Muni Update

August 24, 2020


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


Municipal Market Recap

Municipal prices were steady on Monday across the curve. On Tuesday, Wednesday, and Thursday municipal prices were mixed. For all three days the front-end was steady, while prices on bond maturing 10 years and longer weakened. On Friday municipal prices were steady across the curve.

This week’s projected level of new-issue offerings is $8.2B 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 15th week in a row, as tax-exempt weekly reporting funds experienced inflows of $1.831B in the latest week, after experiencing inflows of $2.313B the week prior. The four-week moving average was a positive $1.887B, after being in the green at $1.954B the week prior. Investors still facing low or negative rates overseas continue to find positive yielding U.S. assets attractive despite the recent outflows.

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 0.14%, 0.73%, and 1.46%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond was unchanged, while the yield on the 10-year GO bond rose seven basis points (bps) and the yield on the 30-year GO bonds rose 10 bps.

Last week the yields on the two- and 30-year maturities on the MMA Triple-A Scale were unchanged from Thursday to Friday and they ended the week at 0.21% and 1.46%, respectively. Meanwhile, the yield on the 10-year maturity on the MMA Triple-A Scale rose two bps from Thursday to Friday and ended the week at 1.00%. Overall, week-over-week the yield on the two-year GO bond rose one bp, while the yields on the 10-and 30-year GO bonds each rose six bps.


New-Issue Volume is Forecasted to be $8.2B for the Week

Total new-issue offerings for the trading week per IHS Markit Ipreo is estimated to be $8.2B. This week’s projected bond issuance is comprised of $7.1B in negotiated deals and $1.1B in competitive sales. New York City plans to offer both negotiated and competitive sales this week totaling $1.38B in both tax-exempt and taxable fixed rate bonds. The $1.08B of tax-exempts GOs will be offered on Wednesday, after a one-day retail order period. The remaining $304.15MM of taxables will come in two competitive offerings consisting of $159.935MM and $144.215MM, also on Wednesday. Proceeds will be used to refund certain outstanding issues and the deal is rated Aa2 by Moody’s Investors Service (Moody’s) and AA by both Standard and Poor’s Global Ratings (S&P) and Fitch Ratings (Fitch). Also, on Wednesday, after a one-day retail period, the Trustees of California State University will be issuing $1.35B of systemwide revenue bonds. The issue is comprised of $528.77MM of Series 2020D taxables, $526.14MM of Series 2020E taxables and $294.265MM of Series 2020C tax-exempts. Proceeds will be used to finance construction, renovation and improvement of some university facilities and to refund certain outstanding bonds.

In the Midwest, the State of Michigan is coming to market with an $800.0MM deal. The State Trunk Line Fund bonds will be issued under the Rebuilding Michigan program on Wednesday. The deal is rated Aa2 by Moody’s and AA+ by S&P. The University of Chicago plans to offer $300.0MM of taxable corporate CUSIP fixed-rate bonds on Wednesday. The deal is rated AA2 by Moody’s, AA- by S&P, and AA+ by Fitch. Finally, the Chicago Transit Authority plans to offer $345.0MM of second lien sales tax receipts revenue refunding bonds on Thursday. The deal is rated A+ by S&P and AA- by Fitch.


Municipal Bond Funds Posted Inflows for a 15th Week in a Row

Investors in municipal bond funds put cash into funds for an 15th week in a row, as tax-exempt weekly reporting funds experienced inflows of $1.831B in the latest week, after experiencing inflows of $2.313B the week prior. The four-week moving average was a positive $1.887B, after being in the green at $1.954B the week prior.

Long-term municipal bond funds had inflows of $1.001B in the latest week after experiencing inflows of $1.224B the week prior. Intermediate-term funds had inflows of $274.189MM after inflows of $215.339MM the week prior. National funds had inflows of $1.736B after experiencing inflows of $2.127B the week prior. High-yield municipal funds reported inflows of $217.326MM in the latest week, after inflows of $343.887MM the week prior. Exchange traded funds reported inflows of $88.059MM, after inflows of $385.762MM the week prior.


