Muni Update

August 26, 2019


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


Municipal Market Recap

Municipal prices were mixed daily throughout the week for the week. On Monday prices on bonds maturing 10 years and in were steady, while the long-end weakened. On Tuesday prices on municipals maturing 10 years and longer were steady, while the front-end weakened. On Wednesday prices on bonds maturing 10 years and in weakened, while the long-end was steady. On Thursday prices on bonds maturing ten years and longer weakened, while the front-end was steady. On Friday the front-end was steady, while bonds maturing 10 years and longer were stronger. Issuance for the week is forecasted to be $6.25B, which is just below last week’s forecasted level of $6.35B in issuance. This week’s level of projected new issue offerings, together with secondary market opportunities should provide market participants with a number of opportunities, especially given the continued strong demand in the municipal market. Driving this strong demand in the municipal market is the continuing combination of high redemption flows and inflows into municipal bond mutual funds, which continues to be strong at this time.

Investors in municipal bond funds put cash into funds for a 33rd week, as weekly reporting funds experienced inflows of $1.562B, after experiencing inflows of $1.625B the week prior. The four-week moving average was a positive $1.493B, after being a positive $1.592B the week prior. Investors still facing low rates overseas continue to find higher-yielding U.S. assets attractive, especially since municipal bonds are off to their best start in five years. Municipal securities have been bolstered by low supply and strong demand. All these factors, should have both traditional and non-traditional market participants continuing to look for opportunities in the U.S. municipal market.

Last week the yield on the two-year maturity on the MMD Triple-A Scale was unchanged from Thursday to Friday and ended the week at 0.98%. Meanwhile the yields on the 10- and 30-year maturities on the MMD Triple-A Scale each fell two basis points (bps) from Thursday to Friday and they ended the week at 1.24% and 1.89%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond rose four bps, while the yields on the 10- and 30-year GO bonds each rose two bps.

Last week the yield on the two-year maturity on the MMA Triple-A Scale was unchanged from Thursday to Friday and ended the week at 1.06%. Meanwhile the yield on the 10-year maturity fell two bps and the yield on the 30-year maturity fell one bp on the MMA Triple-A Scale from Thursday to Friday and they ended the week at 1.48% and 2.11%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond rose two bps, while the yield on the 10-year GO bond was unchanged and the yield on the 30-year GO bond rose one bp.


New-Issue Volume is Forecasted to Be Just Over $6.2B for Trading Week

Total new issuance for the coming trading week per IHS Markit Ipreo is estimated to be $6.2B. This week’s trading calendar is comprised of $3.7B in negotiated offerings and $2.5B in competitive offerings.

The City of Atlanta, Georgia, tops the negotiated calendar with a $687.0MM offering of airport general revenue bonds. The deal is expected to price on Tuesday and will include Series 2019A bonds not subject to the alternative minimum tax (AMT), Series 2019B AMT bonds, Series 2019C non-AMT subordinate lien bonds and Series 2019D AMT subordinate lien bonds. The deal 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).

On Monday the Commonwealth of Massachusetts (Commonwealth) plans to offer $441.23MM of Series 2019D taxable GO refunding bonds. The Commonwealth is also competitively selling $189.635MM of Series 2019E tax-exempt GO refunding bonds on Tuesday. Both offerings are rated Aa1 by Moody’s, AA by S&P, and AA+ by Fitch.

Also in the competitive arena, the University of Alabama plans to offer $455.745MM of general revenue bonds in three offerings. The deals consists of $369.05 million of Series 2019A bonds, $72.535 million of Series 2019C bonds and $14.16 million of Series 2019B bonds. Proceeds from the Series A and B Bonds will be used to refund outstanding Series 2009A bonds, as well as finance capital improvements. Proceeds from the Series C bonds will be utilized to refund some outstanding Series 2010C bonds.

The Miami-Dade County School District, Florida, plans to offer a $400.0MM Series 2019 tax anticipation notes (TANs) on Tuesday. The TANs will be rated MIG1 by Moody’s. Also on Tuesday the State of Ohio plans to offer $300.0MM of Series 2019A common schools GOs on Tuesday. Proceeds will be used for capital facilities for a system of common schools. The deal is rated AA+ from S&P.


Municipal Bond Funds Post Inflows for a 33rd Week

Investors in municipal bond funds put cash into funds for a 33rd week, as weekly reporting funds experienced inflows of $1.532B in the latest week, after experiencing inflows of $1.625B the week prior. The four-week moving average was a positive $1.493B, after being a positive $1.592B the week prior.

Long-term municipal bond funds had inflows of $1.080B in the latest week after experiencing inflows of $959.453B the week prior. Intermediate-term funds had inflows of $304.494MM after inflows of $331.650MM the week prior. National funds had inflows of $1.356B after experiencing inflows of $1.450B the week prior. High-yield municipal funds reported inflows of $479.355MM in the latest week, after inflows of $383.715MM the week prior. Exchange traded funds reported inflows of inflows of $208.725MM after inflows of $123.479MM the week prior.


