Muni Update

December 10, 2018


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

 

Municipal Market Recap

 

Monday saw prices on municipals start the week steady across the curve. On Tuesday prices strengthened across the curve. On Wednesday the markets were closed as part of the National Day of Mourning for the passing of President George H.W. Bush. On Thursday prices strengthened across the curve. On Friday prices were mixed, as the front-end was steady, while bonds maturing 10 years and longer weakened. Issuance for the trading week is projected to be $8.1B, which is above last week’s $6.4B in issuance, according to revised data from Thomson Reuters. This increase in new issue volume coupled with bid lists should provide market participants with opportunities to fill their needs.

Municipal bond funds reported investors pulled cash out for a eleventh week, as weekly reporting funds experienced outflows of $692.041MM, after experiencing outflows of $378.623MM the week prior. The four-week moving average was a negative $383.506MM, after being in a negative $274.449MM the week prior. Investors still facing low rates overseas continue to find higher-yielding U.S. assets attractive. 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 on the MMD Triple-A Scale was unchanged from Thursday to Friday and ended the week at 1.83%. Meanwhile, the yield on the 10-year maturity rose one bp, while the yield on the 30-year maturity rose two bps on the MMD Triple-A Scale from Thursday to Friday and they ended the week at 2.38% and 3.10%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond fell nine bps, while the yield on the 10-year GO bond fell 13 bps and the yield on the 30-year GO bond fell 12 bps.

Last week the yield on the two-year maturity on the MMA Triple-A Scale rose one bp from Thursday to Friday and ended the week at 1.84%. Meanwhile, the yields on the 10- and 30-year maturities each rose two bps on the MMA Triple-A Scale from Thursday to Friday and they ended the week at 2.57% and 3.21%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond fell six bps, while the yields on the 10- and 30-year GO bonds each fell seven bps.

 

New Issue Volume is Forecasted to be Just Under $8.1B for the Trading Week

Total issuance for the trading week is estimated to be just under $8.1B, which is above last week’s trading volume of $6.4B in issuance, according to revised data from Thomson Reuters. This week’s trading calendar is comprised of $6.9B in negotiated offerings and $1.2B in competitive offerings.

Topping the calendar this week is the $1.7B deal from the Dormitory Authority of the State of New York (DASNY). Lynch is set to price the DASNY will offer state   personal income tax revenue bonds (PITs) on Tuesday. The offering consists of Series 2018A tax-exempt PITs and Series 2018B taxable PITs. The deal is rated Aa1 by Moody’s Investors Service (Moody’s) and AA+ by S&P Global Ratings (S&P). Also on Tuesday, the Illinois State Toll Highway Authority plans to offer $430.0MM of Series 2018A refunding senior revenue bonds. The deal is rated Aa3 by Moody’s and AA- by S&P and Fitch Ratings (Fitch).

On Wednesday the Municipal Electric Authority of Georgia (MEAG) plans to offer $271.0MM of Series 2018A general power revenue bonds. The deal is rated A1 by Moody’s and A- by Fitch.

In the competitive arena on Tuesday, the Washington Suburban Sanitary District, Maryland plans to offer $390.0MM of consolidated public improvement bonds of 2018. Proceeds will be used to finance various water and sewer improvements. The deal is rated triple-A by Moody’s, S&P and Fitch.

 

Municipal Bond Funds Post Outflows for a Eleventh Straight Week

Municipal bond funds posted outflows for an eleventh week, as market participants pulled cash out of funds for the week, according to the latest data from Lipper. The weekly reporting funds saw outflows of $692.041MM, after experiencing outflows of $378.623MM the week prior. The four-week moving average was a negative $383.506MM, after being a negative $274.449MM the week prior.

