Muni Update

April 5, 2021



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


Municipal Market Recap

Municipal prices were mixed on Monday and Tuesday. On Monday, the front-end was steady, while prices on bonds maturing 10 years and longer strengthened. On Tuesday, the front-end was steady, while prices on bonds maturing 10 years and longer weakened. On Wednesday, municipal prices were steady across the curve. On Thursday municipal prices were mixed, as the front end weakened, while prices on bonds maturing 10 years and longer strengthened. On Friday, the bond market was only open for half the session, and prices finished steady across the curve.

For March, municipal issuance grew year-over-year with new-money volume climbing at a higher pace than refundings bonds, as rates have risen, and issuers pulled back on refunding their debt. The first quarter of 2021 will conclude with a total of $102.1B in issuance, slightly higher than the $95.3B that the market saw in the first quarter of 2020.

The projected level of new-issue offerings for the upcoming trading week are $8.12B and coupled with bank qualified (BQ) and general market (GM) offerings in the secondary market should provide market participants with opportunities to fill their needs, especially as demand continues to outpace supply. This strong demand is being driven by redemption activity, as well as inflows into funds, both of which have been contributing to demand continuing to outpace supply so far for the year. For the latest reporting period, investors in municipal bond funds put cash into funds for a fourth week in a row, as tax-exempt weekly reporting funds data showed that funds experienced inflows of $160.973MM in the latest week, after experiencing inflows of $592.407MM the week prior. The four-week moving average remained positive at $778.254MM, after being in the green at $586.750MM the week prior.

For April, $21.0B in maturing and called bond principal is scheduled to be returned to investors. That is down 17% from the $26.0B that was paid out in March. In addition, approximately $9.2B in interest (per CreditSights) will be paid out in April, bringing total potential reinvestment demand to just $30.5B, the second-lowest monthly total of the year. April 1st redemptions totaled $14.0B. Total redemptions for this year now total over $320.0B but that amount will likely grow as issuers continue to refinance older bonds.

Last week the yields on the two-, 10-, and 30-year maturities on the MMD Triple-A Scale were unchanged from Thursday to Friday’s shortened session. and they ended the week at 0.15%, 1.11%, and 1.73%, respectively. Overall, week-over-week the yield on the two-year general obligation (GO) bond rose one basis point (bp), while the yield on the 10-year GO bond 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 each fell one bp from Wednesday to Thursday and they ended the week at 0.33%, 1.37%, and 1.93%, respectively. Overall, week-over-week the yield on the two-year GO bond fell one bp, while the yields on the 10- and 30-year GO bonds were unchanged.


New-Issue Volume is Forecasted to be Around $8.12B for the Week

Total new-issue offerings for the trading week per IHS Markit Ipreo are estimated to be $8.12B. This week’s projected level of bond issuance is comprised of $5.64B in negotiated deals and $2.48B in competitive sales. Leading the way this week will be the $1.5B issue by Novant Health Incorporated of corporate CUSIP taxable bonds on Thursday on behalf of Novant Health Obligated Group. Also, on Thursday, Miami-Dade County, Florida, plans to price $622.2MM of water and sewer system revenue bonds.

Other deals this week include an offering of $559.1MM of Series A-1 subordinated sales tax refunding bonds and $39.0MM of Series A-2 sustainability bonds offering from the Massachusetts Bay Transportation Authority. The Central Florida Expressway Authority is set to price $585.0MM of senior lien refunding revenue bonds on Tuesday insured by Assured Guaranty Municipal Corporation. The San Francisco Airport Commission is set to price $560.1MM of second series revenue refunding bonds on behalf of the San Francisco International Airport in three series on Wednesday. The offerings will be comprised of a Series 2021A issue that is subject to the alternative minimum tax (AMT), a 2021B issue that is non-AMT and a Series 2021C issue that is taxable.

The University of Southern California will sell $400.0MM of taxable bonds also on Wednesday. The deal is rated Aa1 by Moody’s Investors Service (Moody’s) and AA by Standard and Poor’s Global Ratings (S&P). The university will take indications of interest as early as Tuesday afternoon. The taxable bullet structure is 2051 subject to a make-whole call. The Board of Regents of the University of Texas System is set to sell $400.0MM of refunding revenue financing system bonds, maturing as serials from 2027 to 2051 later this week. Northern Kentucky University is set to price $205.2MM of general receipts bonds on Tuesday.

In the competitive market, the Elk Grove, California, Unified School District is set to sell $140.0MM of GO bonds on Tuesday. The deal is rated Aa2 by Moody’s and AAA by Fitch Ratings (Fitch). Forsyth County, North Carolina is set to sell two series of GO public improvement and one series of refunding bonds totaling $144.0MM on Tuesday. Nassau County, New York plans to sell $146.9MM of GO improvement bonds on Tuesday. The East Side Union, California, High School District is set to sell $127.3MM of GO bonds on Wednesday. The Los Angeles County, California, Metropolitan Transportation Authority is set to sell $325.0MM of senior sales tax revenue bonds on Wednesday and finally, the State of Louisiana is set to sell $227.0MM of GO bonds, also on Wednesday.


