Muni Update

August 23, 2021


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


Municipal Market Recap

Municipal prices were steady across the curve on a daily basis last week. This week, the projected level of new issue offerings for the trading week are $7.04B and coupled with bank qualified (BQ) and general market (GM) offerings in the secondary market should offer market participants 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 strong and have contributed to demand outpacing supply for the year. These actions are helping to 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 24th week in a row, as tax-exempt weekly reporting funds data showed that funds experienced inflows of $1.830B in the latest week, after experiencing inflows of $1.873B the week prior. The four-week moving average was a positive at $1.581B, after being in the green at $1.558B 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 yields on the two-, 10-, and 30-year general obligation (GO) bonds were unchanged.

Last week the yields on the two-, 10-, and 30-year maturities on the MMA Triple-A Scale were also unchanged from Thursday to Friday and they ended the week at 0.09%, 1.13%, and 1.70%, respectively. Overall, week-over-week the yields on the two-, 10-, and 30-year GO bonds were also unchanged.


New-Issue Volume is Forecasted to be $7.04B for the Trading Week

Total new issue offerings for the trading week per IHS Markit Ipreo are estimated to be $7.04B. This week’s projected level of bond issuance is comprised of $5.36B in negotiated deals and $1.68B in competitive sales. The largest deal of the week will come from the Pennsylvania Turnpike Commission, which is set to price $600.0MM of refunding bonds on Tuesday. The offering is comprised of $246.5MM oil franchise tax senior revenue bonds, Series A of 2021. This series is rated Aa3 by Moody’s Investors Service (Moody’s) and AA by both Standard and Poor’s Global Ratings (S&P) and Fitch Ratings (Fitch). The other offering will be for $353.42MM of oil franchise tax subordinated revenue bonds, Series B of 2021. This offering is rated A2 by Moody’s and A+ by S&P and AA- by Fitch. Also on Tuesday, Houston, Texas, is set to price $210.27MM of airport system special facilities revenue bonds on behalf of United Airlines, Incorporated, terminal improvement projects. The deal is rated B- by Fitch. On Wednesday, North Carolina is set to price $245.45MM of Series 2021 grant anticipation revenue vehicle bonds. The deal is rated A2 by Moody’s, AA by S&P and A+ by Fitch.

Other notable deals this week include the following offerings: the Hospital Authority of Hall County and Gainesville, Georgia will offer $456.0MM of taxable revenue anticipation certificates for the Northeast Georgia Health System, Incorporated project; the Utah Military Installation Development Authority is set to price $260.0MM of tax allocation and hotel tax revenue Series 2021A-1 and tax allocation revenue bonds Series 2021A-2; Love Field Airport Modernization Corporation is set to price $246.72MM of Series 2021 Alternative Minimum Tax (AMT) general airport revenue refunding bonds; Campbell, California, Union High School District is set to price $224.76MM of federally taxable GO bonds; and the New York City Housing Development Corporation will price $200.0MM of Series 2021 Series G multifamily housing revenue bonds. All of these offering is schedule for Thursday.


Municipal Bond Funds Posted Inflows for a 24th Week in a Row

Investors in municipal bond put cash into funds for a 24th week in a row, as tax-exempt weekly reporting funds experienced inflows of $1.830B in the latest week, after experiencing inflows of $1.873B the week prior. The four-week moving average remained positive at $1.581B, after being in the green at $1.555B the week prior.

Long-term municipal bond funds had inflows of $1.021B in the latest week, after experiencing inflows of $1.127B the week prior. Intermediate-term funds had inflows of $402.029MM after inflows of $297.466MM the week prior. National funds had inflows of $1.714B after experiencing inflows of $1.689B the week prior. High-yield municipal funds reported inflows of $388.520MM in the latest week, after inflows of $492.501MM the week prior. Exchange traded funds reported inflows of $360.393MM, after inflows of $160.350MM 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 either matured or was called during this time frame, which started on June 1st and continued 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 widened by one basis point (bp), while the spread on the 30-year maturity was unchanged. Meanwhile the spreads on the two-, three-, five-, 10-, and 15-year maturities all tightened, with the largest tightening occurring in the five-year maturity, eight bps.


