Muni Update

August 3, 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 municipal prices were mixed, as the front-end was steady, while prices on bonds maturing ten years and longer strengthened. The Federal Open Market Committee (FOMC) also started its two-day meeting. On Wednesday municipal prices were steady across the curve and the FOMC ended its two-day meeting and voted unanimously to leave monetary policy unchanged, keeping the target overnight rate range between 0.00-0.25%. They also kept the interest rate on excess reserves (IOER rate) at 0.10%, as well as announcing that asset purchases would continue at the current pace. On Thursday municipal prices strengthened across the curve. On Friday municipal prices were mixed, as the front-end was steady, while prices on bonds maturing ten years and longer strengthened.

This week’s projected level of new-issue offerings is $7.27B. This level of new-issue supply should provide market participants with various opportunities to meet demand, especially given the continued strong demand in the municipal market during the summer redemption season. For August the projected total amount of redemptions now exceeds $50.0B, with $43.8B of redemptions scheduled for August  1st.

Investors in municipal bond funds put cash into funds for an 12th week in a row, as tax-exempt weekly reporting funds experienced inflows of $1.792B in the latest week, after experiencing inflows of $2.100B the week prior. The four-week moving average was a positive $1.443B, after being in the green at $1.262B 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 yield on the two-year maturity on the MMD Triple-A Scale was unchanged from Thursday to Friday and they ended the week at 0.13%. 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 0.65% and 1.37%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond fell two bps, while the yields on the 10- and 30-year GO bonds each fell six bps.

Last week the yields on the two- and 30-year maturities on the MMA Triple-A Scale each fell two bps from Thursday to Friday and they ended the week at 0.23% and 1.64%, respectively. Meanwhile the yield on the 10-maturity on the MMA Triple-A Scale fell one bp from Thursday to Friday and ended the week at 1.04%. Overall, week-over-week the yields on the two- and 10-year GO bonds each fell four bps, while the yield on the 30-year GO bond fell six bps.


New-Issue Volume is Forecasted to be $7.27B for the Week

Total new-issue offerings for the trading week per IHS Markit Ipreo is estimated to be almost $7.279B. This week’s projected issuance is comprised of $6.34B in negotiated deals and just under $931.0MM in competitive sales. The largest deal of the week will be the State of Hawaii’s $900.0MM Series 2020FZ taxable bond offering scheduled for Wednesday. The deal is rated AA+ by both Standard and Poor’s Global Ratings (S&P) and Fitch Ratings (Fitch). The proceeds will be used for various public improvement projects, such as public buildings, elementary and secondary schools, higher education facilities, and public libraries and parks.

A spate of taxable offerings from Texas issuers are also on tap this week. The Texas Health Resources’ Authority plans to offer $300.0MM of corporate CUSIP revenue bonds on Tuesday. The deal is rated Aa2 by Moody’s Investors Service (Moody’s) and AA by S&P. Bexar County, Texas plans to offer $228.65MM of Series 2020B limited tax refunding bonds and Series 2020 limited flood control tax refunding bonds on Tuesday. Both issues are taxable offerings and are rated Triple-A by Moody’s, S&P, and Fitch. The Waco Education Finance Corporation, Texas plans to offer $217.325MM of taxable revenue and refunding bonds for Baylor University on Thursday. The deal is rated A+ by S&P and Fitch.

Other taxable deals scheduled for the week include the Hospital for Special Surgery, which plans to offer $350.0mm of taxable revenue bonds on Tuesday. This offering is rated A1 by Moody’s and A+ by S&P. Rutgers State University, New Jersey, plans to offer $220.69 million of GO taxable refunding bonds On Monday. This deal is rated Aa3 by Moody’s and A+ by S&P.


Municipal Bond Funds Posted Inflows for a 12th Week in a Row

Investors in municipal bond funds put cash into funds for an 12th week in a row, as tax-exempt weekly reporting funds experienced inflows of $1.792B in the latest week, after experiencing inflows of $2.100B the week prior. The four-week moving average was a positive $1.443B, after being in the green at $1.262B the week prior.

