Muni Update

December 7, 2020


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


Municipal Market Recap

Municipal prices were mixed to start the week, as the front-end was steady, while prices on bonds maturing 10 years and longer strengthened. On Tuesday municipal prices were steady. On Wednesday municipal prices were mixed again, as prices on bond maturing 10 years and in were steady, while the long end weakened. On Thursday and Friday municipal prices were steady across the curve.

The trading week’s projected level of new-issue offerings is just about $9.0B and coupled with secondary market offerings should provide market participants with some opportunities to fill their needs, as demand continues to outpace supply. The continued strong demand is due in part to continued, although reduced redemption activity from this summer as evidenced by projected redemptions for the month of December exceeding $20.0B, and overall strong inflows into funds.

Investors in municipal bond funds put cash into funds for the a fourth week, as evidenced by the latest tax-exempt weekly reporting funds data showing that funds experienced inflows of $201.0MM in the latest week, after experiencing inflows of $386.0MM the week prior. Long-term, intermediate-term, and high-yield funds all saw inflows. Investors still facing low or negative rates overseas continue to find positive-yielding U.S. assets attractive despite the recent outflows.

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 ended the week at 0.15%, 0.72%, and 1.42%, respectively. Overall, week-over-week the yields on the two- and 30-year General Obligation (GO) bonds were unchanged, while the yield on the 10-year GO bond fell one basis point (bp).

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 0.27%, 1.11%, and 1.65%, respectively. Overall, week-over-week the yield on the two-year GO bond was unchanged, while the yield on the 10-year GO bond rose one bp and the yield on the 30-year GO bond fell one bp.


New-Issue Volume is Forecasted to be Around $9.0B for the Week

Total new-issue offerings for the trading week per IHS Markit Ipreo are estimated to be $9.0B. This week’s projected bond issuance is comprised of $7.85B in negotiated deals and $1.34B in competitive sales and offers investors several high yield deals. The biggest deal of the week will be the $1.369B of senior lien revenue refunding bonds from the Puerto Rico Aqueduct and Sewer Authority. The deal is non-rated.  The other large deal of the week is a $1.2B offering of taxable general obligation revenue anticipation notes from the Commonwealth of Massachusetts.

Other notable deals scheduled for this week include but are not limited to a Florida Development Finance Corporation offering of $950.0MM of Brightline Passenger Rail Project surface transportation facility revenue green bonds, subject to the alternative minimum tax (AMT) on Thursday. The bonds mature on 1/1/2049 and the deal is non-rated. The New York Transportation Development Corporation plans to offer $628.0MM of Terminal 4 John F. Kennedy International Airport Project special facility revenue refunding bonds this week. The deal is rated Baa1 by Moody’s Investors Service (Moody’s) and BBB by Fitch Ratings (Fitch).

Miami-Dade County, Florida (NR/A+/A+/NR) is set to price $507.0MM of taxable subordinate special obligation bonds. The deal is rated A+ by Standard and Poor’s Global Ratings (S&P) and Fitch. The Georgia State Road and Tollway Authority is set to price $491.0MM of grant anticipation revenue bonds and reimbursement revenue bonds (RRBs) in two series. The first, $393.0MM of GARBs, are serials 2021-2032 and are rated A2 by Moody’s, AA by S&P, and A+ by Fitch. The second offering is comprised of $98.0MM of RRBs, also serials, 2021-2032 and rated A1 by Moody’s, AA by S&P, and A+ by Fitch.

The New York City Housing Development Corporation plans to offer $473.0MM of multifamily housing revenue sustainable development bonds in two series. The deal is rated Aa2 by Moody’s and AA+ by S&P. Staying in New York, the County of Suffolk, New York, will price $410.0MM of tax anticipation notes for 2021 taxes.

The Texas Public Finance Authority (Aa1/AA+/NR/NR) plans to issue $400.0MM of taxable lease revenue and refunding bonds (Texas Facilities Commission). The deal is rated Aa1 by Moody’s and AA+ by S&P. Also, in Texas, the Tarrant County Cultural Education Facilities Finance Corporation will price $303.0MM of taxable Hendrick Medical Center hospital revenue bonds insured by Assured Guaranty Municipal Corporation. The deal is rated A2 by Moody’s and AA by S&P due to insurance.

The State of Ohio’s Public Facilities Commission (Aa1/AA+/AA+/NR) plans to price $206.0MM of infrastructure improvement GO and conservation project GOs. The deal is rated Aa1 by Moody’s and AA+ by S&P and Fitch.


