Muni Update

August 5, 2019



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


Municipal Market Recap

Municipal prices started the week steady. On Tuesday they strengthened across the curve. On Wednesday they were steady again, as the Federal Open Markets Committee (FOMC) voted to cut its target rate range from 2.25-2.50% to 2.00-2.25%, lowered its interest rate on excess reserves from 2.35% to 2.10%, and elected to end its balance sheet runoff on August 1st rather than waiting until September 30th. On Thursday and Friday municipal prices strengthened across the curve. Issuance for the week is forecasted to be $12.6B, making it the largest issuance week of 2019, with the previous biggest week taking place the week of June 10th, when volume was roughly $9.9B. 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 30th week, as weekly reporting funds experienced inflows of $433.609MM, after experiencing inflows of $1.957B the week prior. The four-week moving average was a positive $1.266B, after being a positive $1.463B 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 fell two basis points (bps) on the MMD Triple-A Scale from Thursday to Friday and ended the week at 1.02%. Meanwhile the yield on the 10-year maturity fell four bps and the yield on the 30-year maturity fell five bps on the MMD Triple-A Scale from Thursday to Friday, ending the week at 1.44% and 2.14%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond fell seven bps, while the yield on the 10-year GO bond fell 10 bps and the yield on the 30-year GO bond fell 11 bps.

Last week the yields on the two- and 10-year maturities on the MMA Triple-A Scale each fell three bps from Thursday to Friday and they ended the week at 1.14% and 1.66%, respectively. Meanwhile, the yield on the 30-year maturity fell four bps on the MMA Triple-A Scale from Thursday to Friday and ended the week at 2.31%. Overall, week-over-week the yields on the two- and 10-year GO bonds each fell eight bps, while the yield on the 30-year GO bonds fell 10 bps.


New-Issue Volume is Forecasted to Be Just Over $12.6B for Trading Week

Total new issuance for the coming trading week per IHS Markit Ipreo is estimated to be $12.6B, which is well above last few week’s levels of issuance. This week includes 32 deals scheduled for $100.0MM or larger in par, nine of which are competitive sales. There are also three deals with an expected par amount exceeding $1.0B.

The largest deal of the week will be the $5.765B CommonSpirit Health offerings on Wednesday. The deal will consists of $2.7B of taxable series 2019 bonds, $2.4B series 2019A tax-exempt fixed rate bonds, and $665.0MM series 2019B tax-exempt put bonds. The offerings will be issued by conduits in Colorado, Kentucky, Tennessee, and Washington and are rated Baa1 by Moody’s Investors Service (Moody’s), and BBB+ by both Standard and Poor’s Global Ratings (S&P) and Fitch Ratings (Fitch). Also on Wednesday the Port Authority of New York and New Jersey plans to offer $1.25B of consolidated taxable, tax-exempt and alternative minimum tax (AMT) bonds. The deal is rated Aa3 by Moody’s and AA- by S&P and Fitch.

The Dallas Fort Worth International Airport plans to offer $1.17B of joint revenue refunding taxable bonds on Tuesday. The deal is rated A1 by Moody’s, A+ by S&P and Fitch, and AA by Kroll Bond Rating Agency (KBRA).  Also this week the Lower Alabama Gas District plans to offer $639.76.0MM of revenue bonds. The deal is rated A3 by Moody’s and A by Fitch.

In the competitive arena, the New York City Transitional Finance Authority (NYC TFA) is expected to sell a total of $1.35B of future tax-secured subordinate bonds and taxable bonds spanning five separate sales on Tuesday. Also on Tuesday in the competitive arena, the State of Minnesota is scheduled to sell a total of $673.345MM of bonds in four separate sales. The offerings are rated Aa1 by Moody’s, and triple A by S&P and Fitch.


Municipal Bond Funds Post Inflows for a 30th Week

Investors in municipal bond funds put cash into funds for a 30th week, based on the latest data from Lipper data, although we note inflows were much lighter than what the market has been seeing recently. The weekly reporting funds saw inflows of $433.609MM in the latest week, after experiencing inflows of $1.957B the week prior. The four-week moving average was a positive $1.266B, after being a positive $1.463B the week prior.

Long-term municipal bond funds had inflows of $296.280MM in the latest week after experiencing inflows of $1.181B the week prior. Intermediate-term funds had inflows of $91.159MM after inflows of $317.712MM the week prior. National funds had inflows of $307.270MM after experiencing inflows of $1.724B the week prior. High-yield municipal funds reported inflows of $87.648MM in the latest week, after inflows of $510.652MM the week prior. Exchange traded funds reported inflows of $392.011MM, after inflows of $256.385MM the week prior.