Long-term municipal bond funds had inflows of $890.331MM in the latest week after experiencing inflows of $980.538MM the week prior. Intermediate-term funds had inflows of $115.647MM after inflows of $150.138MM the week prior. National funds had inflows of $1.609B after experiencing inflows of $2.013B the week prior. High-yield municipal funds reported inflows of $181.269MM in the latest week, after inflows of $391.522MM the week prior. Exchange traded funds reported inflows of $323.170MM, after inflows of $298.936MM 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 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 next 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 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. The two-year maturity was unchanged, while the one- and five-year maturities widened, with the largest widening occurring in the one-year maturity, three bps. Meanwhile, week-over-week the spreads on the three-, 10-, 15-, and 30-year maturities all tightened, with the largest tightening occurring in the 10-year maturity, six bps.


Daily Overview of the General Market for the Week Ending July 31st

Last Monday municipal prices were steady, as a few of the smaller new-issues of the week’s projected $7.79B in new-issue offerings came to market. Market participants were also watching economic data and waiting for an announcement on any potential future congressional actions to stimulate the economy. 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, as U.S. stocks rose for the session. The Dow finished up 115 points or 0.4%, while the S&P finished up 0.7% and the NASDAQ finished up 1.7%. On the day, the yield on the two-year maturity rose one bp, while the yield on the 10-year maturity rose three bps, and the yield on the 30-year maturity rose two bps. The 10-year municipal-to-Treasury ratio fell to 114.5% on Monday from Friday’s level of 120.3%, while the 30-year municipal-to-Treasury fell 114.4% on Monday from Friday’s level of 116.3%.

Last Tuesday prices on municipals were mixed, as market participants were focused on several new-issue offerings that priced, including Colorado’s first part of its $1.0B offering of tax and revenue anticipation notes (TRANs). The FOMC also opened its two-day meeting and negotiations in Washington, D.C. over a new fiscal stimulus package continued. On the day, the yield on the 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. The Dow finished down 206 points, or 0.8%, while the S&P finished down 0.7% and the NASDAQ finished down 1.3%. 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 118.6% on Tuesday from Monday’s level of 114.5%, while the 30-year municipal-to-Treasury ratio rose to 116.4% on Tuesday from Monday’s level of 114.4%.

Last Wednesday municipals prices were steady, as a variety of new-issue offerings came to market including two big deals from California and Texas issuers. 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 Wednesday, as U.S. stocks finished the session higher. The Dow closed 160 points or 0.6% higher, while the S&P rose 1.2% and the NASDAQ rose 1.4%. On the day, the yield on the two-year maturity fell two bps, while the yield on the 10-year maturity fell one bp and the yield on the 30-year maturity rose two bps. The 10-year municipal-to-Treasury ratio rose to 120.7% on Wednesday from Tuesday’s level of 118.6%, while the 30-year municipal-to-Treasury ratio fell to 114.5% on Wednesday from Tuesday’s level of 116.4%.

Last Thursday municipals prices strengthened, as the last of the week’s big new-issue offerings came to market, including the Dallas Fort Worth taxable deal and the Colorado note sale. On the day, the yield on the two-year GO bond fell two bps, while the yields on the 10- and 30-year GO bonds each fell three bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were also strengthened last Thursday, as most U.S. stocks fell for the session after two new reports affirmed the worst quarterly drop-in economic activity on record during the second quarter and showed a second straight increase in weekly unemployment insurance claims. The Dow finished down 225 points or 0.9% and the S&P was down 0.4%. The NASDAQ rose 0.4% for the session. 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 121.8% on Thursday from Wednesday’s level of 120.7%, while the 30-year municipal-to-Treasury ratio rose to 115.8% on Thursday from Wednesday’s level of 114.5%.

Last Friday prices on municipals were mixed, as market participants started looking ahead to the almost $7.27B in expected new-issue offerings next week. 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 two bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were steady on Friday, as U.S. stocks prices fell for the session only to rally late and finish the day in positive territory. The Dow finished up 115 points, or 0.4%, while the S&P and NASDAQ were up 0.8% and 1.5%, respectively. On the day, the yields on the two-, 10- and 30-year maturities were unchanged. The 10-year municipal-to-Treasury ratio fell to 118.2% on Friday from Thursday’s level of 121.8%, while the 30-year municipal-to-Treasury fell to 114.2% on Friday from Thursday’s level of 115.8%.


Taxable Bonds

Taxable bond volume for July 2020 was $16.13B, this was a 518.3% increase in issuance month-over-month when to compared to the $2.61B in July 2019. Year-to-date, taxable volume sits at $68.98B. For all of 2019, taxable volume was $70.49B.






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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