Municipal Bond Funds Posted Inflows for a Fourth Week in a Row

Investors in municipal bond funds put cash into funds for the a fourth week, as evidenced by the latest tax-exempt weekly reporting funds data showing that funds experienced inflows of $201.0MM in the latest week, after experiencing inflows of $386.0MM the week prior. Long-term, intermediate-term, and high-yield funds all saw inflows.


Demand in the Bank Qualified (BQ) Market Remains Strong

BQ participants continue to be focused on the new-issue paper and the expected level of both BQ and general market (GM) new-issue paper this trading week, together with secondary market offerings should provide BQ market participants with some opportunities to fill their needs, as buyers continue to outpace sellers. BQ participants continue to have significant demand for municipal paper due in large part to having to replace rolloffs due to redemptions over the course of the year. Larger 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 continue to utilize extension swaps, to pick up more yield with little to no drop-off in credit quality, as well as to review their portfolio’s and look to replace weaker credits at this time. Week-over-week, BQ spreads tightened across the curve, with the largest tightening occurring in the 30-year maturity, 16 bps.


Daily Overview of the General Market for the Week Ending December 4th

Last Monday municipals prices were mixed, as the first of the trading week’s $7.68B in new-issue long-term debt was offered. 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 one bp, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed last Monday, as U.S. Stock prices were down for the session. The Dow finished down 271 points, or 0.9%, while the S&P was down 0.5% and the NASDAQ was down 0.1%. On the day, the yields on the two- and 10-year maturities were unchanged, while the yield on the 30-year maturity rose one bp. The 10-year municipal-to-Treasury ratio fell to 85.7% on Monday from last Friday’s level of 86.9%, while the 30-year municipal-to-Treasury ratio fell to 89.2% on Monday from last Friday’s level of 90.5%.

Last Tuesday municipals prices were steady and outperformed U.S. Treasurys, as several deals came to market, including a $500.0MM offering from the Illinois State Toll Highway Authority of Series 2020A toll highway senior revenue bond and a $478.0MM offering from the New York City Municipal Water Finance Authority of tax-exempt fixed-rate 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 last Tuesday, as U.S. stock prices rose for the session on optimism of another possible stimulus deal. The Dow finished up 185 points, or 0.6%, while the S&P was up 1.1% and the NASDAQ was up 1.3%. 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 eight bps. The 10-year municipal-to-Treasury ratio fell to 78.3% on Tuesday from Monday’s level of 85.7%, while the 30-year municipal-to-Treasury ratio fell to 84.9% on Tuesday from Monday’s level of 89.2%.

Last Wednesday municipals prices were mixed, as a variety of new deals were priced, including the $1.5B transportation program bonds for the New Jersey Transportation Trust Fund Authority. The deal was repriced to lower yields by 15 to 20 bps. On the day, the yields on the two- and 10-year GO bonds were unchanged, while the yield on the 30-year GO bond rose one bp, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were also mixed on Wednesday, as were U.S. stocks for the session. The Dow finished up 60 points or 0.2%. The S&P was also up 0.2%, while the NASDAQ was down 0.1%. On the day, the yield on the two-year maturity fell one bp, 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 75.8% on Wednesday from Tuesday’s level of 78.3%, while the 30-year municipal-to-Treasury ratio fell to 83.5% on Wednesday from Tuesday’s level of 84.9%.

Last Thursday municipals prices were steady across the curve, as the last of the week’s new-issue offerings came to market including two large competitive issues; a $120.0MM offering of Series 2020B wastewater system revenue bonds from the Metropolitan St. Louis Sewer District, Missouri, and the $91.0MM offering of general obligation bonds from the City of Frisco, Texas. 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 were U.S. stocks for the session. The Dow finished up 86 points or 0.3%, while the S&P was down 0.1% and the NASDAQ was up 0.2%. On the day, the yield on the two-year maturity was unchanged, while the yields on the 10- and 30-year maturities each fell three bps. The 10-year municipal-to-Treasury ratio rose to 78.3% on Thursday from Wednesday’s level of 75.8%, while the 30-year municipal-to-Treasury ratio rose to 85.0% on Thursday from Wednesday’s level of 83.5%.

Last Friday prices on municipals were steady, as market participants started looking ahead to the almost $9.0B in expected new-issue offerings next 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 were mixed last Friday, while U.S. stocks prices rose for session on hopes of a stimulus package being passed before the end of the year.  The Dow finished up 248 points, or 0.8%, 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 was unchanged, while the yield on the 10-year maturity rose five bps and the yield on the 30-year maturity rose six bps. The 10-year municipal-to-Treasury ratio fell to 74.2% on Friday from Thursday’s level of 78.3%, while the 30-year municipal-to-Treasury fell to 82.1% on Friday from Thursday’s level of 85.0%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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