Muni Update

August 31, 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 bond maturing 10 years and longer weakened. On Wednesday municipal prices weakened across the curve. On Thursday and Friday municipal prices were mixed again and as on Tuesday the front-end was steady, while prices on bond maturing 10 years and longer weakened.

This week’s projected level of new-issue offerings is $8.5B and this level of new issue supply should provide market participants with various opportunities. The expected strong demand, due in part to continued, although reduced, redemption activity for the summer coupled with continued strong inflows into funds will continue to push demand into outpacing supply. Looking forward, State and local governments are scheduled to issue $18.1B in bonds over the next 30 days, the heaviest schedule since April 2nd, according to data compiled by Bloomberg.

Investors in municipal bond funds put cash into funds for an 16th week in a row, as tax-exempt weekly reporting funds experienced inflows of $1.017B in the latest week, after experiencing inflows of $1.831B the week prior. The four-week moving average was a positive $1.887B, after being in the green at $1.693B 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 ended the week at 0.16%. Meanwhile, the yields on the 10- and 30-year maturities on the MMD Triple-A Scale each rose one bp from Thursday to Friday and ended the week at 0.81% and 1.56%, respectively. Overall, week-over-week the yield on the two-year GO bond rose two basis points (bps), while the yield on the 10-year GO bond rose eight 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 0.25% and 1.72%, respectively. Meanwhile, the yield on the 10-year maturity on the MMA Triple-A Scale rose one bp from Thursday to Friday and ended the week at 1.10%. Overall, week-over-week the yield on the two-year GO bond rose four bps, while the yield on the 10-year GO bond rose 10 bps and the yield on the 30-year GO bond rose eight bps.


New-Issue Volume is Forecasted to be $8.5B for the Week

Total new-issue offerings for the trading week per IHS Markit Ipreo are estimated to be $8.5B. This week’s projected bond issuance is comprised of $7.6B in negotiated deals and $861.0MM in competitive sales. The largest scheduled deal this week will be the State of California’s $2.4B sale of GO bonds. The deal will be comprised of $1.4B in various purpose refunding GOs bonds and $1.0B of various purpose GO bonds. The deal is scheduled to price on Wednesday and is rated Aa2 by Moody’s Investors Service (Moody’s), AA- by Standard and Poor’s Global Ratings (S&P), and AA by Fitch Ratings (Fitch). Proceeds will finance some voter-approved projects and refund certain commercial paper notes and outstanding GOs.

The State of Florida plans to come to market with a $2.25B deal, as the State’s Board of Administrative Finance Corporation issues its Series 2020A taxable revenue bonds on Wednesday. The deal consists of three maturities; 2025, 2027, and 2030 and each maturity is $750.0MM in par. Proceeds will provide an additional source of capital to the Florida Hurricane Catastrophe Fund to reimburse residential insurers for any possible losses due to future storm activity. The deal is rated Aa3 by Moody’s and AA by both S&P and Fitch. On Tuesday a $1.3B offering by the New York Transportation Development Corporation of Series 2020 special facilities revenue bonds for the Delta Airlines LaGuardia Airport Terminals C and D development projects will be priced. Proceeds of the sale will finance some of the costs of the construction projects that Delta is undertaking at LaGuardia Airport’s Terminals C and D. The deal is rated Baa3 by Moody’s and BB+ by Fitch.

This week also includes a few municipal housing revenue bond offerings from various state issuers. The Pennsylvania Housing Finance Agency plans to offer $171.0MM of non-AMT single-family mortgage revenue bonds. The deal is rated Aa1 by Moody’s and AA+ by S&P. The State of New York Mortgage Agency plans to offer $122.0MM of AMT and non-AMT homeowner mortgage revenue social bonds. The deal is rated Aa1 by Moody’s. The Ohio Housing Finance Agency’s plans to offer $100.0MM of non-AMT residential mortgage revenue bonds issued under the mortgage-backed securities program. The Alaska Housing Finance Corporation plans to offer $97.0MM of taxable State Capital project bonds, rated Aa2 by Moody’s and AA+ by S&P. Finally, the Massachusetts Housing Finance Agency plans to offer $67.0MM of AMT and non-AMT single-family housing revenue bonds. This deal is rated Aa1 by Moody’s and AA+ by S&P.


Municipal Bond Funds Posted Inflows for a 16th Week in a Row

Investors in municipal bond funds put cash into funds for an 16th week in a row, as tax-exempt weekly reporting funds experienced inflows of $1.017B in the latest week, after experiencing inflows of $1.831B the week prior. The four-week moving average was a positive $1.693B, after being in the green at $1.887B the week prior.

