Muni Update

August 16, 2021


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


Municipal Market Recap

Municipal prices were mixed daily through Thursday. On Monday prices on bonds in the front end were unchanged, while prices on bonds maturing 10 years and longer weakened. On Tuesday, Wednesday, and Thursday prices on bonds maturing 10 years and in were steady, while prices on bonds maturing on the long end weakened. On Friday municipal prices were steady across the curve.

The projected level of new-issue offerings for the trading week are $9.76B and coupled with bank qualified (BQ) and general market (GM) offerings in the secondary market should offer market participants with various opportunities to fill their needs, especially as demand continues to outpace supply. The continued strong demand in the municipal market is being driven by redemption activity, as well as inflows into funds both of which continue to contribute to demand outpacing supply for the year which is helping keep interest rates low for issuers, and municipal performance strong.

For funds latest reporting period, investors in municipal bond funds put cash into funds for a 23rd week in a row, as tax-exempt weekly reporting funds data showed that funds experienced inflows of $1.873B in the latest week, after experiencing inflows of $1.228B the week prior. The four-week moving average was a positive at $1.555B, after being in the green at $1.647B the week prior.

Last week the yields on the two-, 10-, and 30-year maturities on the MMD Triple-A Scale were unchanged from Thursday to Friday and ended the week at 0.08%, 0.88% and 1.50%, respectively. Overall, week-over-week the yield on the two-year general obligation (GO) bond was steady, while the yield on the 10-year GO bond rose one basis point (bp) and the yield on the 30-year GO bond rose seven 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 ended the week at 0.09%, 1.13% and 1.70%, respectively. Overall, week-over-week the yield on the two-year GO bond was unchanged, while the yield on the 10-year GO bond rose three bps and the yield on the 30-year GO bond rose five bps.


New-Issue Volume is Forecasted to be $9.76B for the Trading Week

Total new-issue offerings for the trading week per IHS Markit Ipreo are estimated to be $9.76B. This week’s projected level of bond issuance is comprised of $8.19B in negotiated deals and $1.57B in competitive sales. The largest deal of the week will come on Wednesday, when the New York Liberty Development Corporation will price $1.225B of taxable 4 World Trade Center Project tax-exempt liberty revenue refunding green bonds. The deal is rated A by Standard and Poor’s Global Ratings (IS&P a) and A- by Fitch Ratings (Fitch). Also on Wednesday, New York City is set to price $1.039B of tax-exempt GO bonds. The deal is rated Aa2 by Moody’s Investors Service (Moody’s) and AA- by S&P and AA+ by Fitch. New York City is also set to sell $250.0MM off taxable GOs at 10:45 a.m. Wednesday.

Miami-Dade County, Florida is set to price four series of seaport revenue bonds on Wednesday. The offerings are comprised of Series A-1 bonds in the amount of $202.14MM and the Series A-2 bonds in the amount of $221.330MM which are rated A3 by Moody’s and A by S&P. The Series B-1 Bonds in the amount of $180.430 and the Series B-2 Bonds in the amount of $96.07 are rated Aa3 by Moody’s and AA- by S&P.

On Tuesday, the Kansas Development Finance Authority is set to price $502.655MM of taxable revenue bonds. The deal is rated Aa3 by Moody’s and A+ by S&P. Also on Tuesday, the City of Houston, Texas, plans to price $348.8MM of tax-exempt and taxable bonds, consisting of: $179.78MM of public improvement refunding bonds, series 2021A; $166.455MM of taxable public improvement refunding bonds, series 2021B; and $2.565MM of certificates of obligation (Demolition Program), series 2021C. The offerings are rated Aa3 by Moody’s and AA by Fitch.


Municipal Bond Funds Posted Inflows for a 23rd Week in a Row

Investors in municipal bond put cash into funds for a 23rd week in a row, as tax-exempt weekly reporting funds experienced inflows of $1.873B in the latest week, after experiencing inflows of $1.228B the week prior. The four-week moving average remained positive at $1.555B, after being in the green at $1.647B the week prior.

Long-term municipal bond funds had inflows of $1.127B in the latest week, after experiencing inflows of $647.952MM the week prior. Intermediate-term funds had inflows of $297.466MM after inflows of $119.809MM the week prior. National funds had inflows of $1.689B after experiencing inflows of $1.152B the week prior. High-yield municipal funds reported inflows of $492.501MM in the latest week, after inflows of $492.181MM the week prior. Exchange traded funds reported inflows of $160.350MM, after inflows of $121.931MM 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. Significant demand continues to be the story this year and is being driven in large part by investors having to replace rolloffs due to continued strong redemption activity and inflows into funds. As to redemption activity, for June, July and August, a net negative supply has existed, as over $150.0B is to either mature or be called during this time frame, which started on June 1st and continues on the 1st and 15th of these months.

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 encourage participants to review their portfolio’s and look for opportunities along the curve. Also, now is a good time to look to clean up portfolio’s, especially odd lot position in BQ or GM paper, as well as to take gains on short call paper with higher coupons due to strong retail demand and extend out the curve. Especially, as overall credit quality continues to stabilize and improve in the municipal market. Week-over-week, BQ spreads were mixed, as the spreads on the one- and three-year maturities tightened, with the largest tightening occurring in the three-year maturity, two bps. Meanwhile, the spreads on the two- and five-year maturities were unchanged week-over week, while the spreads on the 10- 15- and 30-year maturities all widened, with the largest widening occurring in the 15-maturity, four bps.


