell one bp.

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 1.53%, 2.39%, and 2.95%, respectively. Overall, week-over-week the yield on the two-year maturity rose three bps, while the yields on the 10- and 30-year maturities each rose one bp.


New-Issue Volume is Forecasted to be $10.166B for the Trading Week

Total new-issue offerings for the trading week per IHS Markit Ipreo are $10.17B. This week’s projected level of bond issuance is comprised of $8.98B of airport deals. The first is the in negotiated deals and $1.19B in competitive deals. The large primary calendar is led by three-billion-dollar offerings, two of which are for airports. The first is a $1.4B offering of tax-exempt Terminal 4 John F. Kennedy International Airport Project special facilities revenue bonds from the New York Transportation Development Corporation. The deal is rated Baa1 by Moody’s Investors Service (Moody’s) and BBB by Standard and Poor’s Global Ratings (S&P. The other airport deal is the $1.2B offering of taxable Dallas Fort Worth International Airport joint revenue improvement bonds from the cities of Dallas and Fort Worth, Texas. The deal is rated A1 by Moody’s, A+ by S&P and Fitch ratings (Fitch), and AA by Kroll Bond Rating Agency (KBRA). Finally, the New York City, Triborough Bridge and Tunnel Authority (TBTA) is set to price $1.0B of forward delivery payroll mobility tax senior lien refunding bonds, Series 2022B.

Other notable negotiated deals this week include but are not limited to the following. The New York Power Authority (A1/AA) is set to price $626.465MM of green transmission project revenue bonds, Series 2022A, insured by Assured Guaranty Municipal Corporation on Tuesday. The deal is rated A1 by Moody’s and AA by S&P. The Allegheny County Hospital Development Authority, Pennsylvania is set to price $400.0MM of University of Pittsburgh Medical Center revenue bonds, Series 2017D-2; in multiple series, also on Tuesday. The deal is rated A2 by Moody’s and A by S&P and Fitch. On Wednesday, the Maryland Economic Development Corporation is set to price $625.425MM of green Purple Line Light Rail Project private activity revenue bonds; consisting of $100.0MM of Series 2022A and $525.425MM of Series 2022B. The deal is rated Baa3 by Moody’s and BBB by S&P. Finally, on Thursday, El Paso, Texas is set to price $356.325MM of water and sewer revenue improvement and refunding bonds, Series 2022. The deal is rated AA+ by S&P and Fitch.

In the competitive arena the Virginia Public Building Authority is set to sell three offering on Tuesday that are each rated Aa1 by Moody’s and AA+ by S&P and Fitch. The first will be for $236.655MM of public facilities revenue bonds, Series 2022A Bidding Group 1, at 10:30 a.m. The second will be for $199.995MM of public facilities revenue bonds, Series 2022A Bidding Group 2, at 11:00 a.m. The third will be for $20.065MM of taxable public facilities revenue bonds, Series 2022B, at 11:30 a.m. Also on Tuesday, the Eugene School District #4J, Oregon is set to sell $120.0MM of Oregon School Bond Guaranty general obligation bonds, Series 2022, at noon eastern. The deal is rated Aa1 by Moody’s.


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

Investors in municipal bond pulled cash out of funds for the week, as tax-exempt weekly reporting funds experienced outflows of $2.038B in the latest week, after experiencing outflows of $1.503B the week prior. The four-week moving average dropped to a negative $1.584B, after being a negative $1.781B the week prior.

Long-term municipal bond funds had outflows of $1.008B in the latest week, after experiencing outflows of $629.576MM the week prior. Intermediate-term funds had outflows of $583.351MM after outflows of $427.171MM the week prior. National funds had outflows of $1.727B after experiencing outflows of $1.289B the week prior. High-yield municipal funds reported outflows of $485.719MM in the latest week, after inflows of $10.501MM the week prior. Exchange traded funds reported inflows of $372.255MM, after inflows of $126.536MM the week prior.


