Muni Update

December 20, 2021


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


Municipal Market Recap

Municipal prices were steady on a daily basis through Thursday. Also, on Tuesday the Federal Open Market Committee (FOMC) started its two-day meeting, and on Wednesday the FOMC voted unanimously to keep its overnight target rate range unchanged at 0.00-0.25% and announced they would double the pace of the reduction of its monthly asset purchases from $15.0B to $30.0B. On Friday municipal prices were mixed, as prices on municipal bonds in the front-end strengthened, while prices on bonds maturing 10 years and longer were steady.

Last week, a new record issuance in the municipal bond market was made. The 2021 YTD sales tallied $455.8B as of December 15, 2021, edging last year’s historic pace, per Bloomberg. Issuers may have pushed issuance up for two reasons: concerns over rate volatility next year given the outlook for the Federal Reserve policy, but borrowers may also have boosted sales after tiring of waiting for the return of advance refunding or a Build America Bonds-type program.

For the Christmas Holiday shortened trading week the projected level of new-issue offerings is just $558.8MM, which will have market participants looking for opportunities in both the bank qualified (BQ) and general market (GM) secondary market to fill their needs. This will be especially true over the next two holiday shortened trading weeks.

For funds latest reporting period, investors in municipal bond funds put cash into funds for a 41st week in a row, as tax-exempt weekly reporting funds data showed that funds experienced inflows of $763.839MM in the latest week, after experiencing inflows of $803.635MM the week prior. The four-week moving average was positive at over $580.813MM, after being in the green at $739.640MM the week prior.

Last week the yield on the two-year maturity on the MMD Triple-A Scale fell one basis point (bp) from Thursday to Friday and ended the week at 0.24%. Meanwhile, the yields on the 10- and 30-year maturities on the MMD Triple-A Scale were unchanged from Thursday to Friday and they ended the week at 1.03% and 1.48%, respectively. Overall week-over-week the yield on the two-year general obligation (GO) bond fell one 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 were unchanged.


New-Issue Volume is Forecasted to be $558.8MM for the Trading Week

Total new-issue offerings for the trading week per IHS Markit Ipreo are estimated to be $558.8MM. This week’s projected level of bond issuance is comprised of $494.7MM in negotiated deals and $64.2MM in competitive deals.


Municipal Bond Funds Posted Inflows for a 41st Week in a Row

Investors in municipal bond put cash into funds for a 41st week in a row, as tax-exempt weekly reporting funds experienced inflows of $763.839MM in the latest week, after experiencing inflows of $803.635MM the week prior. The four-week moving average remained positive at $580.313MM after being in the green at $739.640MM the week prior.

Long-term municipal bond funds had inflows of $682.494MM in the latest week, after experiencing inflows of $978.924MM the week prior. Intermediate-term funds had inflows of $76.268MM after inflows of $194.386MM the week prior. National funds had inflows of $749.242MM after experiencing inflows of $825.164MM the week prior. High-yield municipal funds reported inflows of $482.915MM in the latest week, after inflows of $702.289MM the week prior. Exchange traded funds reported inflows of $478.797MM, after inflows of $24.516MM the week prior.


Demand in the Bank Qualified (BQ) Market Remains Strong

Over the next two holiday shortened trading week’s BQ participants will have to look to the secondary market for either BQ or general market (GM) opportunities to fill their needs, as new-issue supply is non-existent at this time of year. Significant demand was the story this year and is expected to continue into 2022 and be driven by needing to replacement rolloffs/redemptions and demand for funds.

At this time of year, 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 widened across the curve, with the largest widening occurring in the 10-year maturity, 15 bps.


Daily Overview of the General Market for the Week Ending December 17th

On Monday municipals prices were steady, as the first of the trading week’s $8.5B in new-issue debt was offered and market participants looked to Wednesday for the FOMC announcement. 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, while U.S. stocks fell for the session, ahead of the FOMC’s monetary policy decision later in the week. The Dow was down 320 points or 0.9%. The S&P was also down 0.9%, while the NASDAQ was down 1.4%. On the day, the yield on the two-year maturity fell one bp, while the yield on the 10-year maturity fell six bps and the yield on the 30-year maturity fell seven bps. The 10-year municipal-to-Treasury ratio rose to 72.5% on Monday from last Friday’s level of 69.6%, while the 30-year municipal-to-Treasury ratio rose to 81.8% on Monday from last Friday’s level of 78.7%.

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 $800.0MM offering of GO bonds by the State of Connecticut in two tranches and the $641.0MM of liberty revenue refunding bonds, 1WTC-2021, by the New York Liberty Corporation to name a few. 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 on Tuesday, while U.S. stocks fell for the session. The Dow was down 105 points or 0.3%, while the S&P was down 0.7% and the NASDAQ was down 1.1%. On the day, the yields on the two- and 30-year maturities each rose one bp, while the yield on the 10-year maturity rose two bops. The 10-year municipal-to-Treasury ratio fell to 71.5% on Tuesday from Monday’s level of 72.5%, while the 30-year municipal-to-Treasury ratio fell to 81.3% on Tuesday from Monday’s level of 81.8%.

On Wednesday municipals prices were steady again, as investors digested the FOMC voting unanimously to keep their target overnight rate range unchanged at 0.00-0.25% but to double the pace of reductions of its monthly asset purchases from $15.0B to $30.0B. On the issuance front, a number of new-issue offerings came to market and were well received, as demand continues to be strong. 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 again on Wednesday, as U.S. stocks seesawed for the session; falling in the morning before posting gains for the session. The Dow was up 383 points or 1.1%, while the S&P was up 1.6% and the NASDAQ was up 2.2%. On the day, the yield on the two-year maturity rose two bps, while the yield on the 10-year maturity rose three bps and the yield on the 30-year maturity rose four bps. The 10-year municipal-to-Treasury ratio fell to 70.1% on Wednesday from Tuesday’s level of 71.5%, while the 30-year municipal-to-Treasury ratio fell to 79.6% on Wednesday from Tuesday’s level of 81.3%.

Last Thursday municipals prices were steady, as the last of the week’s new-issue offerings came to market. 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 on Thursday, as U.S. stocks barely fell for the session. The Dow was barley down 25 points or 0.1%, while the S&P was down 0.7% and the NASDAQ was down just 0.1% also. On the day, the yield on the two-year maturity fell five bps, while the yield on the 10-year maturity fell three bps and the yield on the 30-year maturity rose one bp. The 10-year municipal-to-Treasury ratio rose to 71.5% on Thursday from Wednesday’s level of 70.1%, while the 30-year municipal-to-Treasury ratio fell to 79.1% on Thursday from Wednesday’s level of 79.6%.

Last Friday municipals prices were mixed, as market participants looked ahead to the end of year holiday-shortened trading week’s and little to no new-issue supply. 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.

U.S. Treasury prices were mixed, while U.S. stocks fell for the session. The Dow was down 532 points or 1.5%, while the S&P was down 1.0% and the NASDAQ was barely down at 0.1%. 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 rose fell five bps. The 10-year municipal-to-Treasury ratio rose to 73.1% on Friday from Thursday’s level of 71.5%, while the 30-year municipal-to-Treasury rose to 81.3% on Friday from Thursday’s level of 79.1%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks

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