Daily Overview of the General Market for the Week Ending August 13th

On Monday municipals prices were mixed, as the first of the trading week’s $7.68B in new-issue debt was offered. 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 one bp, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys weakened on Monday, and U.S. stock were mixed as concerns over the coronavirus’s spread resurged, with crude oil prices moving sharply to the downside. The Dow was down 107 points or 0.3%, while the S&P was down 0.1% and the NASDAQ was barely up 0.2%. On the day, the yields on the two-, 10- and 30-year maturities each rose two bps. The 10-year municipal-to-Treasury ratio slipped to 66.2% on Monday from last Friday’s level of 66.4%, while the 30-year municipal-to-Treasury ratio slipped to 73.5% on Monday from last Friday’s level of 73.7%.

On Tuesday municipals prices were mixed, as a number of new-issue offering came to market including but not limited to the following: a $275.0MM offering of subordinate sales tax sustainability bond anticipation notes by the Massachusetts Bay Transportation Authority; $237.0MM of GO forward-delivery refunding bonds by the State of Maryland; and $226.53MM of general improvement bonds, combination tax and revenue certificates of participation and taxable combination tax and revenue certificates of obligation by the City of San Antonio, Texas.  On the day, the yields on the two- and 10-year GO bonds were unchanged, while the yield on the 30-year GO bond rose two bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys weakened on Tuesday, while U.S. stocks were mixed for the session, as traders weighed concerns over the Delta variant’s latest spread against optimism over an ongoing rebound in economic activity. The Dow was up 163 points or 0.5%, while the S&P was up 0.1% and the NASDAQ was down 0.5%. On the day, the yield on the two-year maturity rose one bp, while the yields on the 10- and 30-year maturities each rose three bps. The 10-year municipal-to-Treasury ratio fell to 64.7% on Tuesday from Monday’s level of 66.2%, while the 30-year municipal-to-Treasury ratio just slipped to 73.4% on Tuesday, from Monday’s level of 73.5%.

Last Wednesday municipals prices were mixed, as a number of new-issue offerings came to market including the $823.55MM offering of Pittsburgh International Airport Alternative Minimum Tax (AMT) and non-AMT revenue bonds by the Allegheny County Airport Authority and the $539.95MM offering of exempt unlimited tax GO bonds by the State of Maryland to name a few. On the day, the yields on the two- and 10-year GO bonds were unchanged, while the yield on the 30-year GO bond rose two bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were also mixed on Wednesday, as were U.S. stocks for the session. The Dow was up 220 points or 0.6%, while the S&P was up 0.2% and the NASDAQ was down 0.2%. On the day, the yields on the two- and 10-year maturities each fell one bp, while the yield on the 30-year maturity was unchanged. The 10-year municipal-to-Treasury ratio rose to 65.2% on Wednesday from Tuesday’s level of 64.7%, while the 30-year municipal-to-Treasury ratio rose to 74.4% on Wednesday from Tuesday’s level of 73.4%.

Last Thursday municipals prices were mixed, as the last of the week’s new-issue offerings came to market including the $357.85MM of MTA Bridges and Tunnels payroll mobility tax senior lien bonds by the Triborough Bridge and Tunnel Authority, New York, and the $267.265MM of electric light and power system revenue bonds by the City of Lubbock, Texas. On the day, the yields on the two- and 10-year GO bonds were unchanged, while the yield on the 30-year GO bond rose two bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were also mixed on Thursday. U.S. stocks traded mixed throughout the day, only to close the session near all-time highs, as investors digested more mixed economic data, while considering the likelihood of more government spending on infrastructure. The Dow was up 15 points or 0.04%, while the S&P was up 0.3%, and the NASDAQ was up 0.4%. On the day, the yield on the two-year maturity unchanged, while the yield on the 10-year maturity rose one bp and the yield on the 30-year maturity rose four bps. The 10-year municipal-to-Treasury ratio fell to 64.7% on Thursday from Wednesday’s level of 65.2%, while the 30-year municipal-to-Treasury ratio fell to 73.9% on Thursday from Wednesday’s level of 74.4%.

Last Friday municipal prices were steady, as market participants looked ahead to $9.76B 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 were mixed on Friday, as U.S. stocks were little changed to slightly higher for the session, narrowly eking out record highs as investors digested a largely solid set of recent economic data and earnings results. The Dow rose 16 points or 0.04%, while the S&P was up 0.2% and the NASDAQ was also up 0.04%.  On the day, the yield on the two-year maturity was unchanged, while the yield on the ten-year maturity fell seven bps and the yield on the 30-year maturity fell nine bps. The 10-year municipal-to-Treasury ratio rose to 68.2% on Friday from Thursday’s level of 64.7%, while the 30-year municipal-to-Treasury ratio rose to 77.3% on Friday from Thursday’s level of 73.9%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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