Muni Update

August 17, 2020


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


Municipal Market Recap

Municipal prices were steady on Monday and Tuesday across the curve. On Wednesday municipal prices weakened across the curve. On Thursday municipal process were mixed, the front-end was steady, while prices on bonds maturing 10 years and longer weakened. On Friday municipal prices again weakened across the curve.

This week’s projected level of new-issue offerings is $11.46B and 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. Investors in municipal bond funds put cash into funds for an 14th week in a row, as tax-exempt weekly reporting funds experienced inflows of $2.6B in the latest week, after experiencing inflows of $1.612B the week prior.

Municipal bond refinancings have been surging to pay off higher-costing debt as the economic collapse drives yields to the lowest since the early 1950s. Since June, governments have sold about $41.0B of debt exclusively for refinancings, according to data compiled by Bloomberg. The lower interest is, however, providing a little help, as the recession leaves issuers wrestling with the biggest fiscal crisis in decades. The refinancings follow the steep drop-in interest rates since March, which drove the yield on 10-year benchmark debt to less than 0.6% this month, the lowest since the Bloomberg index was started in 2011. The Bond Buyer’s 20-year index is at the lowest since 1952.

Last week the yields on the two-, 10-, and 30-year maturities on the MMD Triple-A Scale each rose three basis points (bps) from Thursday to Friday and they ended the week at 0.14%, 0.66%, and 1.36%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond rose five bps, while the yield on the 10-year GO bond rose eight bps and the yield on the 30-year GO bonds rose nine bps.

Last week the yields on the two- and 30-year maturities on the MMA Triple-A Scale each rose one bp from Thursday to Friday and they ended the week at 0.20% and 1.58%, respectively. Meanwhile the yield on the 10-year maturity on the MMA Triple-A Scale was unchanged from Thursday to Friday and ended the week at 0.94%. Overall, week-over-week the yield on the two-year GO bond rose three bps, while the yield on the 10-year GO bond rose two bps and the yield on the 30-year GO bonds rose four bps.


New-Issue Volume is Forecasted to be $11.46B for the Week

Total new-issue offerings for the trading week per IHS Markit Ipreo is estimated to be $14.46B. This week’s projected bond issuance is comprised of $8.38B in negotiated deals and $3.08B in competitive sales. The largest deal of the week will be the State of Texas’ competitive sale of $7.2B of tax and revenue anticipation notes (TRANs) on Wednesday. The State of Georgia plans to competitively sell $1.139B of GO bonds in five offerings also on Wednesday.

In the negotiated sector, the San Francisco Bay Area Rapid Transit District’s plans to offer $700.0MM of GO 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). On Wednesday, the New York City Transitional Finance Authority (NYCTFA) plans to sell $1.6B of future tax secured subordinate bonds. The deal consists of $1.3B of tax-exempt fixed-rate bonds and $275.0MM of taxable fixed-rates. The deal is rated Aa1 by Moody’s and Triple-A by S&P and Fitch Rating (Fitch).

Also, on Wednesday the Los Angeles Department of Airports’ plans to offer $1.0B of bonds for the LA International Airport on Wednesday. The deal is rated Aa2 by Moody’s, AA- by S&P, and AA by Fitch. The State of Louisiana plans to offer $551.0MM of taxable gasoline and fuels tax revenue bonds on Wednesday. The deal is rated Aa2 by Moody’s and AA- by Fitch.


Municipal Bond Funds Posted Inflows for a 14th Week in a Row

Investors in municipal bond funds put cash into funds for an 14th week in a row, as tax-exempt weekly reporting funds experienced inflows of $2.6B in the latest week, after experiencing inflows of $1.612B the week prior. No other data was available at time this piece was published.


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 were mixed, as the one-year maturity was unchanged, while the two- and three-year maturities widened, with the largest widening occurring in the three-year maturity, three bps. Meanwhile, week-over-week bank qualified spreads for the 10-, 15-, and 30-year maturities all tightened, with the largest tightening occurring in the 10-year maturity, 14 bps.


