Muni Update

April 6, 2020



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- and long-ends of the maturity curve were unchanged, while prices on intermediate maturities strengthened. On Tuesday the front-end was steady, while prices on bonds maturing 10 years and longer weakened. On Wednesday and Thursday municipal prices weakened across the curve. On Friday municipal prices strengthened across the curve. Issuance for the trading week is projected to be just $2.9B, which is low, but somewhat expected due to a combination of issuers (supply) and investors (demand) having retreated to the sidelines in this current volatile market, and this being a holiday-shortened trading week. Still, this week’s projected level of new-issue offerings together with secondary market opportunities should provide market participants with numerous opportunities to meet demand, especially given the continued strong demand in the municipal market due to high redemption flows.

For the month of March municipal new-issue volume plummeted, as there was only $16.99B of issuance on 522 deals. This resulted in a 39.2% decrease from the $27.9B on 711 transactions there was in March of 2019.  This is in stark contrast to the total issue of the first two month, which was $67.88B and was on pace to easily surpass the $400.0B mark for the year mark. However, the coronavirus has completely turned the market around resulting in the significant drop off in issuance in March, as benchmark yields skyrocketed and municipal to taxable ratios went through the roof. This resulted in an almost complete shutdown of issuance in the municipal market for the second half of the month of March resulting in the lowest volume of new-issue paper in the month of March in over 20 years.

Investors in municipal bond funds pulled cash out of funds for a fifth week in a row, but we note the outflows in the most recent week were only in the millions, not the billions and that long-term municipal and high-yield municipal funds both reported inflows. The latest tax-exempt weekly reporting funds data shows that funds experienced outflows of just $749.185MM after experiencing outflows of $13.678B the week prior. The four-week moving average was a negative $7.1B, after being a negative $6.975B 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 10 basis points (bps) from Thursday to Friday and it ended the week at 1.18%. Meanwhile, the yields on the 10- and 30 maturity each fell 15 bps on the MMD Triple-A Scale from Thursday to Friday and they ended the week at 1.63% and 2.44%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond rose 12 bps, while the yield on the 10-year GO bond rose 37 bps and the yield on the 30-year GO bond rose 60 bps.

Last week the yield on the two-year maturity on the MMA Triple-A Scale fell 10 bps from Thursday to Friday and ended the week at 1.42%. Meanwhile the yield on the 10-year maturity fell five bps and the yield on the 30-year maturity fell 15 bps on the MMA Triple-A Scale from Thursday to Friday and they ended the week at 1.93% and 2.63%, respectively. Overall, week-over-week the yield on the two-year GO bond rose 20 bps, while the yield on the 10-year GO bond rose 39 bps and the yield on the 30-year GO bond rose 55 bps.


New-Issue Volume is Forecasted to be Just $2.9B for the Week

Total new issuance for the trading week per IHS Markit Ipreo is estimated to be $2.9B, which is well below typical issuance levels for this time of the year but expected due to the current market volatility and this being a holiday-shortened trading week.

The largest negotiated deal of the week will be the Texas Public Finance Authority’s offering of $483.0MM taxable GO and refunding bonds on Tuesday. The deal is rated triple-A by Moody’s Investors Service (Moody’s) and Standard and Poor’s Global Ratings (S&P).  Also, this week in the negotiated market, we will see two offerings from Richmond Virginia, both of which are rated Aa1 by Moody’s and AA by S&P and Fitch Ratings (Fitch). The offerings will be comprised of a $180.0MM of taxable public utility revenue refunding bonds and a $131.0MM of tax-exempt public utility revenue bonds.

In the competitive arena, Memphis, Tennessee is set to sell $212.0MM of GO refunding bonds on Wednesday. The Metro Atlanta Transit Authority is coming with $140.0MM offering of revenue bonds this week.


Municipal Bond Funds Post Outflows for the Fifth Week in a Row

Investors in municipal bond funds pulled cash out of funds for the fifth week in a row, as tax-exempt weekly reporting funds experienced outflows of $749.185MM in the latest week, after experiencing outflows of $13.678B the week prior. The four-week moving average grow to a negative $7.1B, after being a negative $6.975B the week prior.

Long-term municipal bond funds had inflows of $122.638MM in the latest week after experiencing outflows of $9.422B the week prior. Intermediate-term funds had outflows of $226.620MM after outflows of $1.687B the week prior. National funds had outflows of $464.366MM after experiencing outflows of $12.063B the week prior. High-yield municipal funds reported inflows of $279.969MM in the latest week, after outflows of $4.284B the week prior. Exchange traded funds reported outflows of $ 23.772MM after outflows of $607.201MM the week prior.


Demand in the Bank Qualified (BQ) Market Remains Strong

The expected level of new-issue paper this week coupled with secondary market opportunities should provide BQ market participants with opportunities to fill their needs, especially in the new-issue BQ deals that has recently been coming at attractive levels and wider spreads. 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. We continue to encourage participants to utilize extension swaps as a way to pick up more yield with little to no drop-off in credit quality. Week-over-week, bank qualified spreads were tighter, with the largest tightening occurring in the one-year maturity, 35 bps.


