Muni Update

December 13, 2021


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


Municipal Market Recap

Municipal prices were steady on a daily basis through Wednesday. On Thursday municipal prices were mixed, as prices on municipal bonds in the front end weakened, while prices on bonds maturing 10 years and longer were steady. On Friday municipal prices across the curve were steady again.

This week, the last full week of trading before the end of year holidays, has the projected level of new-issue offerings at $8.5B for the trading week. Couple this level of new-issue offerings with bank qualified (BQ) and general market (GM) offerings in the secondary market, and market participants should have a number of 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 and inflows into funds, as both continue to be solid and contribute to demand outpacing supply for the year.

For funds’ latest reporting period, investors in municipal bond funds put cash into funds for a 40th week in a row, as tax-exempt weekly reporting funds data showed that funds experienced inflows of $803.635M in the latest week, after experiencing inflows of $36.005MM the week prior. The four-week moving average was positive at over $739.640MM, after being in the green at $1.013B 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 they ended the week at 0.25%, 1.03%, and 1.48%, respectively. Overall week-over-week the yield on the two-year general obligation (GO) bond rose one basis point (bp), while the yields on the 10- and 30-year GO bonds were unchanged.

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 0.20%, 1.26% and 1.76%, respectively. Overall, week-over-week the yields on the two-, 10-, and 30-year GO bonds each rose one bp.


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

Total new-issue offerings for the trading week per IHS Markit Ipreo is estimated to be $8.5B. This week’s projected level of bond issuance is comprised of $8.13B in negotiated deals and $367.4MM in competitive deals. The largest deal of the week in the negotiated arena will come from the State of Connecticut, which is set to price $800.0MM of GO bonds; consisting of $500.0MM of GO bonds, Series 2022A, and $300.0MM of social GO bonds, Series 2022B on Tuesday. The offerings are rated Aa3 by Moody’s Investors Service (Moody’s), A+ by Standard and Poor’s Global Ratings (S&P), AA- by Fitch Ratings (Fitch), and AA by Kroll Bond Rating Agency (KBRA).

Other major deals all scheduled for Tuesday include but are not limited to a $672.48MM offering of liberty revenue refunding bonds, 1WTC-2021 by the New York Liberty Development Corporation. The deal is rated Aa3 by Moody’s, and A+ by S&P and Fitch. The Florida Development Finance Corporation is set to price $500.0MM of revenue bonds (Brightline Florida Passenger Rail Expansion Project), Series 2021A. The deal is rated Tiple-A by Moody’s. Broward County, Florida, is set to price $489.82MM of tourist development tax revenue bonds, Series 2021 (Convention Center Expansion Project). The deal is rated Aa3 by Moody’s. Atlanta, Georgia is set to price $193.485MM, consisting of $3.265MM of various purpose GO bonds, Series 2021B, and $190.22MM of taxable GO refunding bonds, Series 2021C. The deal is rated Aa1 by Moody’s and AA+ by Fitch. Finally, Tunica County, Mississippi, is set to price $155.685MM of urban renewal revenue bonds (Southern Celebration Boulevard Project), consisting of $148.8MM of Series A and $6.885MM of Series B.

Also, this week, Quincy, Massachusetts, is set to price $475.0MM of taxable GO pension bonds, serials 2022-2039. The deal is rated AA by S&P. On Wednesday the Port Authority of New York and New Jersey is set to price $420.0MM of taxable consolidated bonds. The deal is rated Aa3 by Moody’s and A+ by S&P and Fitch. Bexar County, Texas, is set to price $328.905MM of unlimited tax taxable refunding bonds, consisting of $7.975MM, Series S21A; $33.62MM, Series S21B and $287.31MM, Series S21C. Finally, this week, on the day-to day calendar is the $177.97MM offering of (NewLife Forest Restoration Project), consisting of $110.045MM of senior federally taxable sustainability-linked revenue bonds, Series 2021A, and $67.925MM of subordinate federally taxable sustainability-linked revenue bonds, Series 2021B by the Arizona Industrial Development Authority.


Municipal Bond Funds Posted Inflows for a 40th Week in a Row

Investors in municipal bond put cash into funds for a 40th week in a row, as tax-exempt weekly reporting funds experienced inflows of $803.635MM in the latest week, after experiencing inflows of $36.005MM the week prior. The four-week moving average remained positive at $739.640MM after being in the green at $1.013B the week prior.

Long-term municipal bond funds had inflows of $978.924MM in the latest week, after experiencing inflows of $120.353MM the week prior. Intermediate-term funds had inflows of $194.386MM after outflows of $114.018MM the week prior. National funds had inflows of $825.164MM after experiencing inflows of $112.065MM the week prior. High-yield municipal funds reported inflows of $702.289MM in the latest week, after inflows of $53.250MM the week prior. Exchange traded funds reported inflows of $24.516MM, after inflows of $37.124MM 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. The exceptional level of demand experienced throughout year has been driven by replacement of rolloffs/redemptions and demand for funds and has had the municipal market dealing with a supply-demand imbalance throughout the majority of the year.

