Muni Update

August 9, 2021


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


Municipal Market Recap

Municipal prices were mostly steady across the curve on Monday and Tuesday. On Wednesday municipal prices action was mixed, as prices in the front-end strengthened, while prices on bonds maturing 10 years and longer were steady. On Thursday’s municipal price were once again steady across the curve. On Friday municipal prices weakened across the curve.

The projected level of new-issue offerings for the trading week are $7.68B and coupled with bank qualified (BQ) and general market (GM) offerings in the secondary market should offer market participants with various 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 contribute to demand outpacing supply for the year which is helping keep interest rates low for issuers, and municipal performance strong.

For funds latest reporting period, investors in municipal bond funds put cash into funds for a 22nd week in a row, as tax-exempt weekly reporting funds data showed that funds experienced inflows of $1.228B in the latest week, after experiencing inflows of $1.394B the week prior. The four-week moving average was a positive at $1.647B, after being in the green at $1.913B the week prior.

Last week the yield on the two-year maturity on the MMD Triple-A Scale rose three basis points (bps) from Thursday to Friday and ended the week at 0.08%. Meanwhile, the yield on the 10-year maturity rose five bps and the yield on the 30-year maturity rose four bps on the MMD Triple-A Scale from Thursday to Friday and they ended the week at 0.87% and 1.43%, 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 rose five bps and the yield on the 30-year GO bond rose four bps.

Last week the yield on the two-year maturity on the MMA Triple-A Scale rose two bps from Thursday to Friday and ended the week at 0.09%. Meanwhile, the yields on the 10- and 30-year maturities each rose three bps on the MMA Triple-A Scale from Thursday to Friday and they ended the week at 1.10% and 1.65%, respectively. Overall, week-over-week the yield on the two-year GO bond was unchanged, while the yields on the 10- and 30-year GO bonds each rose one three bps.


New-Issue Volume is Forecasted to be $7.68B for the Trading Week

Total new-issue offerings for the trading week per IHS Markit Ipreo are estimated to be $7.68B. This week’s projected level of bond issuance is comprised of $6.16B in negotiated deals and $1.52B in competitive sales. The largest deal of the week will come on Wednesday, when the Allegheny County Airport Authority will price $823.55MM of Pittsburgh International Airport Alternative Minimum Tax (AMT) revenue bonds and non-AMT revenue bonds. The deal is comprised of $711.13mm of AMT bonds and $112.42MM of non-AMT. The deal is rated A2 by Moody’s Investors Service (Moody’s), A by Standard and Poor’s Global Ratings (S&P) and A+ by Fitch Ratings (Fitch). Also on Wednesday, the New York City Housing Development Corporations will offer $310.375MM of Multi-Family Housing Revenue Bonds, 2021 Series G-1 (Non-AMT) (Sustainable Development Bonds), 2021 Series G-2 (AMT) (Sustainable Development Bonds). The offerings are rated Aa2 by Moody’s and AA+ by S&P.

Other notable deals this week include the State of Maryland will price on $237.625MM of GO forward-delivery refunding bonds on Tuesday. The issue is rated Triple-A by Moody’s, S&P and Fitch. The Triborough Bridge and Tunnel Authority is set to price $450.0MM of MTA Bridges and Tunnels payroll mobility tax senior lien bonds on Thursday. Also on Thursday, the City of Lubbock, Texas is set to price $254.32MM of electric light and power system revenue bonds. The deal is rated A1 by Moody’s, and A+ by both S&P and Fitch.

Other offering from Texas issuers this week include but are not limited to the City of San Antonio, Texas which will offer $226.53MM of GO improvement bonds, comprised of combination tax and revenue certificates of participation and taxable combination tax and revenue certificates of obligation. The Del Valle Independent School District, Texas (PSF Guarantee) will offer $187.275MM of unlimited tax school building bonds, serials 2022-2041. The Bastrop Independent School District, Texas (PSF Guarantee) is set to price $170.395MM of unlimited tax school building bonds and refunding bonds. The City of Garland, Texas will offer $152.825MM of electric utility system taxable revenue refunding bonds. Friendship Independent School District, Texas (PSF Guarantee) is set to price $141.0MM of unlimited tax school building bonds. Finally, the Pecos-Barstow-Toyah Independent School District (PSF Guarantee) will price $111.79MM of unlimited tax school building bonds.

In the competitive arena, the Massachusetts Bay Transportation Authority is set to sell $328.0MM of subordinate sales tax sustainability bond anticipation notes at 10:45 a.m. Tuesday. The State of Maryland plans to sell $615.0MM of exempt and taxable unlimited tax GO bonds in three sales on Wednesday: $258.95MM at 10 a.m. eastern, $281.05MM at 10:30 a.m. and $75.0MM of taxable bonds at 11 a.m. eastern.


Municipal Bond Funds Posted Inflows for a 22nd Week in a Row

Investors in municipal bond put cash into funds for a 22nd week in a row, as tax-exempt weekly reporting funds experienced inflows of $1.228B in the latest week, after experiencing inflows of $1.394B the week prior. The four-week moving average remained positive at $1.647B, after being in the green at $1.913B the week prior.