Demand in the Bank Qualified (BQ) Market Remains Strong

BQ market participants expect demand to continue to outpace supply again this week and therefore will focus on opportunities in both the primary and secondary markets. BQ participants continue to have significant demand for municipal paper due in large part to having to replace rolloffs due to redemptions. BQ participants continue to find attractive opportunities, both in size and structure (15- to 30-year range) in both BQ and lately more and more in general market paper, due in part to the lower tax rates from tax reform and attractive yields.

We continue to encourage participants to utilize extension swaps, especially given the strong bids for short paper by retail investors in high tax states, as a way roll out the curve for more yield (3.0% of higher, if possible) with little to no drop-off in credit quality. We also encourage investors to continue to looking at credit clean-up of their portfolio in this current environment. Week-over-week, bank qualified spreads were mixed, as the spreads on one, two, three, five, 15-, and 30-year maturities all tightened, with the largest tightening occurring in the two-year maturity, 12 bps. Meanwhile, the spread on 10-year maturity widened two bps week-over-week.


Daily Overview of the General Market for the Week Ending August 23rd

Last Monday prices on municipals were mixed, as market participants prepped for the $6.35B of new issue long-term debt and the $8.0B State of Texas tax anticipation notes (TANs) scheduled for the trading this week. On the day, the yield on the two-year GO was unchanged, while the yield on the 10-year GO bond fell rose one bp and the yield on the 30-year GO bonds rose three bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were weaker, as U.S. stocks posted gains for the session. The Dow rose 0.96%, while the S&P 500 gained 1.21% and the NASDAQ rose 1.35%. The yields on the two- and 10-year maturities each rose five bps, while the yield on the 30-year maturity rose seven bps. The 10-year municipal-to-Treasury ratio fell to 76.9% on Monday from last Friday’s level of 78.7%, while the 30-year municipal-to-Treasury ratio fell to 91.4% on Monday from last Friday’s level of 93.0%.

Last Tuesday prices on municipals were mixed, as a number of deals came to market lead by the City of Houston, Texas’ $770.175MM of combined utility system first lien revenue refunding bonds. On the day, the yield on the two-year GO bond rose 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 strengthened, as U.S. stocks posted losses for the session. On the day, the yield on the two-year maturity fell three bps, while the yield on the 10-year maturity fell five bps and the yield on the 30-year maturity fell four bps. The 10-year municipal-to-Treasury ratio rose to 79.4% on Tuesday from Monday’s level of 76.9%, while the 30-year municipal-to-Treasury ratio rose to 93.1% on Tuesday from Monday level of 91.4%.

Last Wednesday municipal prices were once again mixed, as a number of new deals hit the market including the $8.0B State of Texas TANs. On the day, the yield on the two-year GO bond rose two bps, while the yield on the 10-year GO bond rose one bp and the yield on the 30-year GO bond was steady, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys weakened, as U.S. stocks gained for the session. The Dow rose 0.93%, while the S&P rose 0.82% and the NASDAQ was up 0.90%. On the day, the yield on the two-year maturity rose six bps, while the yield on the 10-year maturity rose four bps and the yield on the 30-year maturity rose three bps. The 10-year municipal-to-Treasury ratio fell to 78.0% on Wednesday from Tuesday’s level of 79.4%, while the 30-year municipal-to-Treasury fell to 91.8% on Wednesday from Tuesday’s level of 93.1%.

Last Thursday prices on municipals were mixed, as the last of the week’s offerings came to market and were easily digested, as demand continues to outpace supply. On the day, the yield on the two-year GO bond was steady, while the yields on the 10-year GO bond rose two bps and the yield on the 30-year GO bond rose one bp, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices finished the day weaker, as U.S. stocks were mixed for the session. The Dow rose 0.19%, while the S&P was barely down 0.05% and NASDAQ fell 0.36%. On the day, the yield on the two-year maturity rose five bps, while the yield on the 10-year maturity rose three bps and the yield on the 30-year maturity rose four bps. The 10-year municipal-to-Treasury ratio slipped to 77.8% on Thursday from Wednesday’s level of 78.0%, while the 30-year municipal-to-Treasury ratio fell to 90.5% on Thursday from Wednesday’s level of 91.8%.

On Friday prices on municipals were mixed, as market participants were looking ahead to the coming week’s $6.2B in new long-term debt offerings. On the day, the yield on the two-year GO bond was steady, while the yields on the 10- and 30-year GO bonds each fell two bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices finished the day stronger, as stocks posted losses for the session. The Dow fell 2.37%, while the S&P was down 2.59% and the NASDAQ was down 3.0%. On the day, the yields on the two- and 10-year maturities each fell 10 bps, while the yield on the 30-year maturity fell nine bps. The 10-year municipal-to-Treasury ratio rose to 81.6% on Friday from Thursday’s level of 77.8%, while the 30-year municipal-to-Treasury ratio fell to 93.6% on Friday from Thursday’s level of 90.5%.


Taxable Market






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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