Muni Update

December 6, 2021


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


Municipal Market Recap

Municipal prices were steady on Monday across the curve. On Tuesday municipal prices were mixed, as prices on bonds in the front-end were steady, while prices on bonds maturing 10 years and longer strengthened. For the rest of the week on a daily basis, municipal prices were steady.

For November municipal bond issuance rose 58.3% year-over-year, as fears over rising rates drove issuers into the market. Total volume for November was $33.818B on 896 deals versus $21.359B on 895 issues a year earlier. Still, overall yearly volume through the first 11 months of 2021 is just $431.667B, which is down 4% from the $449.828B in volume through the end of November 2020. Many market participants do not expect 2021’s total annual volume to surpass 2020’s level of $484.0B plus, due in large part to December’s two holiday-shortened trading weeks.

This week, one of the last two full weeks of trading before the end of year holidays, has new-issue offerings ramp up to $15.14B 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 numerous 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 39th week in a row, as tax-exempt weekly reporting funds data showed that funds experienced inflows of $36.005M in the latest week, after experiencing inflows of $719.772MM the week prior. The four-week moving average was positive at over $1.013B, after being in the green at $1.155B 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 0.24%, 1.03%, and 1.48%, respectively. Overall week-over-week the yield on the two-year general obligation (GO) bond was unchanged, while the yields on the 10- and 30-year GO bonds each fell three basis points (bps).

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 0.19%, 1.28%, and 1.79%, respectively. Overall, week-over-week the yield on the two-year GO bond was unchanged, while the yield on the 10-year GO bond fell three bps and the yield on the 30-year GO bond fell fur bps.


New-Issue Volume is Forecasted to be $15.14B for the Trading Week

Total new-issue offerings for the trading week per IHS Markit Ipreo is estimated to be $15.14B. This week’s projected level of bond issuance is comprised of $13.75B in negotiated deals and $1.39B in competitive deals. The largest deal of the week in the negotiated arena will come on Tuesday, when the Golden State Tobacco Securitization Corporation offers $2.747B of taxable bonds comprised of $2.235B of Series 2021A-1 bonds and $512.5MM of subordinate taxable Series 2021B-1 bonds. Also on Tuesday, the Golden State Tobacco Securitization Corporation plans to offer $1.445B of tobacco settlement asset-backed bonds, Series 2021B-2 subordinate capital appreciation bonds.

Other deals set to price on Tuesday include but are not limited to the following offerings. The Bay Area Toll Authority plans to price $276.715MM of San Francisco Bay Area Toll Bridge revenue bonds, consisting of $100.0MM of 2021 Series D (term rate) and $176.715MM of 2021 Series E (index rate). The offerings are rated Aa3 by Moody’ Investors Service, and AA by Standard and Poor’s Global Ratings (S&P) and Fitch Ratings (Fitch). The City of Chicago is set to price $183.015MM of GO bonds, Series 2021A. The deal is rated BBB+ by S&P and A by Fitch. Andover, Massachusetts, is set to price $165.0MM of taxable pension obligation bonds. The deal is rated Triple-A by S&P and finally on Tuesday Lakeland, Florida, is set to price $131.81MM of energy system revenue bonds, Series 2021. The deal is rated AA by S&P and Fitch.

On Wednesday the Sales Tax Securitization Corporation of Illinois, is set to price two offerings. The first will be a $791.070MM offering of taxable second lien sales tax securitization bonds, Series 2021B. The second will be a $276.335MM offering of second lien sales tax securitization bonds, Series 2021A. The deals are rated AA by S&P, AA- by Fitch and AA+ by Kroll Bond Rating Agency (KBRA).

Also, on Wednesday the Metropolitan Atlanta Rapid Transit Authority is set to price $381.805MM of taxable sales tax revenue refunding bonds, Series 2021D (green bonds). The deal is rated Aa2 by Moody’s and AA+ by S&P. The New York City Housing Development Corporation is set to price $319.725MM of corporation multi-family housing revenue bonds, consisting of $137.25MM, 2021 Series K-1 (sustainable development bonds), and $182.475MM Series K-2 (sustainable development bonds). The offerings are rated Aa2 by Moody’ and AA+ by S&P.

In the competitive arena on Monday, the Florida Board of Education is set to sell $124.155MM of forward delivery public education capital outlay refunding bonds 2022 Series A at 1 p.m. eastern Monday. The deal is rated Triple-A by Moody’s, S&P and Fitch. On Tuesday, Little Rock, South Dakota, is set to sell $315.94MM of refunding and construction bonds, Series A at 11 a.m. eastern. The deal is rated Aa2 by Moody’s. Also on Tuesday, the San Francisco Public Utilities Commission is set to sell $51.145MM of power revenue green bonds, 2021 Series A at 11 a.m. and $73.855MM of power revenue bonds, 2021 Series B at 11:30 a.m. On Thursday the Pulaski County Special School District, Arkansas, is set to sell $108.75MM of refunding and construction bonds, tax exempt, Series 2021B at noon Eastern.


Municipal Bond Funds Posted Inflows for a 39th Week in a Row

Investors in municipal bond put cash into funds for a 39th week in a row, as tax-exempt weekly reporting funds experienced inflows of $36.005MM in the latest week, after experiencing inflows of $719.772MM the week prior. The four-week moving average remained positive at $1.013B after being in the green at $1.155B the week prior.