Daily Overview of the General Market for the Week Ending August 20th

On Monday municipals prices were steady, as the first of the trading week’s $9.76B in new issue debt was offered and New York City took orders for over $110.0MM on the first day of a two-day retail order period for its $1.039B offering of GO bonds. 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 strengthened on Monday, as U.S. stock fell in the morning but rebound to post gains in certain indices resulting in a mixed session. The Dow was up 110 points or 0.3%, while the S&P was also up 0.3%. The NASDAQ was down 0.2%. On the day, the yields on the two- and 30-year maturities each fell two bps, while the yield on the 10-year maturity fell three bps. The 10-year municipal-to-Treasury ratio rose to 69.8% on Monday from last Friday’s level of 68.2%, while the 30-year municipal-to-Treasury ratio rose to 78.1% on Monday from last Friday’s level of 77.3%.

On Tuesday municipals prices were steady, as a number of new issue offering came to market including the second day of the retail pricing of the New York City offering of its $1.039B of tax-exempt GO bonds, ahead of the institutional pricing on Wednesday. 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. Treasuries were mixed on Tuesday, while U.S. stocks fell for the session, with the major indexes pulling back from record levels amid a mixed batch of earnings results from major retailers. A closely watched monthly report on retail sales also missed estimates, pointing to a bigger-than-expected deceleration in consumer spending. The Dow was down 282 points or 0.8%, while the S&P was down 0.7% and the NASDAQ was down 0.9%. On the day, the yield on the two-year maturity rose two bps, while the yields on the 10- and 30-year maturities were unchanged. The 10- and 30-year municipal-to-Treasury ratios were unchanged on Tuesday, from Monday’s levels of 69.8% and 78.1%, respectively.

Last Wednesday municipals prices were once again steady, as investors digested a number of new issue offering including three that were over $1.0B each in par. On the day, the yields on the two-, 10-, and 30-year GO bonds were steady, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasuries were mixed on Wednesday, and U.S. stocks fell for the session, as investors contemplated a batch of weaker-than-expected economic data and mixed retail earnings results. The Dow was down 382 points or 1.1%. The S&P was also down 1.1% and the NASDAQ was down 0.9%. 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 fell one bp. The 10-year municipal-to-Treasury ratio fell to 68.3% on Wednesday from Tuesday’s level of 69.8%, while the 30-year municipal-to-Treasury ratio rose to 78.5% on Wednesday from Tuesday’s level of 78.1%.

Last Thursday municipals prices were steady for the fifth session in a row, while the 10- and 30-year municipal-to-treasury ratios continued to show improved relative values to U.S. Treasurys. The New York Liberty Development Corporation came to market with its $1.22B offering of green bonds, as the last of the week’s new issue offerings were priced. 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 strengthened on Thursday, while U.S. stocks traded mixed due to jitters over a potential shift in monetary policy that might remove some of the stimulus underpinning equity markets. The Dow was down 66 points or 0.2%, while the S&P and the NASDAQ each rose 0.1%. On the day, the yield on the two-year maturity fell one bp, while the yields on the 10- and 30-year maturities each fell three bps. The 10-year municipal-to-Treasury ratio rose to 71.0% on Thursday from Wednesday’s level of 69.3%, while the 30-year municipal-to-Treasury ratio rose to 79.8% on Thursday from Wednesday’s level of 78.5%.

Last Friday municipal prices were steady, as market participants looked ahead to $7.04B 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, while U.S. stocks rose for the session, as investors considered the latest batch of earnings and economic data and continued to contemplate the path forward for monetary policy. The Dow rose 226 points or 0.7%, while the S&P was up 0.8% and the NASDAQ was up 1.2%.  On the day, the yield on the two-year maturity rose one bp, while the yield on the ten-year maturity rose two bps and the yield on the 30-year maturity fell one bp. The 10-year municipal-to-Treasury ratio fell to 69.8% on Friday from Thursday’s level of 71.0%, while the 30-year municipal-to-Treasury ratio rose to 80.2% on Friday from Thursday’s level of 79.8%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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