Muni Update

August 2, 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 the front-end strengthened, while prices on bonds maturing 10 years and longer were steady on a day when U.S. Treasurys treaded water and equities did much the same, as all markets awaited Wednesday’s Federal Open Market Committee (FOMC) meeting announcement. On Tuesday, prices on the bonds in the front-end were steady, while prices on bonds maturing 10 years and longer strengthened. On Wednesday prices on bonds maturing 10 years and in were steady, while prices bonds in the long end weakened, as the FOMC voted unanimously to keep policy unchanged, keeping its overnight target rate range between 0.00-0.25%. On Thursday’s municipal price action was a repeat of Wednesday’s, as prices on the bonds maturing 10 years and in were steady, while prices on the long end weakened. On Friday municipal prices were steady across the curve.

Overall issuance through the end of July 2021, was $31.9B, which was 33.1% lower this month than in July 2020 when total new-issue volume was $47.7B due to COVID-related issuance delays from earlier in the year. Still, July 2021 new-issue volume is solid for the month historically and keeps 2021 issuance levels elevated. While issuance year-to-date lags demand, it has been in excess of $30.0B every month this year, with the exception of January.

The projected level of new-issue offerings for the trading week are $8.59B 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 21st week in a row, as tax-exempt weekly reporting funds data showed that funds experienced inflows of $1.394B in the latest week, after experiencing inflows of $1.727B the week prior. The four-week moving average was a positive at $1.913B, after being in the green at $1.772B 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 they ended the week at 0.06%, 0.82%, and 1.39%, respectively. Overall, week-over-week the yield on the two-year general obligation (GO) bond fell two basis points (bps), while the yield on the 10-year GO bond fell one bp and the yield on the 30-year GO bond rose three 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 0.09%, 1.07%, and 1.62%, respectively. Overall, week-over-week the yield on the two-year GO bond fell two bps, while the yield on the 10-year GO bond fell one bp and the yield on the 30-year GO bond rose one bp.


New-Issue Volume is Forecasted to be $8.59B for the Trading Week

Total new-issue offerings for the trading week per IHS Markit Ipreo are estimated to be $8.59B. This week’s projected level of bond issuance is comprised of $6.79B in negotiated deals and $1.80B in competitive sales. The largest deal of the week will come on Wednesday, when the New York City Transitional Finance Authority (TFA) prices $934.435MM of future tax-secured subordinate refunding bonds. The deal is rated Aa1 by Moody’s Investors Service (Moody’s) and AAA by both Standard and Poor’s Global Ratings (S&P) and Fitch Ratings (Fitch). The TFA will also sell $119.0MM of taxable bonds at 10:45 a.m. eastern on Wednesday.

On Tuesday the Illinois Finance Authority is set to price $211.64MM of Northwestern Memorial Healthcare revenue refunding bonds (fixed period bonds). The deal is rated Aa2 by Moody’s and AA+ by S&P. Also, on Tuesday the West Rankin Utility Authority, Mississippi, is set to price $143.615MM of taxable revenue refunding bonds, serials 2022-2048. The deal Insured by Assured Guaranty Municipal Corp., and thus is expected to be rated AA by S&P due to insurance. Finally, Williamson County, Texas, is set to sell $200.0MM of limited tax notes at 10 a.m. The deal is rated triple-A by S&P and Fitch.

On Wednesday a number of new-issue deals will come to market and include but are not limited to the following. The California Municipal Finance Authority Special Finance Agency VII is set to price on $219.925MM of essential housing revenue bonds (The Breakwater Apartments). The University of Wyoming is set to sell $205.24MM of facilities revenue bonds at 10:45 a.m. eastern. The deal is rated AA by Fitch. The Prosper Independent School District, Texas, (PSF guarantee) is set to price $200.0MM of unlimited tax school building bonds. Meade County, Kentucky, is set to price on Wednesday $196.99MM of Nucor Steel Brandenburg Project green industrial building revenue bonds. The deal is rated Baa1 by Moody’s and A- by S&P.

On Thursday the Mt. San Antonio Community College District, California, is set to price on Thursday $227.975MM of GO bonds. Clifton, New Jersey, Board of Education is set to sell $168.282MM of GO unlimited tax school bonds at 11 a.m. eastern. Finally, the City of Little Rock, Arkansas, is set to price $108.895MM of taxable Water Reclamation System refunding revenue bonds. The deal is rated Aa3 by Moody’s.


Municipal Bond Funds Posted Inflows for a 21st Week in a Row

Investors in municipal bond put cash into funds for a 21st week in a row, as tax-exempt weekly reporting funds experienced inflows of $1.394B in the latest week, after experiencing inflows of $1.727B the week prior. The four-week moving average remained positive at $1.913B, after being in the green at $1.772B the week prior.