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 and clean-up any odd lots (on-going monitoring of line items), as well as credit clean-up for any credits on negative credit watches or recent downgrades. Finally, extension swaps present an opportunity to sell short duration municipals and extend on out the yield curve, while maintaining or improving the overall credit quality of the portfolio, especially, as overall credit quality continues to stabilize and improve in the municipal market. Week over week, BQ spreads tightened across the curve, with the largest tightening occurring in the 30-year maturity, 27 bps.


Daily Overview of the General Market for the Week Ending December 10th

On Monday municipals prices were mostly steady across the curve, as the first of the trading week’s $15.14B 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 weakened on Monday, while U.S. stocks rose for the session. The Dow was up 648 points or 1.9%, while the S&P was up 1.2% and the NASDAQ was up 0.9%. On the day, the yield on the two-year maturity rose five bps, while the yield on the 10-year maturity rose eight bps and the yield on the 30-year maturity rose six bps. The 10-year municipal-to-Treasury ratio fell to 72.0% on Monday from last Friday’s level of 76.3%, while the 30-year municipal-to-Treasury ratio fell to 84.6% on Monday from last Friday’s level of 87.6%.

On Tuesday municipals prices were steady across the curve once again, as a few of the week’s new-issue offerings came to market including the $2.799B offering of taxable bonds by the Golden State Tobacco Securitization Corporation, consisting of $2.274B of Series 2021A-1 and $525.0MM of subordinate taxable Series 2021B-1. In addition, the Golden State Tobacco Securitization Corporation also sold $1.387B of tobacco settlement asset-backed bonds, Series 2021B-2 subordinate capital appreciation zero coupon bonds. 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 weakened for a second day in a row on Tuesday, while U.S. stocks rose for the session, as volatility stemming from concerns about the Omicron variant are for the moment abating. The Dow was up 492 points or 1.4%, while the S&P was up 2.1% and the NASDAQ was up 3.0%. On the day, the yields on the two-, 10- and 30-year maturities each rose five bps. The 10-year municipal-to-Treasury ratio fell to 69.6% on Tuesday from Monday’s level of 72.0%, while the 30-year municipal-to-Treasury ratio fell to 82.2% on Tuesday from Monday’s level of 84.6%.

On Wednesday municipals prices were steady again, as market participants were focused on the new-issue market and the variety of new-issue offerings that were priced. Leading the way was the $605.0MM offering of taxable senior lien tolls road refunding revenue bonds, by the San Joaquin Hills Transportation Corridor Agency. The deal was insured by Assured Guaranty. The San Joaquin Hills Transportation Corridor Agency also priced $97.1MM of senior lien tolls road revenue bonds. 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 Wednesday, as U.S. stocks seesawed for the session; falling in the morning before posting gains for a third day in a row by the close of the session. The Dow was up 35 points or 0.1%, while the S&P was up 0.3% 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 rose four bps and the yield on the 30-year maturity rose seven bps. The 10-year municipal-to-Treasury ratio fell to 67.8% on Wednesday from Tuesday’s level of 69.6%, while the 30-year municipal-to-Treasury ratio fell to 79.1% on Wednesday from Tuesday’s level of 82.2%.

Last Thursday municipals prices were mixed, as the last of the week’s new-issue offerings came to market. 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 steady, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were mixed on Thursday, as were U.S. stocks for the session. The Dow was essentially unchanged on the session, while the S&P was down 0.7% and the NASDAQ was down 1.7%. On the day, the yield on the two-year maturity rose two bps, while the yield on the 10-year maturity fell three bps and the yield on the 30-year maturity was unchanged. The 10-year municipal-to-Treasury ratio rose to 69.1% on Thursday from Wednesday’s level of 67.8%, while the 30-year municipal-to-Treasury ratio was unchanged on Thursday from Wednesday’s level of 79.1%.

Last Friday municipals prices were steady, as market participants looked ahead to the $8.5B in expected new-issue offerings in the last full trading week of the year. 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 were mixed, while U.S. stocks rose for the session, as investors shrugged off a key inflation report ahead of the Federal Reserve’s final policy-setting meeting of the year next week. The Dow was up 216 points or 0.6%, while the S&P was up 0.9% and the NASDAQ was up 0.7%. On the day, the yield on the two-year maturity fell three bps, while the yield on the 10-year maturity fell one bp and the yield on the 30-year maturity rose one bp. The 10-year municipal-to-Treasury ratio rose to 69.6% on Friday from Thursday’s level of 69.1%, while the 30-year municipal-to-Treasury fell to 78.7% on Friday from Thursday’s level of 79.1%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks

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