Muni Update

August 12, 2019


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


Municipal Market Recap

Municipal prices strengthened daily through Wednesday. On Thursday prices weakened across the curve. On Friday prices on municipal bonds were mixed, as bonds maturing 10 years and in were steady, while the long-end strengthened.  Issuance for the week is forecasted to be $7.6B, which is below last week’s revised level of $13.2B in issuance. This week’s level of projected new issue offerings, together with secondary market opportunities should provide market participants with a number of opportunities, especially given the continued strong demand in the municipal market. Driving this strong demand in the municipal market is the continuing combination of high redemption flows and inflows into municipal bond mutual funds, which continues to be strong at this time.

Investors in municipal bond funds put cash into funds for a 31st week, as weekly reporting funds experienced inflows of $2.353B, after experiencing inflows of $433.609MM the week prior. The four-week moving average was a positive $1.602B, after being a positive $1.266B the week prior. Investors still facing low rates overseas continue to find higher-yielding U.S. assets attractive, especially since municipal bonds are off to their best start in five years. Municipal securities have been bolstered by low supply and strong demand. All these factors, should have both traditional and non-traditional market participants continuing to look for opportunities in the U.S. municipal market.

Last week the yields on the two- and 10-year maturities on the MMD Triple-A Scale were unchanged from Thursday to Friday and they ended the week at 0.95% and 1.33%, respectively. Meanwhile the yield on the 30-year maturity fell two basis points (bps) on the MMD Triple-A Scale from Thursday to Friday and ended the week at 1.99%. Overall, week-over-week the yield on the two-year General Obligation (GO) bond fell seven bps, while the yield on the 10-year GO bond fell 11 bps and the yield on the 30-year GO bond fell 15 bps.

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 1.09%, 1.57%, and 2.20%, respectively. Overall, week-over-week the yield on the two-year GO bond fell five bps, while the yield on the 10-year GO bonds fell nine bps and the while on the 30-year GO bonds fell 11 bps.


New-Issue Volume is Forecasted to Be Just Over $7.6B for Trading Week

Total new issuance for the coming trading week per IHS Markit Ipreo is estimated to be $7.6B, which is below last few week’s revised new issue offerings of $13.2B in issuance, according to revised data from Refinitiv. This week’s trading calendar is comprised of $5.7B in negotiated offerings and $1.95B in competitive offerings. It also includes 18 deals scheduled for $100.0MM or larger in par, as well as one deal exceeding $1.0B.

The Airport Commission of the City and County of San Francisco plans to offer $1.19B of revenue refundings bonds that will feature alternative minimum tax (AMT), non-AMT/governmental purpose and taxable bonds on Wednesday. The offerings are rated A1 by Moody’s Investors Service (Moody’s) and A+ by both Standard and Poor’s Global Ratings (S&P) and Fitch Ratings (Fitch).

The Lower Alabama Gas District plans to offer $639.76MM of revenue bonds for Project No. 2. The deal is rated A3 by Moody’s and A by Fitch. The City of San Antonio, Texas, plans to offer $461.87MM of general improvement and refunding bonds and combination tax and revenue certificates of obligation on Tuesday. The offerings are rated Triple A by Moody’s and S&P and AA+ by Fitch.

In the competitive arena, the State of Maryland is scheduled to sell $500.0MM in three separate tax-exempt and taxable series on Wednesday. The deal is rated triple A by Moody’s, S&P and Fitch.


Municipal Bond Funds Post Inflows for a 31st Week

Investors in municipal bond funds put cash into funds for a 31st week, as weekly reporting funds experienced inflows of $2.353B in the latest week, after experiencing inflows of $433.609MM the week prior. The four-week moving average was a positive $1.602B, after being a positive $1.266B the week prior.

Long-term municipal bond funds had inflows of $1.341B in the latest week after experiencing inflows of $296.280MM the week prior. Intermediate-term funds had inflows of $413.956MM after inflows of $91.159MM the week prior. National funds had inflows of $2.050B after experiencing inflows of $307.270MM the week prior. High-yield municipal funds reported inflows of $634.617MM in the latest week, after inflows of $87.648MM the week prior. Exchange traded funds reported inflows of inflows of $288.027MM after inflows of $41.597MM the week prior.