Demand in the Bank Qualified (BQ) Market Remains Strong

The BQ market continues to see good activity, even with the lower level of new-issue supply so far this year, which has contributed to secondary market bid lists being well received. BQ participants continue to have significant demand for municipal paper due in large part to having to replace rolloffs due to redemptions. Larger BQ participants continue to find attractive opportunities, both in size and structure (15 to 30 year range) in both BQ and general market paper, due in part to the lower tax rates from tax reform and attractive yields. Other market participants continue to find opportunities in both primary offerings and secondary market BQ opportunities, to address their needs, although we are seeing more BQ buyer’s crossing over and buying GM paper for the first time.

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. Week-over-week, bank qualified spreads were mixed as the one and two year maturities saw spreads tighten, with the largest tightening occurring in the one-year maturity, seven bps. While the spreads on the rest, the three-, five-, 10-, 15-, and 30-year maturities widened, with the largest widening occurring in the five-year maturity, 13 bps.


Daily Overview of the General Market for the Week Ending August 2nd

Last Monday prices on municipals were steady, as market participants prepped for the $4.9B of new-issue offerings scheduled for the trading week. On the day, the yields on the two-, 10-, and 30-year GO bonds were each unchanged, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed, as U.S. stocks also posted mixed results for the session. The Dow rose 0.11%, while the S&P and NASDAQ were down for the session 0.16% and 0.44%, respectively. On the day, the yield on the two-year maturity fell one bp, while the yield on the 10-year maturity fell two bps and the yield on the 30-year maturity was steady. The 10-year municipal-to-Treasury ratio rose to 74.8% on Monday from last Friday’s level of 74.0%, while the 30-year municipal-to-Treasury ratio was unchanged on Monday from last Friday’s level of 86.9%.

Last Tuesday prices on municipals strengthened, as a number of deals came to market, a day ahead of the FOMC decision on a possible interest rate cut. On the day, the yields on the two- and 30-year GO bonds each fell one bp, while the yield on the 10-year GO bond fell two bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed again, as U.S. stocks posted minimal losses for the session. On the day, the yields on the two- and 10-year maturities were each unchanged, while the yield on the 30-year maturity fell one bp. The 10-year municipal-to-Treasury ratio fell to 73.8% on Tuesday from Monday’s level of 74.8%, while the 30-year municipal-to-Treasury ratio slipped to 86.8% on Tuesday from Monday level of 86.9%.

Last Wednesday prices on municipals were steady, as the FOMC reduced the benchmark interest rate by a quarter point to about 2.25 percent, a modest and widely-expected move that is meant to keep the economy healthy in the face of head winds from President Trump’s trade war and slower growth overseas. On the day, the yields on the two-, 10-, and 30-year GO bonds were all unchanged, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed, as U.S. stocks posted losses for the session. The Dow fell as much as 450 points Wednesday before rebounding a bit following comments from Federal Reserve Chairman Jerome Powell which suggested the quarter-point rate cut that the Fed had approved earlier in the day was a one-off. The Dow finished the day down 1.2% while the S&P 500 and NASDAQ also tumbled more than 1.0% each for the session. On the day, the yield on the two-year maturity rose four bps, while the yield on the 10-year maturity fell four bps and the yield on the 30-year maturity fell five bps. The 10-year municipal-to-Treasury ratio rose to 75.3% on Wednesday from Tuesday’s levels of 73.8%, while the 30-year municipal-to-Treasury rose to 88.5% on Wednesday from Tuesday’s level of 86.8%.

Last Thursday prices on municipals were stronger, as the last of the week’s new-issue offerings came to market. On the day, the yields on the two- and 10-year GO bonds fell four bps each, while the yield on 30-year GO bond fell five bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices finished stronger, as U.S. stocks started the day up, but fall after President Trump announced additional traffics against China and closed down for the session. The Dow fell 1.05%, while the S&P was down 0.90% and the NASDAQ was down 0.79%. On the day, the yield on the two-year maturity fell 16 bps, while the yield on the 10-year maturity fell 12 bps and the yield on the 30-year maturity fell nine bps. The 10-year municipal-to-Treasury ratio rose to 77.9% on Thursday from Wednesday’s level of 75.3%, while the 30-year municipal-to-Treasury ratio rose to 89.8% on Thursday from Wednesday’s level of 88.5%.

Last Friday, prices on municipals were stronger, as market participants were looking ahead to the coming week’s $12.6B in new-issue offerings. On the day, the yield on the two-year GO bond fell two bps, while the yield on the 10-year GO bond fell four bps and the yield on the 30-year GO bond fell five 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. On the day, the yield on the two-year maturity fell one bp, while the yield on the 10-year maturity fell four bps and the yield on the 30-year maturity fell five bps. The 10-year municipal-to-Treasury ratio slipped to 77.4% on Friday from Thursday’s level of 77.9%, while the 30-year municipal-to-Treasury ratio slipped to 89.5% on Friday from Thursday’s level of 89.8%.


Taxable Market






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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