Daily Overview of the General Market for the Week Ending August 14th

Last Monday municipal prices were steady, as a few of the smaller new-issues of the week’s projected $8.7B 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 weakened on Monday, while U.S. stocks were mixed for the session. The Dow finished up 358 points or 1.3%, while the S&P finished up 0.3% and the NASDAQ finished down 0.4%. 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 two bps. The 10-year municipal-to-Treasury ratio fell to 98.3% on Monday from Friday’s level of 101.8%, while the 30-year municipal-to-Treasury fell to 101.6% on Monday from Friday’s level of 103.3%.

Last Tuesday prices on municipals were steady, as market participants were focused on several new-issue offerings including two large deals, one from the Los Angeles Transportation Authority and the other a competitive offering in five series from the State of Minnesota. On the day, the yields on the 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 weakened on Tuesday, as U.S. Stocks rose on the opening and continued to gain for most of the day, only to give up all gains in the late afternoon and close lower for the session. The Dow finished down 104 points, or 0.4%, while the S&P and NASDAQ both finished down 0.8% and 1.7%, respectively. On the day, the yield on the two-year maturity rose two bps, while the yield on the 10-year maturity rose five bps and the yield on the 30-year maturity rose several bps. The 10-year municipal-to-Treasury ratio fell to 90.6% on Tuesday from Monday’s level of 98.3%, while the 30-year municipal-to-Treasury ratio fell to 96.2% on Tuesday from Monday’s level of 101.6%.

Last Wednesday municipals prices weakened for the first time since the end of June, as a variety of new-issue offerings came to market, including charter school offerings, as well as offerings from both New York City and New York State. On the day, the yield on the two-year GO bond rose two bps, while the yield on the 10-year GO bond rose three bps and the yield on the 30-year GO bond rose four bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed on Wednesday, as U.S. stocks finished the session higher. The Dow closed 290 points or 1.1% higher, while the S&P rose 1.4% and the NASDAQ rose 2.1%. On the day, the yield on the two-year maturity was unchanged, while the yields on the 10- and 30-year maturities each rose five bps. The 10-year municipal-to-Treasury ratio fell to 88.4% on Wednesday from Tuesday’s level of 90.6%, while the 30-year municipal-to-Treasury ratio fell to 95.6% on Wednesday from Tuesday’s level of 96.2%.

Last Thursday municipals prices were mixed, as the last new-issue offerings came to market including Miami-Dade County, Florida’s competitively offerings of transit system sales surtax revenue bonds totaling $750.71MM. 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.

U.S. Treasury prices were mixed last Thursday, as the rally in the stock market fizzled and stocks were mixed for the session. The Dow finished down 80 points or 0.3%, while the S&P was down 0.2% and the NASDAQ rose 0.3%. On the day, the yield on the two-year maturity was unchanged, while the yield on the 10-year maturity rose two bps and the yield on the 30-year maturity rose five bps. The 10-year municipal-to-Treasury ratio bumped up to 88.7% on Thursday from Wednesday’s level of 88.4%, while the 30-year municipal-to-Treasury ratio fell to 93.7% on Thursday from Wednesday’s level of 95.6%.

Last Friday prices on municipals weakened, as market participants started looking ahead to the $11.46B in expected new-issue offerings next week. On the day, the yields on the two-, 10-, and 30-year GO bonds each rose three bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were mixed on Friday, as were U.S. stocks prices for the session. The Dow finished up 34 points, or 0.2%, while the S&P was essentially unchanged, and the NASDAQ was done 0.2%. On the day, the yield on the two-year maturity fell two bps, while the yield on the 10-year maturity was steady and the yield on the 30-year maturity rose three bps. The 10-year municipal-to-Treasury ratio rose to 93.0% on Friday from Thursday’s level of 88.7%, while the 30-year municipal-to-Treasury bumped to 93.8% on Friday from Thursday’s level of 93.7%.






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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