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

Investors in municipal bond put cash into funds for a fourth week in a row, as tax-exempt weekly reporting funds experienced inflows of $160.973MM in the latest week, after experiencing inflows of $592.407MM the week prior. The four-week moving average remained positive at $778.254MM, after being in the green $586.750MM the week prior.

Long-term municipal bond funds had inflows of $179.444MM in the latest week after experiencing inflows of $513.229MM the week prior. Intermediate-term funds had inflows of $107.101MM after inflows of $99.713MM the week prior. National funds had inflows of $273.688MM after experiencing inflows of $618.479MM the week prior. High-yield municipal funds reported inflows of $253.058MM in the latest week, after inflows of $256.058MM the week prior. Exchange traded funds reported inflows of $217.887MM, after inflows of $225.785MM 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. This significant demand is being driven in large part by investors having to replace rolloffs due to continued strong redemption activity. Larger BQ participants (in particular C-Corps), continue to find attractive opportunities, both in size and structure in general market paper maturing, 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 portfolio’s 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 two-, three-, five-, 10-, 15-, and 30-year maturities all tightened, with largest tightening occurring in the five-year maturity, 12 bps. Meanwhile the spread on the one-year maturity was unchanged week-over-week.


Daily Overview of the General Market for the Week Ending April 2nd

Last Monday municipals prices were mixed, as the first of the holiday-shortened trading week’s $3.33B in new-issue long-term debt was offered. Demand for municipals continues to be strong, despite municipal-to-U.S. Treasury ratios being rich, because credit profiles are improving both for individual investments and entire sectors, as economic growth and fiscal stimulus impact the market. 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.

Prices on U.S. Treasurys were also mixed, as were U.S. stock prices for the session. The Dow finished up 99 points, or 0.3% while the S&P was barely down o.1% and the NASDAQ was down0.6%. On the day, the yield on the two-year maturity was unchanged, while the yields on the 10- and 30-year maturities each rose six bps. The 10-year municipal-to-Treasury ratio fell to 63.6% on Monday from last Friday’s level of 66.5%, while the 30-year municipal-to-Treasury ratio fell to 71.2% on Monday from Last Friday’s level of 73.4%.

Last Tuesday municipals prices were mixed, as a variety of new-issue offerings came to market including the $437.2MM offering of taxable enhanced tobacco settlement asset-backed bonds for the Golden State Tobacco Securitization Corporation and the $250.0MM of turnpike revenue bonds for the Pennsylvania Turnpike Commission. In the competitive arena, the Palm Springs Unified School District, California sold $118.0MM of GO bonds. 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 rose two bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were also mixed on Tuesday, as U.S. stock prices fell for the session. The Dow was down 103 points or 0.3%, while the S&P was also down 0.3% and the NASDAQ was barely down 0.1%. On the day, the yield on the two-year maturity rose two bps, while the yield on the 10-year maturity was unchanged and the yield on the 30-year maturity fell five bps. The 10-year municipal-to-Treasury ratio rose to 64.7% on Tuesday from Monday’s level of 63.6%, while the 30-year municipal-to-Treasury ratio rose to 73.5% on Tuesday from Monday’s level of 71.2%.

Last Wednesday municipals prices were steady across the curve, as several new-issue offerings were priced including $332.5MM of junior lien revenue refunding bonds for the San Antonio Electric and Gas System and a $114.1MM offering of general fund refunding project notes form the Kentucky Asset/Liability Commission. On the day, the yields on the two-, 10-, and 30-year GO bonds were all unchanged, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed on Wednesday, as were U.S. stock prices for the session. The Dow was down 85 points or just under 0.3%, while the S&P was up 0.4% and the NASDAQ was up 1.5%. On the day, the yield on the two-year maturity was unchanged, while the yield on the 10-year maturity rose one bp and the yield on the 30-year maturity rose three bps. The 10-year municipal-to-Treasury ratio slipped to 64.4% on Wednesday from Tuesday’s level of 64.7%, while the 30-year municipal-to-Treasury ratio fell to 72.6% on Wednesday from Tuesday’s level of 73.5%.

Last Thursday municipals prices were mixed, as the last of the week’s new-issue offerings came to market including the $137.1MM offering of various facilities revenue bonds for the Board of Trustees of the University of Arkansas and the $341.5MM offering of non-rated junior lodging tax green notes for the Washington State Convention Center Public Facilities District. On the day, the yield on the two-year GO bond rose one bp, while the yield on the 10-year GO bond fell one bp and the yield on the 30-year GO bond fell two bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were also mixed last Thursday, as U.S. equity prices rose for the session. The Dow was up 172 points or 0.5%, 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 rose one bp, while the yield on the 10-year maturity fell five bps and the yield on the 30-year maturity fell seven bps. The 10-year municipal-to-Treasury ratio rose to 65.7% on Thursday from Wednesday’s level of 64.4%, while the 30-year municipal-to-Treasury ratio rose to 73.9% on Thursday from Wednesday’s level of 72.6%.

Last Friday municipal prices were steady for the shortened trading session, as market participants were looking ahead to the $8.12B 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 weakened on Friday, as the US Stock market was closed for the session. 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 one bp. The 10-year municipal-to-Treasury ratio fell to 64.5% on Friday from Thursday’s level of 65.7%, while the 30-year municipal-to-Treasury ratio slipped to 73.6% on Friday from Thursday’s level of 73.9%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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