Long-term municipal bond funds had inflows of $65.842MM in the latest week after experiencing inflows of $1.001B the week prior. Intermediate-term funds had inflows of $205.493MM after inflows of $274.189MM the week prior. National funds had inflows of $951.416MM after experiencing inflows of $1.736B the week prior. High-yield municipal funds reported outflows of $15.485MM in the latest week, after inflows of $217.326MM the week prior. Exchange traded funds reported outflows of $19.633MM, after inflows of $88.059MM 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 mid-to-long end of the curve (10 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 were mixed. The one-, two-, three-, and five-year maturities all widened, with the largest widening occurring in the two- and three-year maturities, eight bps each. Meanwhile week-over-week the spreads on the 10-, 15-, and 30-year maturity all tightened, with the largest tightening occurring in the 30-year maturity, 10 bps.


Daily Overview of the General Market for the Week Ending August 28th

Last Monday municipal prices were steady, as a few new issues of the week’s projected $8.2B in new issue offerings came to market. 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 U.S. stock prices rose for the session. The Dow finished up 378 points or 1.4%, while the S&P rose 1.0% and the NASDAQ rose 0.6%. On the day, the yield on the two-year maturity fell two bps, while the yield on the 10-year maturity rose one bp and the yield on the 30-year maturity was unchanged. The 10-year municipal-to-Treasury ratio fell to 112.3% on Monday from Friday’s level of 114.1%, while the 30-year municipal-to-Treasury was unchanged on Monday from Friday’s level of 108.2%.

Last Tuesday prices on municipals were mixed, as market participants were focused on several new-issue offerings including the retail pricing of New York City’s $1.1B of Fiscal 2021 Series A and B tax-exempt GO bonds. On the day, the yield on the on the two-year GO bond was steady, 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.

Prices on U.S. Treasurys weakened on Tuesday, and U.S. Stock prices were mixed for the session. The Dow finished down 60 points, or 0.2%, while the S&P and NASDAQ both finished up 0.3% and 0.8%, respectively. 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 108.7% on Tuesday from Monday’s level of 112.3%, while the 30-year municipal-to-Treasury ratio fell to 106.5% on Tuesday from Monday’s level of 108.2%.

Last Wednesday municipals prices weakened, as a variety of new issue offerings came to market, including big deals from New York and California issuers. On the day, the yields on the two- and 10-year GO bond each rose two bps, while 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 mixed on Wednesday, as U.S. stocks finished the session higher. The Dow finished up 84 points or 0.3%, while the S&P was up 1.0% and the NASDAQ was up 1.7%. On the day, the yield on the two-year maturity rose one bp, while the yield on the 10-year maturity was unchanged and the yield on the 30-year maturity rose two bps. The 10-year municipal-to-Treasury ratio rose to 111.6% on Wednesday from Tuesday’s level of 108.7%, while the 30-year municipal-to-Treasury ratio rose to 107.1% on Wednesday from Tuesday’s level of 106.5%.

Last Thursday municipals prices were mixed, as the last new of the issue offerings for the week came to market, including the Chicago Transit Authority’s $367.895MM of Series 2020A second lien sales tax receipts revenue refunding bonds. On the day, 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 the 30-year GO bond rose four bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were also mixed last Thursday, and U.S. stocks also ended a choppy session mixed. The Dow finished up 160 points or 0.6%, while the S&P was up 0.1% and the NASDAQ was down 0.3%. On the day, the yield on the two-year maturity was unchanged, while the yield on the 10-year maturity rose five bps and the yield on the 30-year maturity rose nine bps. The 10-year municipal-to-Treasury ratio fell to 108.1% on Thursday from Wednesday’s level of 111.6%, while the 30-year municipal-to-Treasury ratio fell to 103.3% on Thursday from Wednesday’s level of 107.1%.

Last Friday prices on municipals were mixed, as market participants started looking ahead to the $8.5B 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 rose one bp, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were also mixed on Friday, as U.S. stocks rose for the session. The Dow finished up 161 points, or 0.6%, while the S&P was up 0.7% and the NASDAQ was up 0.6%. On the day, the yield on the two-year maturity fell two bps, while the yield on the 10-year maturity was unchanged and the yield on the 30-year maturity rose two bps. The 10-year municipal-to-Treasury ratio rose to 109.5% on Friday from Thursday’s level of 108.1%, while the 30-year municipal-to-Treasury fell to 102.6% on Friday from Thursday’s level of 103.3%.






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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