Muni Update

August 30, 2021


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


Municipal Market Recap

Municipal prices were steady across the curve on Monday. On Tuesday, Wednesday, and Thursday they were mixed. On Tuesday municipal prices in the front-end weakened, while prices on bonds maturing 10 years and longer were steady. On Wednesday municipal prices weakened on maturities 10 years and in while prices on the long end were steady. On Thursday municipal prices were steady in the front-end, while prices on bonds maturing 10 years and longer weakened.  On Friday municipal prices were steady across the curve.

This week, the projected level of new-issue offerings for unofficial last trading week of summer before the Labor Day weekend are $4.94B and coupled with bank qualified (BQ) and general market (GM) offerings in the secondary market should offer market participants 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 be strong and contributed to demand outpacing supply for the year. For September this imbalance is expected to ease, as redemption activity for the upcoming month is projected to only be $29.0B, which is half of the amount that was redeemed in August.

For funds latest reporting period, investors in municipal bond funds put cash into funds for a 25th week in a row, as tax-exempt weekly reporting funds data showed that funds experienced inflows of $1.865B in the latest week, after experiencing inflows of $1.830B the week prior. The four-week moving average was a positive at $1.699B, after being in the green at $1.581B 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 0.10%, 0.91%, and 1.52%, respectively. Overall, week-over-week the yields on the two- and 30-year general obligation (GO) bonds each rose two basis points (bps), while the yield on the 10-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%, 1.16%, and 1.72%, respectively. Overall, week-over-week the yield on the two-year GO bond was unchanged, while the yield on the 10-year GO bond rose three bps and the yield on the 30-year GO bond rose two bps.


New-Issue Volume is Forecasted to be $4.94B for the Trading Week

Total new-issue offerings for the last unofficial trading week of summer prior to the Labor Day weekend holiday per IHS Markit Ipreo are estimated to be $4.94B. This week’s projected level of bond issuance is comprised of $3.83B in negotiated deals and $1.11B in competitive sales. Leading the way this week in the negotiated arena will be $950.0MM offering by the New York City Transitional Finance Authority (NYC TFA) of tax-exempt future tax-secured bonds. The NYC TFA also plans to offer the largest competitive deal of the week, when it offers $250.0MM of taxable bonds.

Other notable deals this week include the $400.0MM-plus nonrated senior living from the New Hope Cultural Education Facilities Finance Corporation in Texas and the $327.4MM of taxable GO refunding bonds from the State of Wisconsin on Tuesday.


Municipal Bond Funds Posted Inflows for a 25th Week in a Row

Investors in municipal bond put cash into funds for a 25th week in a row, as tax-exempt weekly reporting funds experienced inflows of $1.865B in the latest week, after experiencing inflows of $1.830B the week prior. The four-week moving average remained positive at $1.699B, after being in the green at $1.581B the week prior.

Long-term municipal bond funds had inflows of $1.020B in the latest week, after experiencing inflows of $1.021B the week prior. Intermediate-term funds had inflows of $253.323MM after inflows of $402.029MM the week prior. National funds had inflows of $1.745B after experiencing inflows of $1.714B the week prior. High-yield municipal funds reported inflows of $523.509MM in the latest week, after inflows of $388.520MM the week prior. Exchange traded funds reported inflows of $265.218MM, after inflows of $360.393MM 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.

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 spreads on the two-, three-, five-, and 10-year 30-year maturities all widened, with the largest widening occurring in the 10-year maturity, five bps. Meanwhile the spreads on the 15- and 30-year maturities all tightened, with the largest tightening occurring in the 15-year maturity, six bps.


Daily Overview of the General Market for the Week Ending August 27th

On Monday municipals prices were steady, as the first of the trading week’s $7.04B in new-issue debt was offered. 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, while U.S. stocks rose for the session to fresh record highs, as investors looked ahead to a key event from the Federal Reserve later this week. On the day, the yields on the two- and 30-year maturities were unchanged, while the yield on the 10-year maturity fell one bp. The 10-year municipal-to-Treasury ratio rose to 70.4% on Monday from last Friday’s level of 69.8%, while the 30-year municipal-to-Treasury ratio was unchanged on Monday from last Friday’s level of 80.2%.

On Tuesday municipals prices were mixed, as a number of new-issue offering came to market including the $130.0MM offering of junior sales tax Build Illinois Bonds in the negotiated arena and in the competitive arena Montgomery County, Maryland, sold $335.25MM of GO bonds. On the day, the yield on the two-year GO bond rose one bp, 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 weakened on Tuesday, while U.S. stocks barely rose for the session, as optimism over earnings and the economic reopening at least temporarily outweighed lingering concerns over the virus and changes to monetary policy. The Dow rose 30 points or 0.09%, while the S&P was up 0.1% and the NASDAQ was up 0.5%. On the day, the yield on the two-year maturity rose one bp, while the yields on the 10- and 30-year maturities each rose four bps. The 10-year municipal-to-Treasury ratio fell to 68.2% on Tuesday from Monday’s level of 70.4%, while the 30-year municipal-to-Treasury ratio fell to 78.5% on Tuesday, from Monday’s level of 80.2%.

On Wednesday municipals prices were mixed, as investors digested a number of new-issue offering including the $425.88MM of taxable pension obligation bonds by the City of Santa Ana, California, the $250.84MM of Series 2021 grant anticipation revenue vehicle bonds by the State of North Carolina and the $108.95MM of unlimited tax GO bonds by the Federal Way School District #210, Washington. On the day, the yields on the two- and 10-year GO bonds each rose one bp, while the yield on the 30-year GO bond was unchanged, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed on Wednesday, while U.S. stocks rose to fresh all-time highs, with investors looking ahead to a key Federal Reserve event later this week. The Dow was up 39 points or 0.1%, while the S&P was up 0.2% and the NASDAQ was also up 0.2%. On the day, the yield on the two-year maturity fell one bp, while the yield on the 10-year maturity rose six bps and the yield on the 30-year maturity rose five bps. The 10-year municipal-to-Treasury ratio fell to 65.9% on Wednesday from Tuesday’s level of 68.2%, while the 30-year municipal-to-Treasury ratio fell to 76.5% on Wednesday from Tuesday’s level of 78.5%.

Last Thursday municipals prices were once again mixed, and while the last of the week’s new-issue offerings came to market, most investors focus was on Jerome Powell’s speech in Jackson Hole, following hawkish comments from two Fed presidents on tapering earlier in the day. 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 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 traded down.  The Dow was down 192 points or 0.5%, while the S&P and the NASDAQ were each down 0.6%. On the day, the yield on the two-year maturity rose two bps, while the yield on the 10-year maturity fell one bp and the yield on the 30-year maturity fell two bps. The 10-year municipal-to-Treasury ratio rose to 67.9% on Thursday from Wednesday’s level of 65.9%, while the 30-year municipal-to-Treasury ratio rose to 78.4% on Thursday from Wednesday’s level of 76.5%.

Last Friday municipal prices were steady, as market participants looked ahead to $4.94B 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 strengthened on Friday, while U.S. stocks rose for the session. The Dow rose 242 points or 0.7%, while the S&P was up 0.9% and the NASDAQ was up 1.2%.  On the day, the yields on the two-, 10- and 30-year maturities each fell three bps. The 10-year municipal-to-Treasury ratio rose to 69.5% on Friday from Thursday’s level of 67.9%, while the 30-year municipal-to-Treasury ratio rose to 79.6% on Friday from Thursday’s level of 78.4%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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