Muni Update

August 10, 2020


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


Municipal Market Recap

Municipal prices started the week steady across the curve. On Tuesday and Wednesday municipal prices were mixed. On both days the front-end was steady, while prices on bonds maturing ten years and longer strengthened. On Thursday and Friday municipal prices strengthened across the curve.

This week’s projected level of new issue offerings is $8.7B and while this level of new-issue supply should provide market participants with various opportunities. The expected strong demand due to in part to the summer redemption season and continued strong inflows into funds will continue to push demand into outpacing supply. For August the projected total amount of redemptions now exceeds $50.0B. Municipal bond supply isn’t likely to keep up with this pace of demand, with just $14.3B in new sales on the 30-day forward-looking calendar, Bloomberg data showed at the end of last week.

Investors in municipal bond funds put cash into funds for an 13th week in a row, as tax-exempt weekly reporting funds experienced inflows of $1.612B in the latest week, after experiencing inflows of $1.792B the week prior. The four-week moving average was a positive $1.590B, after being in the green at $1.443B 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 yields on the two-, 10-, and 30-year maturities on the MMD Triple-A Scale each fell one basis point (bp) from Thursday to Friday and they ended the week at 0.09%, 0.58%, and 1.27%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond fell four bps, while the yield on the 10-year GO bond fell seven bps and the yield on the 30-year GO bonds fell 10 bps.

Last week the yield on the two-year maturity on the MMA Triple-A Scale was unchanged from Thursday to Friday and ended the week at 0.17%. Meanwhile the yields on the 10- and 30-year maturities on the MMA Triple-A Scale each fell one bp from Thursday to Friday and they ended the week at 0.92% and 1.54%, respectively. Overall, week-over-week the yield on the two-year GO bond fell six bps, while the yields on the 10- and 30-year GO bonds each fell 12 bps.


New-Issue Volume is Forecasted to be $8.7B for the Week

Total new-issue offerings for the trading week per IHS Markit Ipreo is estimated to be $8.7B. This week’s projected issuance is comprised of $5.9B in negotiated deals and $2.8B in competitive sales. The largest deal of the week will be the Los Angeles Transportation Authority’s $1.371B offering of Series 2020A Measure R junior subordinate sales tax revenue refunding green bonds on Tuesday. The issue has been “climate bond certified” by First Environment and is rated AA by both Standard and Poor’s Global Ratings (S&P) and Fitch Ratings (Fitch). Also, from California this week will be the San Diego Unified School District’s offering of $739.815MM of Series 2020 dedicated unlimited ad valorem property tax general obligation bonds on Thursday. The deal consists of $267.645MM of Election of 2012 Series M-2 GOs and $472.17MM of Election of 2018 Series D-2 GOs. The deal is rated Aa2 by Moody’s Investors Service (Moody’s) and Triple-A by Fitch and Kroll Bond Rating Agency (KBRA). On Wednesday, the City of Pomona, California plans to offer $219.26MM of Series 2020BJ taxable pension obligations bonds. The deal is rated AA- by S&P and A+ by Fitch.

Other notable deals this week include the $1.204B offering of GO bonds from the State of Minnesota in five offerings. The deals consist of $462.0MM of Series 2020A various purpose and Series 2020D various purpose refunding GOs; $245.465MM of Series 2020C taxable various purpose and Series 2020F taxable refunding bonds; $180.975MM of Series 2020G taxable highway refunding bonds; $163.0MM of Series 2020E highway refunding bonds; and $152.02MM of highway bonds. On Wednesday, New York and Presbyterian Hospital’s will offer $750.0MM of Series 2020 taxable bonds. The deal is rated Aa2 by Moody’s and AA by Fitch.

In the competitive arena, Miami-Dade County, Florida plans to sell two offerings of transit system sales surtax revenue bonds totaling $750.71MM on Thursday. The sales consist of $239.55MM of Series 2020A tax-exempt revenue bonds and $511.16MM of Series 2020B taxable revenue refunding bonds.


Municipal Bond Funds Posted Inflows for a 13th Week in a Row

Investors in municipal bond funds put cash into funds for an 13th week in a row, as tax-exempt weekly reporting funds experienced inflows of $1.612B in the latest week, after experiencing inflows of $1.792B the week prior. The four-week moving average was a positive $1.590B, after being in the green at $1.443B the week prior.