Long-term municipal bond funds had outflows of $516.300MM in the latest week after experiencing outflows of $315.870MM the week prior. Intermediate-term funds had outflows of $256.528MM after outflows of $183.646MM the week prior. National funds had outflows of $503.919MM after experiencing outflows of $275.862MM the week prior. High-yield municipal funds reported outflows of $146.985MM in the latest week, after outflows of $85.331MM the week prior. Exchange traded funds reported inflows of $257.596MM, after inflows of $34.818MM the week prior.

 

Demand in the Bank Qualified (BQ) Market Remains Strong

The BQ market continues to see decent two-way flows with both buying and selling from market participants. For banks, with January 1st and January 15th being large rolloff dates, BQ participants should be looking to address their coming needs while picking up attractive structures, especially those in the long-end of the curve which are presenting chances to pick up higher coupons. Participants should also continue to utilize extension swaps and perform portfolio cleanup, as the bid side for municipals continues to remain strong. Week-over-week, bank qualified spreads tightened in all maturities across the curve, with the largest tightening occurring in the two-year maturity, 18 bps.

 

Daily Overview of the General Market for the Week Ending December 7th

Last Monday prices on municipals were steady, as market participants were looking forward to the projected almost $9.0B in new money offerings for the week. On the day, the yields on the two-, 10- and 30-year GO bonds were steady, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasuries were mixed, as stocks closed in positive territory, although final levels were well off the early highs of the session. On the day, the yield on the two-year maturity rose three bps, while the yields on the 10- and 30-year maturities each fell three bps. The 10-year municipal-to-Treasury ratio rose to 84.2% on Monday from last Friday’s level of 83.4%, while the 30-year municipal-to-Treasury ratio rose to 98.5% on Monday from last Friday’s level of 97.6%.

Last Tuesday prices on municipals were stronger, as a number of deals including the big Chicago O’Hare Airport deal and the City of Detroit’s GO bond offering.  On the day, the yield on the two-year GO bond fell four bps, while the yields on the 10- and 30-year GO bonds each fell eight bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasuries were also stronger, as U.S. stocks sold off sharply just a day after certain spans of the Treasury curve inverted for the first time since the recession and amid uncertainty about U.S. trade and monetary policy. On the day, the yield on the two-year maturity fell three bps, while the yield on the 10-year maturity fell seven bps and the yield on the 30-year maturity fell 11 bps. The 10-year municipal-to-Treasury ratio fell to 83.5% on Tuesday from Monday’s level of 84.2%, while the 30-year municipal-to-Treasury ratio rose to 99.4% on Tuesday from Monday’s level of 98.5%.

Last Thursday prices on municipals were stronger, as a number of new offerings hit the market. On the day, the yield on the two-year GO bond fell five bps, while the yields on the 10- and 30-year GO bonds each fell six bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices also finished the day stronger, as stocks sank in the morning as uncertainty intensified and global equities sold off. In the afternoon the Down and S&P were able to par most of their losses, while the NADAQ posted positive results for the session. On the day, the yield on the two-year maturity fell five bps, while the yield on the 10-year maturity fell four bps and the yield on the 30-year maturity fell two bps. The 10-year municipal-to-Treasury ratio fell to 82.6% on Thursday from Tuesday’s level of 83.5%, while the 30-year municipal-to-Treasury ratio fell to 98.1% on Thursday from Tuesday’s level of 99.4%.

Last Friday prices on municipals were mixed, as market participants were looking ahead to the coming trading week’s $8.1B in new issue bond volume. On the day, the yield on the two-year GO bond was steady, while the yield on the 10-year GO bond rose one bp and the yield on the 30-year GO bond rose two bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices finished the day mixed, as U.S. stock prices fell for the session. On the day, the yield on the two-year maturity fell three bps, while the yield on the 10-year maturity fell two bps and the yield on the 30-year maturity was unchanged. The 10-year municipal-to-Treasury ratio rose to 83.5% on Friday from Thursday’s level of 82.6%, while the 30-year municipal-to-Treasury ratio rose to 98.7% on Friday from Thursday’s level of 98.1%.





 

Taxable Market



Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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