Demand in the Bank Qualified (BQ) Market Remains Strong

The BQ market continues to see good activity, even with the lower level of new issue supply so far this year, which has contributed to secondary market bid lists being well received. 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 continue to find attractive opportunities, both in size and structure (15 to 30 year range) in both BQ and general market paper, due in part to the lower tax rates from tax reform and attractive yields. Other market participants continue to find opportunities in both primary offerings and secondary market BQ opportunities, to address their needs, although we are seeing more BQ buyer’s crossing over and buying GM paper for the first time.

We continue to encourage participants to utilize extension swaps, especially given the strong bids for short paper by retail investors in high tax states, as a way roll out the curve for more yield (3.0% of higher, if possible) with little to no drop-off in credit quality. Week-over-week, bank qualified spreads were mixed as the one-, 15- and 30-year maturities saw spreads widen, with the largest widening occurring in the 30-year maturity, 12 bps. While the spreads on the rest, the one-, two-, three-, five-, and 10-year maturities all tightened, with the largest tightening occurring in the one- and two-year maturities, 13 bps each.


Daily Overview of the General Market for the Week Ending August 9th

Last Monday prices on municipals were stronger, as market participants prepped for the $12.6B of new issue offerings scheduled for the trading week. On the day, the yield on the two-year GO bond fell four bps, while the yields on the 10- and 30-year GO bonds each fell six bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were also stronger, as U.S. stocks posted losses on the session. The Dow fell 2.90%, the S&P fell 5.98%, and the NASDAQ was down 3.47%. The yield on the two-year maturity fell 13 bps, while the yield on the 10-year maturity fell 11 bps and the yield on the 30-year maturity fell nine bps. The 10-year municipal-to-Treasury ratio rose to 78.9% on Monday from last Friday’s level of 77.4%, while the 30-year municipal-to-Treasury ratio rose to 90.4% on Monday from last Friday’s level of 89.5%.

Last Tuesday prices on municipals strengthened, as a number of deals came to market including the State of Minnesota’s $673.345MM competitive offering and the New York City Transitional Finance Authority’s $1.35B competitive offerings. 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.

Prices on U.S. Treasurys were mixed, as U.S. stocks posted gains for the session. On the day, the yield on the two-year maturity rose one bp, while the yield on the 10-year maturity fell two bps and the yield on the 30-year maturity fell five bps. The 10-year municipal-to-Treasury ratio rose to 79.2% on Tuesday from Monday’s level of 78.9%, while the 30-year municipal-to-Treasury ratio rose to 92.0% on Tuesday from Monday level of 90.4%.

Last Wednesday prices on municipals strengthened again, as more deals flowed into the market, including the $6.0B in offerings from CommonSpirit Health. On the day, the yield on the two-year GO bond fell four bps, while the yield on the 10-year GO bond fell six bps and the yield on the 30-year GO bond fell eight bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys also strengthened, as another wild day on Wall Street started with fears that recent market turmoil could be the beginning of the end, but ended with markets back where they just about began the day. Overall U.S. stocks posted mixed results for the session. The Dow fell 0.09%, while the S&P and NASDAQ posted gains for the day, 0.38% and 0.08%, respectively. On the day, the yield on the two-year maturity fell one bp, 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 fell to 76.6% on Wednesday from Tuesday’s level of 79.2%, while the 30-year municipal-to-Treasury fell to 89.6% on Wednesday from Tuesday’s level of 92.0%.

Last Thursday prices on municipals were weaker, as a slew of deals hit the market and were easily digested, as demand continues to outpace supply. On the day, the yields on the two-, 10-, and 30-year GO bonds each rose two bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices also finished the day weaker, as U.S. stocks posted strong gains for the session. The Dow rose 1.43%, while the S&P rose 1.88% and the NASDAQ was up 2.24%. On the day, the yields on the two- and 30-year maturities each rose three bps, while the yield on the 10-year maturity rose one bp. The 10-year municipal-to-Treasury ratio rose to 77.3% on Thursday from Wednesday’s level of 76.6%, while the 30-year municipal-to-Treasury ratio slipped to 89.3% on Thursday from Wednesday’s level of 89.6%.

Last Friday, prices on municipals were mixed, as market participants were looking ahead to the coming week’s $7.6B in new issue offerings. On the day, the yields on the two- and 10-year GO bond were steady, while 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 finished the day weaker, as stocks posted losses for the session. On the day, the yields on the two- and 30-year maturities each rose one bp, while the yield on the 10-year maturity rose two bps. The 10-year municipal-to-Treasury ratio fell to 76.4% on Friday from Thursday’s level of 77.3%, while the 30-year municipal-to-Treasury ratio fell to 88.1% on Friday from Thursday’s level of 89.3%.


Taxable Market






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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