Long-term municipal bond funds had inflows of $120.353MM in the latest week, after experiencing inflows of $745.065MM the week prior. Intermediate-term funds had outflows of $14.0MM after inflows of $244.302MM the week prior. National funds had inflows of $112.065MM after experiencing inflows of $679.134MM the week prior. High-yield municipal funds reported inflows of $53.75MM in the latest week, after inflows of $407.652MM the week prior. Exchange traded funds reported inflows of $37.124MM, after outflows of $13.56MM 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 were mixed, as the one- and two-year maturities tightened, with the largest tightening occurring in the one-year maturity, eight bps. Meanwhile the spreads on the three-, five-, 10-, 15-, and 30-year maturities all widened, with the largest widening occurring in the 10-year maturity, 20 bps.


Daily Overview of the General Market for the Week Ending December 3rd

On Monday municipals prices were steady across the curve, as market participants prepared for the $6.5B in new-issue offerings scheduled for the week. 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 236 points or 0.7%, while the S&P was up 1.3% and the NASDAQ was up 1.9%. On the day, the yield on the two-year maturity rose one bp, while the yields on the 10- and 30-year maturities each rose four bps. The 10-year municipal-to-Treasury ratio fell to 69.7% on Monday from last Friday’s level of 71.6%, while the 30-year municipal-to-Treasury ratio fell to 80.8% on Monday from last Friday’s level of 82.5%.

On Tuesday municipals prices were mixed, as a few of the week’s new-issue offerings came to market. On the day, the yield on the two-year GO bond was steady, while the yields on the 10- and 30-year GO bonds each fell three bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were also mixed on Tuesday, as U.S. stocks fell for the session due to volatility, as investors contemplated the impacts of a new coronavirus variant and new comments from Federal Reserve Chairperson Jerome Powell. The Dow was down 652 points or 1.9%. The S&P was also down 1.9% and the NASDAQ was down 1.6%. On the day, the yield on the two-year maturity rose one bp, while the yields on the 10- and 30-year maturities each fell nine bps. The 10-year municipal-to-Treasury ratio rose to 72.0% on Tuesday from Monday’s level of 69.7%, while the 30-year municipal-to-Treasury ratio rose to 83.2% on Tuesday from Monday’s level of 80.8%.

On Wednesday municipals prices were mostly steady as market participants focused on the new-issue market and the variety of new-issue offerings that were priced. Leading the way was the $4.0B taxable grant anticipation notes offering by the New York Metropolitan Transportation Authority. The notes are rated MIG-1 by Moody’s and SP-1+ by S&P and mature in November 2022 and are callable starting April 15, 2022. In the negotiated long-term arena, a number of offerings were priced and included, but were not limited to the $430.465MM offering in two tranches of affordable housing revenue climate bond certified and sustainability bonds by the New York State Housing Finance Agency and the $199.0MM of revolving fund revenue bonds by the Oklahoma Water Resources Board. In the competitive arena the State of Illinois sold $400.0MM of GO bonds in two tranches. 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; rising in the morning before turning lower in the afternoon over more hawkish remarks from Federal Reserve Chair Jerome Powell, compounded with concerns around the Omicron variant and its impacts on the economy. The Dow was down 462 points or 1.3%, while the S&P was down 1.2% and the NASDAQ was down 1.8%. On the day, the yield on the two-year maturity rose four bps, while the yield on the 10-year maturity was unchanged and the yield on the 30-year maturity fell one bp. The 10-year municipal-to-Treasury ratio was unchanged on Wednesday from Tuesday’s level of 72.0%, while the 30-year municipal-to-Treasury ratio rose to 83.6% on Wednesday from Tuesday’s level of 83.2%.

Last Thursday municipals prices were once again 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 steady, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were mixed on Thursday, while U.S. stocks rose for the session, as investors assessed the latest headlines on the Omicron variant and mulled lingering concerns around inflation. The Dow was up 618 points or 1.8%, while the S&P was up 1.4% and the NASDAQ was up 0.8%. On the day, the yield on the two-year maturity rose seven bps, while the yield on the 10-year maturity rose one bp and the yield on the 30-year maturity fell one bp. The 10-year municipal-to-Treasury ratio fell to 71.5% on Thursday from Wednesday’s level of 72.0%, while the 30-year municipal-to-Treasury ratio rose to 84.1% on Thursday from Wednesday’s level of 83.6%.

Last Friday municipals prices were steady, as market participants looked ahead to the $15.14B in expected new-issue offerings in the upcoming trading week. 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 strengthened, while U.S. stocks fell for the session, as investors digested updates on the Omicron variant alongside the Labor Department’s November jobs report, which came in mixed compared to Wall Street’s elevated expectations. The Dow was down 60 points or 0.2%, while the S&P was down 0.8% and the NASDAQ was down 1.9%. On the day, the yield on the two-year maturity fell three bps, while the yield on the 10-year maturity fell nine bps and the yield on the 30-year maturity fell seven bps. The 10-year municipal-to-Treasury ratio rose to 76.3% on Friday from Thursday’s level of 71.5%, while the 30-year municipal-to-Treasury rose to 87.6% on Friday from Thursday’s level of 84.1%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks

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