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 strong redemption activity and until the past several weeks, strong demand by funds for paper. We note now 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 (ongoing 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 widened across the curve, with the largest widening occurring in the one-year maturity, 26 bps.


Daily Overview of the General Market for the Week Ending April 1st

On Monday municipal prices weakened across the curve, as the first of the trading week’s $8.12B in new-issue long-term debt was offered. On the day, the yield on the two-year GO bond rose five bps, while the yield on the 10-year GO bond rose four bps and the yield on the 30-year GO bond rose three bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed on Monday, while U.S. stocks rose for the session. The Dow was up 95 points or 0.3%, while the S&P was up 0.7% and the NASDAQ was up 1.3%. On the day, the yield on the two-year maturity rose five bps, while the yield on the 10-year maturity fell two bps and the yield on the 30-year maturity fell three bps. The 10-year municipal-to-Treasury ratio rose to 90.2% on Monday from last Friday’s level of 87.9%, while the 30-year municipal-to-Treasury ratio rose to 100.0% on Monday from last Friday’s level of 97.7%.

On Tuesday municipal prices were mixed, as a number of negotiated and competitive offerings were priced, including the $360.0MM offering of power system revenue bonds, 2022 Series B by the Department of Water and Power of the City of Los Angeles, California. On the day, the yield on the two-year GO bond rose two 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. Treasurys were also mixed on Tuesday, while U.S. stocks rose for the session. The Dow was up 338 points or 1.0%, while the S&P was up 1.2% and the NASDAQ was up 1.8%. 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 92.1% on Tuesday from Monday’s level of 90.2%, while the 30-year municipal-to-Treasury rose to 101.6% on Tuesday from Monday’s level of 100.0%.

On Wednesday municipals prices were steady across the curve, as a number of new-issue offerings came to market including the $950.0MM offering of tax-exempt future tax secured subordinate bonds, Fiscal 2022 Series F, Subseries F-1, by the New York City Transitional Finance Authority. 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 Wednesday, while U.S. stocks fell for the session. The Dow finished down 65 points or 0.2%, while the S&P was down 0.6% and the NASDAQ was down 1.2%. On the day, the yield on the two-year maturity fell four bps, while the yield on the 10-year maturity fell six bps and the yield on the 30-year maturity fell five bps. The 10-year municipal-to-Treasury ratio rose to 94.5% on Wednesday from Tuesday’s level of 92.1%, while the 30-year municipal-to-Treasury rose to 103.6% on Wednesday from Tuesday’s level of 101.6%.

On Thursday, municipal prices strengthened across the curve, as the last of the trading week’s new-issue offerings came to market. On the day, the yield on the two-year GO bond fell three bps, while the yields on the 10- and 30-year GO bonds each fell four bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices also strengthened on Thursday, as U.S. stocks fell for the session. The Dow was down 550 points or 1.6%. The S&P was also down 1.6% and the NASDAQ was down 1.5%. On the day, the yields on the two- and 10-year maturities each fell three bps, while the yield on the 30-year maturity fell four bps. The 10-year municipal-to-Treasury ratio fell to 94.0% on Thursday from Wednesday’s level of 94.5%, while the 30-year municipal-to-Treasury bumped up to 103.7% on Thursday from Wednesday’s level of 103.6%.

Last Friday municipals prices were mixed, as market participants looked ahead to the $10.17B in expected new-issue offerings for the upcoming trading week. 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 were unchanged, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were also mixed on Friday, while U.S. stocks rose for the session. The Dow was up 140 points or 0.4%, while the S&P was up 0.3% and the NASDAQ was also up 0.3%. On the day, the yield on the two-year maturity rose 16 bps, while the yield on the 10-year maturity rose six bps and the yield on the 30-year maturity was unchanged. The 10-year municipal-to-Treasury ratio fell to 91.6% on Friday from Thursday’s level 94.0%, while the 30-year municipal-to-Treasury was unchanged on Friday from Thursday’s level of 103.7%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks

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