Muni Update

December 2, 2019


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


Municipal Market Recap

Municipal prices started the week steady across the curve. On Tuesday prices strengthened across the curve. On Wednesday and Friday municipal prices were steady across the curve. Issuance for the trading week is forecasted to be $17.4B, making it the largest week of projected issuance for the year. This week’s projected issuance tighter with secondary market opportunities should provide market participants with numerous opportunities to meet demand, 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.

Due to the holiday last week data on funds is limited, and as of the writing of this report, it has been revealed that Municipal-bond mutual funds added about $2.36B of new money during last week. Making it the largest inflow since records began in 1992, according to Refinitiv Lipper US Fund Flows data. This marks the 47th straight week that investors have poured money into tax-exempt debt funds.

Investors still facing low or negative 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, including Investors plowing billions into municipal-bond mutual funds, as investors seek to reduce their tax burden should have both traditional and non-traditional market participants continuing to look for opportunities in the U.S. municipal market.

Last week the yields on the two-, 10-, and 30-year maturities on the MMD Triple-A Scale were unchanged from Wednesday to Friday and they ended the week at 1.07%, 1.47%, and 2.06%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond fell two basis points (bps), while the yields on the 10- and 30-year GO bonds each fell three bps.

Last week the yields on the two-, 10-, and 30-year maturities on the MMA Triple-A Scale were unchanged from Wednesday to Friday and they ended the week at 1.17%, 1.57%, and 2.18%, respectively. Overall, week-over-week the yield on the two-year GO bond fell two bps, while the yield on the 10-year GO bond fell three bps and the yield on the 30-year GO bonds each fell four bps.


New-Issue Volume is Forecasted to be Just Over $17.4B for Trading Week

Total new issuance for the trading week per IHS Markit Ipreo is estimated to be $17.4B, which will make it the largest week of new issue volume for the year. Note, to date November 4th is currently the biggest week of new issue volume in 2019, with almost $12.9B in new debt issued. The calendar consists of $14.8B of negotiated deals and $2.7B of competitive sales.

The biggest issue of the week will come from the New Jersey Transportation Trust Fund Authority, when it issues $2.3B of transportation system bonds. The deal consists of $1.689B of Series 2019B taxable and $634.455MM of tax-exempts. The deal is set to price the bonds on Thursday. Proceeds will refund outstanding debt. The deal is rated Baa1 by Moody’s Investors Service (Moody’s), BBB+ by Standard and Poor’s Global Ratings (S&P), and A- by Fitch Ratings (Fitch).

The District of Columbia’s Metropolitan Washington Airports Authority plans to offer $1.7B of revenue and refunding bonds in two deals this week. The deal is rated Baa2 by Moody’s and A- by S&P. Also this week the Michigan Finance Authority plans to offer $1.119B of taxable hospital revenue refunding bonds for the Trinity Health Credit Group. The deal is rated Aa3 by Moody’s and AA- by S&P and Fitch.

In the competitive arena, Nassau County, New York is selling $325.94MM of notes and bonds in three offerings on Monday. The deals consist of $105.93MM of Series 2019B general improvement GO bonds, $120.0MM of Series 2019A tax anticipation notes (TANs), and $100.0MM of Series 2019B bond anticipation notes (BANs). Proceeds will fund various county purposes and refinance outstanding notes.


Municipal Bond Funds Post Inflows for a 47th Week

Due to the holiday last week, data on funds is limited. However, it has been reported that Municipal-bond mutual funds added about $2.36B of new money during last week. Making last week’s inflow level the largest inflow since records began in 1992, according to Refinitiv Lipper US Fund Flows data. This marks the 47th straight week that investors have poured money into tax-exempt debt funds.


Demand in the Bank Qualified (BQ) Market Remains Strong

BQ market participants expect demand, despite the jump in issuance this week, to continue to outpace supply and therefore will focus on opportunities in both the primary and secondary markets. BQ participants continue to have significant demand for municipal paper due in large part to having to replace monthly rolloffs due to redemptions. BQ participants continue to find attractive opportunities in the new issue market both in size and structure (20+ year maturity range) in both BQ and in general market paper, due in part to the lower tax rates from tax reform and attractive yields on general market paper due to the sell-off last week.

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 with little to no drop-off in credit quality. Also participants should be looking at credit clean-up of their portfolio in this current environment. Week-over-week, bank qualified spreads tightened across the curve, with the largest tightening occurring in the 10-year maturity, seven bps.


Daily Overview of the General Market for the Week Ending November 29th

Last Monday prices on municipals were steady, as market participants prepped for the $1.47B of new issue paper scheduled for the week. 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 gains for the session and reached new all-time highs on hopes that China’s announced plan over the weekend to strengthen protection for intellectual property rights is a possible olive branch being extended to the U.S., which could potentially help push a phase-one trade deal closer to the finish line. The Dow was up 0.68%, while the S&P rose 0.75% and the NASDAQ rose 1.32%. On the day, the yield on the two-year maturity was unchanged, while the yields on the 10- and 30-year maturities each fell one bp. The 10-year municipal-to-Treasury ratio rose to 85.2% on Monday from last Friday’s level of 84.8%, while the 30-year municipal-to-Treasury ratio rose to 94.6% on Monday from last Friday’s level of 94.1%.

Last Tuesday prices on municipals strengthened, as all the new issue offerings for the week came to market which will leave remaining market participants this holiday-shortened trading week looking to the secondary market for opportunities the rest of the week. On the day, the yield on the two-year GO bond fell two bps, while the yields on the 10- and 30-year GO bonds each fell three bps each, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were also stronger, as U.S. finished the session higher in part due to optimism that a trade deal may soon be accomplished. The Dow was up 0.20%, while the S&P rose 0.22% and the NASDAQ was up 0.18%.  On the day, the yields on the two- and 30-year maturities each fell three bps, while the yield on the 10-year maturity fell two bps. The 10-year municipal-to-Treasury ratio fell to 84.5% on Tuesday from Monday’s level of 85.2%, while the 30-year municipal-to-Treasury slipped to 94.5% on Tuesday from Monday’s level of 94.6%.

Last Wednesday municipal prices were steady across the curve, ahead of the Thanksgiving Holiday. 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, as U.S. stocks posted gains on mixed economic data. The Dow and the S&P closed up 0.15% and 0.42%, respectively, while the NASDAQ was up 0.66%. On the day, the yield on the two-year maturity fell rose five bps, while the yield on the 10-year maturity rose three bps and the yield on the 30- year maturity rose one bp. The 10-year municipal-to-Treasury ratio fell to 83.1% on Wednesday from Tuesday’s level of 84.5%, while the 30-year municipal-to-Treasury ratio fell to 94.1% on Wednesday from Tuesday’s level of 94.5%.

On Friday holiday shortened trading day prices on municipals were once again steady, as market participants were looking ahead to the record-setting $17.4B in new issue long-term debt forecasted to be offered. 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, as U.S. stocks posted losses for the session. The Dow and S&P both fell 0.40%, while the NASDAQ fell 0.46%. 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 rose tow bps. The 10-year municipal-to-Treasury ratio fell to 82.6% on Friday from Wednesday’s level of 83.1%, while the 30-year municipal-to-Treasury ratio fell to 93.2% on Friday from Wednesday’s level of 94.1%.


Taxable Market






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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