Long-term municipal bond funds had inflows of $610.154MM in the latest week after experiencing inflows of $890.331MM the week prior. Intermediate-term funds had inflows of $13.977MM after inflows of $115.647MM the week prior. National funds had inflows of $1.588B after experiencing inflows of $1.609B the week prior. High-yield municipal funds reported inflows of $102.616MM in the latest week, after inflows of $181.269MM the week prior. Exchange traded funds reported inflows of $229.114MM, after inflows of $323.170MM the week prior.


Demand in the Bank Qualified (BQ) Market Remains Strong

BQ participants will be focused on the new-issue paper this week, as buyers continues to outpace sellers resulting is very little secondary market offerings 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 over the last few months, which started on June 1st. 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 U.S. Treasurys, we continue to see bank portfolio managers purchase municipals in the long end of the curve (15 to 20 years) from new-issue offerings. Along with outright purchases of Bank Qualified municipals with a five-to-nine-year call window, 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. We also encourage participants to utilize extension swaps, to pick up more yield with little to no drop-off in credit quality. Week-over-week, bank qualified spreads tightened, with the largest widening occurring in the 10-, 15-, and 30-year maturity, four bps each.


Daily Overview of the General Market for the Week Ending August 7th

Last Monday municipal prices were steady, as a few of the smaller new issues of the week’s projected $7.27B in new issue offerings came to market. 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 Monday, as U.S. stocks rose for the session. The Dow finished up 236 points or 0.9%, while the S&P finished up 0.7% and the NASDAQ finished 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 fell to 116.1% on Monday from Friday’s level of 118.2%, while the 30-year municipal-to-Treasury fell to 111.4% on Monday from Friday’s level of 114.2%.

Last Tuesday prices on municipals were mixed, as market participants were focused on several new issue offerings that priced, including the Long Island Power Authority’s $507.0 offering of series 2020A revenue bonds and series 2020B mandatory tender revenue bonds. On the day, the yield on the on the two-year GO bond was unchanged, while the yield on the 10-year GO bond fell one bp and the yield on the 30-year GO bond fell three 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. Stocks rose for the session. The Dow finished up 165 points, or 0.6%, while the S&P and NASDAQ both finished up 0.4%. On the day, the yield on the two-year maturity was unchanged, while the yields on the 10- and 30-year maturities each fell four bps. The 10-year municipal-to-Treasury ratio rose to 123.1% on Tuesday from Monday’s level of 116.1%, while the 30-year municipal-to-Treasury ratio rose to 112.6% on Tuesday from Monday’s level of 111.4%.

Last Wednesday municipals prices were mixed, as a variety of new-issue offerings came to market including a $161.9MM deal in two offerings for San Francisco International Airport, by the City and County of the San Francisco Airport Commission. 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 two bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were also mixed on Wednesday, as U.S. stocks finished the session higher. The Dow closed 373 points or 1.4% higher, while the S&P rose 0.6% and the NASDAQ rose 0.5%. On the day, the yield on the two-year maturity was unchanged, while the yields on the 10- and 30-year maturities each rose three bps. The 10-year municipal-to-Treasury ratio fell to 112.7% on Wednesday from Tuesday’s level of 123.1%, while the 30-year municipal-to-Treasury ratio fell to 108.2% on Wednesday from Tuesday’s level of 112.6%.

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

U.S. Treasury prices were mixed last Thursday, as the rally in the stock market continued and prices rose for the session. The Dow finished up 185 points or 0.7%, while the S&P and the NASDAQ rose 0.6% and 1.0%, respectively. On the day, the yields on the two- and 10-year maturities were unchanged, while the yield on the 30-year maturity fell two bps. The 10-year municipal-to-Treasury ratio fell to 107.3% on Thursday from Wednesday’s level of 112.7%, while the 30-year municipal-to-Treasury ratio fell to 106.7% on Thursday from Wednesday’s level of 108.2%.

Last Friday prices on municipals strengthened, as market participants started looking ahead to the $8.7B in expected new issue offerings next week. On the day, the yields on the two-, 10-, and 30-year GO bonds each fell one bp, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices weakened on Friday, as U.S. stocks prices fell for the session only to rally late and finish the day in positive territory. The Dow finished up 47 points, or 0.2%, while the S&P and the NASDAQ were up 0.1% and 0.9, respectively. On the day, the yields on the two- and 10-year maturities each rose two bps, while the yield on the 30-year maturity rose three bps. The 10-year municipal-to-Treasury ratio fell to 101.8% on Friday from Thursday’s level of 107.3%, while the 30-year municipal-to-Treasury fell to 103.3% on Friday from Thursday’s level of 106.7%.






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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