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 widened, with the largest widening occurring in the 30-year maturity, 23 bps.


Daily Overview of the General Market for the Week Ending August 21st

Last Monday municipal prices were steady, as a few new issues of the week’s projected $11.46B in new issue offerings came to market including the retail pricing of the New York City Transitional Finance Authority’s (NYTFA) $1.33B offering of tax-exempt future tax secured subordinate bonds. The institutional pricing is expected 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. Treasurys were mixed on Monday, as were U.S. stock prices for the session. The Dow finished down 86 points or 0.3%, while the S&P finished up 0.3% and the NASDAQ finished up 1.0%. On the day, the yield on the two-year maturity was steady, while the yields on the 10- and 30-year maturities each fell two bps. The 10-year municipal-to-Treasury ratio rose to 95.7% on Monday from Friday’s level of 93.0%, while the 30-year municipal-to-Treasury rose to 95.1% on Monday from Friday’s level of 93.8%.

Last Tuesday prices on municipals were mixed, as market participants were focused on several new-issue offerings including the priced and repriced San Francisco Bay Area Rapid Transit District, California’s $625.005MM of Election of 2016 Series 2020 C-1 GO bonds. On the day, the yield on the on the two-year GO bond was steady, while the yield on the 10-year GO bond rose one bp and the yield on the 30-year GO bond rose three bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were also mixed on Tuesday, as were U.S. Stocks for the third session in a row. The Dow finished down 67 points, or 0.2%, while the S&P and NASDAQ both finished up 0.2% and 1.0%, respectively. On the day, the yield on the two-year maturity was unchanged, 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 rose to 100.0% on Tuesday from Monday’s level of 95.7%, while the 30-year municipal-to-Treasury ratio rose to 99.3% on Tuesday from Monday’s level of 95.1%.

Last Wednesday municipals prices were mixed, as a variety of new-issue offerings came to market, including a $7.2B tax and revenue anticipation notes (TRANs) sale from the State of Texas. On the day, the yield on the two-year GO bond was steady, 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 also mixed on Wednesday, as U.S. stocks finished the session lower. The Dow closed 85 points or 0.3% lower, while the S&P was down 0.4% and the NASDAQ was down 0.6%. 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 rose two bps. The 10-year municipal-to-Treasury ratio rose to 102.9% on Wednesday from Tuesday’s level of 100.0%, while the 30-year municipal-to-Treasury ratio rose to 100.7% on Wednesday from Tuesday’s level of 99.3%.

Last Thursday municipals prices were mixed, as the last of the new-issue offerings for the week came to market, including the Wyandotte County, Kansas City, Kansas’s $231.535MM offering of Series 2020B taxable utility system refunding revenue bonds and the $17.010MM offering of Series 2020A tax-exempt utility system refunding and improvement revenue bonds. 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 three bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices strengthened last Thursday, as U.S. Stocks turned slightly higher in the afternoon and closed the session up, as investors absorbed a rise in the Labor Department’s weekly jobless claims report and digested more earnings from Corporate America. The Dow finished up 47 points or 0.2%, while the S&P was up 0.3% and the NASDAQ rose 1.1%. On the day, the yield on the two-year maturity fell one bp, while the yield on the 10-year maturity fell three bps and the yield on the 30-year maturity fell four bps. The 10-year municipal-to-Treasury ratio rose to 112.3% on Thursday from Wednesday’s level of 102.9%, while the 30-year municipal-to-Treasury ratio rose to 105.8% on Thursday from Wednesday’s level of 100.7%.

Last Friday prices on municipals were steady, as market participants started looking ahead to the $8.2BB in expected new issue offerings next 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 rose for the session. The Dow finished up 190 points, or 0.7%, 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 rose three bps, while the yield on the 10-year maturity fell one bp and the yield on the 30-year maturity fell three bps. The 10-year municipal-to-Treasury ratio rose to 114.1% on Friday from Thursday’s level of 112.3%, while the 30-year municipal-to-Treasury rose to 108.2% on Friday from Thursday’s level of 105.8%.






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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