Long-term municipal bond funds had inflows of $573.189MM in the latest week, after experiencing inflows of $1.098B the week prior. Intermediate-term funds had inflows of $50.669MM after inflows of $131.699MM the week prior. National funds had inflows of $1.276B after experiencing inflows of $1.630B the week prior. High-yield municipal funds reported inflows of $578.107MM in the latest week, after inflows of $578.932MM the week prior. Exchange traded funds reported inflows of $483.129MM, after inflows of $281.796MM 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 spread on the one-year maturity was unchanged, while the week-over-week spreads on the two-, three- five-, 10-, 15-, and 30-year maturities all widened, with the largest widening occurring in the 10-year maturity, six bps.


Daily Overview of the General Market for the Week Ending July 30th

On Monday municipals prices were mixed, as the first of the trading week’s $6.36B in new-issue debt was offered. On the day, the yield on the two-year maturity fell two bps, while the yields on the 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 also mixed on Monday, as U.S. stocks bumped up for the session, with investors at least temporarily looking past concerns over the growth outlook and ahead to more second-quarter earnings. The Dow was up 83 points or 0.2%, while the S&P was also up 0.2% and the NASDAQ was up 0.3%. 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 rose one bp. The 10-year municipal-to-Treasury ratio rose to 64.3% on Monday from last Friday’s level of 63.9%, while the 30-year municipal-to-Treasury ratio slipped to 70.5% on Monday from last Friday’s level of 70.8%.

On Tuesday municipals prices were mixed, as market participates turned all their attention to new-issue offerings which were repriced to lower yields on the day and included the $238.355MM offering of tax-exempt limited tax GO bonds (expected to be paid by sewer revenues) by King County, Washington, the City of Philadelphia’s $297.76MM offering of GO bonds and the $235.0MM offering by the New Mexico Finance Authority of state transportation revenue bonds to name a few. 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 one bp, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys strengthened on Tuesday, as U.S. stocks fell for the session ahead of the FOMC’s meeting. For the session, the Dow was down 86 points or 0.2%, while the S&P was down 0.5% and the NASDAQ was down 1.2%. On the day, the yield on the two-year maturity fell two bps, while the yields on the 10- and 30-year maturities each fell four bps. The 10-year municipal-to-Treasury ratio rose to 65.6% on Tuesday from Monday’s level of 64.3%, while the 30-year municipal-to-Treasury ratio rose to 71.4% on Tuesday, from Monday’s level of 70.5%.

Last Wednesday municipals prices were mixed, as the FOMC voted unanimously to keep it policy unchanged, and a number of new-issue offerings came to market including the $112.345MM offering of hospital revenue bonds from the Iowa Board of Regents, the $76.0MM offering of revenue bonds from Loudoun County, Virginia Sanitation Authority and the $93.0MM offering of limited tax GO bonds from Fort Smith School District #100, Arkansas, 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 weakened on Wednesday, as U.S. stocks were mixed for the session, with investors digesting a slew of earnings results and looking ahead to another set of reports and the FOMC released its July monetary policy decision. The FOMC voted unanimously to keep policy unchanged, keeping its overnight target rate range between 0.00-0.25% and continuing asset purchases at a pace of $120.0B per month. However, they also acknowledged that progress has been made in achieving their dual mandate, opening the door to changes in policy at upcoming meetings. On the day, the yield on the two-year maturity was unchanged, while the yields on the 10- and 30-year maturities each rose one bp. The 10-year municipal-to-Treasury ratio fell to 65.1% on Wednesday from Tuesday’s level of 65.6%, while the 30-year municipal-to-Treasury ratio rose to 72.1% on Wednesday from Tuesday’s level of 71.4%.

Last Thursday municipals prices were mixed, as the last of the week’s new-issue offerings came to market and the State of Washington’s GO bonds offerings came at tighter spreads than a spring sale in the competitive market, while sizable-negotiated deals saw bumps in their repricing’s. 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, while U.S. stocks rose for the session, as investors looked beyond a weak set of economic data and a mixed batch of corporate earnings results. Traders also considered a Federal Reserve decision that signaled the central bank was still looking for the U.S. economy to recover further before adjusting its monetary policies. The Dow was up 153 points or 0.4%. The S&P was also up 0.4% and the NASDAQ was up only 0.1%. 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 one bp. The 10-year municipal-to-Treasury ratio fell to 64.1% on Thursday from Wednesday’s level of 65.1%, while the 30-year municipal-to-Treasury ratio rose to 72.8% on Thursday from Wednesday’s level of 72.1%.

Last Friday municipal prices were steady, as market participants were looking ahead to $8.59B in expected new-issue offerings in the upcoming trading week. On the day, the yields on the two-, 10-, and 30-year maturities were unchanged, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices strengthened on Friday, and U.S. stocks fell for the session, as investors took in a batch of some weaker-than-expected earnings results from heavily weighted companies including Amazon. The Dow fell 149 points or 0.4%, while the S&P was down 0.5% and the NASDAQ was down 0.7%. On the day, the yield on the two-year maturity fell one bp, while the yield on the ten-year maturity fell four bps and the yield on the 30-year maturity fell two bps. The 10-year municipal-to-Treasury ratio rose to 66.1% on Friday from Thursday’s level of 64.1%, while the 30-year municipal-to-Treasury ratio rose to 73.5% on Friday from Thursday’s level of 72.8%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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