Long-term municipal bond funds had inflows of $647.952MM in the latest week, after experiencing inflows of $573.189MM the week prior. Intermediate-term funds had inflows of $119.809MM after inflows of $50.669MM the week prior. National funds had inflows of $1.152B after experiencing inflows of $1.276B the week prior. High-yield municipal funds reported inflows of $492.181MM in the latest week, after inflows of $578.107MM the week prior. Exchange traded funds reported inflows of $121.931MM, after inflows of $483.129MM 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. As to redemption activity, for June, July and August, a net negative supply has existed, as over $150.0B is to either mature or be called during this time frame, which started on June 1st and continues on the 1st and 15th of these months.

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-, 10-, 15-, and 30-year maturities all tightened, with the largest tightening occurring in the five- and 10-year maturities, eight bps each.


Daily Overview of the General Market for the Week Ending August 6th

On Monday municipals prices were steady, as the first of the trading week’s $8.59B in new-issue debt was offered. On the day, the yields on the two-, 10-, and 30-year maturities were unchanged, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys strengthened on Monday, as U.S. stocks turned lower in the afternoon and closed out the session in the red, giving back some gains after a winning July. The Dow was down 97 points or 0.3%, while the S&P was down 0.2% and the NASDAQ was barely down 0.06%. On the day, the yield on the two-year maturity fell two bps, while the yield on the 10-year maturity fell four bps and the yield on the 30-year maturity fell three bps. The 10-year municipal-to-Treasury ratio rose to 68.3% on Monday from last Friday’s level of 66.1%, while the 30-year municipal-to-Treasury ratio slipped to 74.7% on Monday from last Friday’s level of 73.5%.

On Tuesday municipals prices were mostly steady, as market participates turned their attention to new-issue offerings, which included the $225.0MM of dock and wharf facility Jefferson Gulf Coast Energy Project revenue AMT bonds by the Port of Beaumont Navigation District of Jefferson County, Texas and the $214.235MM of Northwestern Memorial Healthcare revenue refunding bonds by the Illinois Finance Authority. In the competitive arena the Florida Department of Transportation sold $229.835MM of turnpike revenue bonds and Williamson County, Texas, sold $175.5MM of limited tax notes. 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 Tuesday, while U.S. stocks rose for the session, as investors’ growth concerns and worries over the Delta variant’s spread were temporarily outweighed by optimism over a batch of better-than-expected quarterly earnings results. The Dow was up 278 points or 0.8%, while the S&P was also up 0.8% and the NASDAQ was up 0.6%. On the day, the yield on the two-year maturity unchanged, while the yields on the 10- and 30-year maturities each fell one bp. The 10-year municipal-to-Treasury ratio rose to 68.9% on Tuesday from Monday’s level of 68.3%, while the 30-year municipal-to-Treasury ratio rose to 75.1% on Tuesday, from Monday’s level of 74.7%.

Last Wednesday municipals prices were mixed, as a number of new-issue offerings came to market including the institutional pricing of the $930.895MM offering by the New York City Transitional Finance Authority of future tax-secured subordinate refunding bond, the $133.895MM offering by Whittier, California, of taxable pension obligation bonds and the $94.9MM offering by Virginia Beach, Virginia, of GO public improvement bonds to name a few. On the day, the yield on the two-year GO bond fell 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 were also mixed on Wednesday, as were U.S. stocks for the session. Investors weighed concerns over the economic impact of the ongoing pandemic against optimism over rebounding corporate earnings to push two of three indices down. The Dow was down 323 points or 0.9%, while the S&P was down 0.5% and the NASDAQ was barley up 0.1%. On the day, the yields on the two- and 10-year maturities were unchanged, while the yield on the 30-year maturity fell two bps. The 10-year municipal-to-Treasury ratio was unchanged on Wednesday from Tuesday’s level of 68.9%, while the 30-year municipal-to-Treasury ratio rose to 76.0% on Wednesday from Tuesday’s level of 75.1%.

Last Thursday municipals prices were steady, as the last of the week’s new-issue offerings came to market including the $168.282MM offering of GO unlimited tax school bonds, by the Clifton, New Jersey, Board of Education and the $150.97MM offering for Phoenix Children’s Hospital of forward delivery bonds by the Arizona Industrial Development Authority. 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 weakened on Thursday, while U.S. stocks rose for the session, as investors digested more quarterly earnings results and new data on the labor market’s recovery. The Dow was up 272 points or 0.8%. The S&P was up 0.6%, while the NASDAQ was up 0.8%. On the day, the yields on the two- and 10-year maturities each rose four bps, while the yield on the 30-year maturity rose three bps. The 10-year municipal-to-Treasury ratio fell to 66.7% on Thursday from Wednesday’s level of 68.9%, while the 30-year municipal-to-Treasury ratio fell to 74.7% on Thursday from Wednesday’s level of 76.0%.

Last Friday municipal prices weakened following a stronger-than-expected jobs report in the morning, and market participants looked ahead to $7.68B in expected new-issue offerings in the upcoming trading week. On the day, the yield on the two-year GO bond rose three bps, while the yield on the 10-year GO bond rose five bps and the yield on the 30-year GO bond rose four bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were mixed on Friday, as were U.S. stocks for the session.  The Dow rose 144 points or 0.4%, while the S&P was up 0.2% and the NASDAQ was down 0.4%. On the day, the yield on the two-year maturity was unchanged, while the yields on the ten- and 30-year maturities each rose eight bps. The 10-year municipal-to-Treasury ratio slipped to 66.4% on Friday from Thursday’s level of 66.7%, while the 30-year municipal-to-Treasury ratio fell to 73.7% on Friday from Thursday’s level of 74.7%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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