Daily Overview of the General Market for the Week Ending April 3rd

Last Monday, municipal prices were mixed, as municipal credit is beginning to emerge as more of an investing consideration, as the market deals with the coronavirus-led selloff and subsequent Fed-led rebound. In addition, market participants were prepping for the projected $12.9B in new-issue long-term debt to be offered this week. On the day, the yields on the two- and 30-year GO bonds were unchanged, while the yield on the 10-year GO bond fell two bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed, as U.S. stocks finished up for the session, The Dow was up 3.2%, or 697 points, while the S&P was up 3.4% and the NASDAQ finished up 3.6%. On the day, the yields on the two- and 10-year maturities each fell two bps, while the yield on the 30-year maturity rose two bps. The 10-year municipal-to-Treasury ratio rose to 177.1% on Monday from last Friday’s level of 175.0%, while the 30-year municipal-to-Treasury ratio slipped to 140.5% on Monday from last Friday’s level of 142.6%.

Last Tuesday prices on municipals were mixed, with yields rising on the long-end, signaling that the massive rally that began a week prior is overdone. Also new-issue offerings remained mostly on the sidelines, as issuers still are lukewarm on bringing new-issues into a coronavirus-driven volatile market. On the day, the yield on two-year GO bond was unchanged, while the yield on the 10-year GO bond rose nine bps and the yield on the 30-year GO bond rose 15 bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed, as U.S. stocks fell on the last trading day of the first quarter of the year. The Dow closed 410 points, or 1.8%, lower, and was down 13.7% for the month. Meanwhile, the S&P ended down 1.6% and 12.5% for the month and the NASDADQ was down nearly 1.0%, for a 10.1% monthly loss. Overall U.S. stocks dropped sharply in the first three months of the year, as worries about the global coronavirus pandemic and its impact on businesses and the economy grew. On the day, the yields on the two- and 10-year maturities were unchanged, while the yield on the 30-year maturity rose four bps. The 10-year municipal-to-Treasury ratio rose to 190.0% on Tuesday from Monday’s level of 177.1%, while the 30-year municipal-to-Treasury ratio rose to 147.4% on Tuesday from Monday’s level of 140.5%.

Last Wednesday municipals prices weakened across the curve, as the selloff in the municipal market continued and several new-issue offerings were postponed due to market volatility. On the day, the yield on the two-year GO bond rose 10 bps, while the yield on the 10-year GO bond rose 35 bps and the yield on the 30-year GO bonds rose 50 bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed, as U.S. stocks opened a new quarter in the red, as investors continue to grapple with the fallout from the coronavirus outbreak ahead of more data on the US labor market on Thursday and Friday. For the session the Dow, S&P, and NASDAQ were all down 4.4%. On the day, the yield on the two-year maturity was unchanged, while the yields on the 10- and 30-year maturities each fell eight bps. The 10-year municipal-to-Treasury ratio jumped to 271.0% on Wednesday from Tuesday’s level of 190.0%, while the 30-year municipal-to-Treasury ratio jumped to 196.1% on Wednesday from Tuesday’s level of 147.4%.

Last Thursday municipals prices continued to weaken, as credit concerns are beginning to emerge in the municipal market and widening yields are pushing new-issue offerings to the sidelines. On the day, the yield on the two-year GO rose 12 bps, while the yields on the 10- and 30-year GO bonds each rose 10 bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were mixed, as U.S. stocks closed higher, as investors shrugged off the largest number of initial jobless claims in history. Gains were driven by energy stocks, which rallied on soaring oil prices after President Donald Trump called for production cuts. The Dow finished the session up 2.2%, while the S&P rose 2.3% and the NASDAQ was up 1.7%. 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 fell one bp. The 10-year municipal-to-Treasury ratio rose to 282.5% on Thursday from Wednesday’s level of 271.0%, while the 30-year municipal-to-Treasury ratio rose to 205.6% on Thursday from Wednesday’s level of 196.1%.

Last Friday prices on municipals strengthened, gaining back a portion of the pronounced losses from the past two sessions. It appears the market is settling into what appears to be sustained volatility after more than a month of dramatic swings in yields. In addition, market participants will be looking ahead to the expected $2.9B in new-issue long-term debt to be offered next week. On the day, the yield on the two-year GO bond fell 10 bps, while the yields on the 10- and 30-year GO bonds each fell 15 bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were mixed, as U.S. stocks ended lower for the session. The Dow was down 1.7%, while the S&P and NASDAQ both finished down 1.5%. On the day, the yield on the two-year maturity was unchanged, while the yield on the 10-year maturity fell one bp and the yield on the 30-year maturity fell two bps. The 10-year municipal-to-Treasury ratio fell to 262.3% on Friday from Thursday’s level of 282.5%, while the 30-year municipal-to-Treasury ratio fell to 196.8% on Friday from Thursday’s level of 205.6%.


Taxable Market






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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