Muni Update

December 9, 2019


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


Municipal Market Recap

Municipal prices weakened across the curve to start week last week. On Tuesday prices strengthened across the curve. On Wednesday municipal prices were steady across the curve. On Thursday municipal prices were mixed, as the front-end was steady, while bonds maturing 10 years and longer strengthened. On Friday municipal prices weakened across the curve. Issuance for the trading week is forecasted to be $13.21B, making it the second-largest week of projected issuance for the year, last week was the largest. This week’s projected issuance together 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.

For November long-term new-issue volume was up 84% versus November 2018, and year-to-date (YTD) volume is 22% ahead of the last year’s pace. Most of the increased volume is from issuers selling more refunding bonds. According to data from Bloomberg, YTD refunding bond volume is up 59% and the amount of combined refunding and new-money bonds is up 50% while bonds issued solely for new money financings are up only 2%. As to taxable debt, YTD (through November) issuance of taxable municipal bonds is more than double last year’s volume through November and while new money loans have increased by 33% it is the increase in refunding bond volume that has been the driver in the expansion in borrowing as highlighted above. So far this year, taxable municipal borrowing has been dominated by general obligation (GO) up 21%, higher education (13%), school district (9%), and water & sewer bonds (8%). November borrowing was heaviest among water & sewer, higher education and GO bond issuers.

Investors in municipal bond funds put cash into funds for a 48th week, as weekly reporting funds experienced inflows of $614.882MM after experiencing inflows of $ 2.355B the week prior. The four-week moving average was a positive $1.553B, after being in the green at $1.676B the prior week. Investors still facing low or negative rates overseas continue to find higher-yielding U.S. assets attractive. Municipal securities have been bolstered by lower 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 yield on the two-year maturity on the MMD Triple-A Scale rose one basis point (bp) from Thursday to Friday and ended the week at 1.07%. Meanwhile the yields on the 10- and 30-year maturities on the MMD Triple-A Scale from Thursday to Friday each rose two bps and they ended the week at 1.48% and 2.07%, respectively. Overall, week-over-week the yield on the two-year GO bond was unchanged, while the yields on the 10- and 30-year GO bonds each rose one bp.

Last week the yields on the two- and 10-year maturities on the MMA Triple-A Scale each rose one bp from Thursday to Friday and they ended the week at 1.17% and 1.57%, respectively. Meanwhile the yield on the 30-year maturity on the MMA Triple-A Scale rose two bps from Thursday to Friday and ended the week at 2.20%. Overall, week-over-week the yields on the two- and 10-year GO bonds were unchanged, while the yield on the 30-year GO bond rose two bps.


New-Issue Volume is Forecasted to be Just Over $13.21B for Trading Week

Total new issuance for the trading week per IHS Markit Ipreo is estimated to be $13.21B, which will make it the second largest week of new-issue volume for the year, last week was the largest. The calendar consists of $11.63 of negotiated deals and $1.58B of competitive sales. There are 31 scheduled deals schedule with a par issuance of $1000.0MM or larger, with six of those coming competitively. Seven of those $100-million-or-larger scheduled deals will either be partially or completely taxable.

The biggest issue of the week will be a $1.2B offering of senior lien revenue refunding bonds from the Texas Private Activity Bond Surface Transportation Corporation. The deal will feature non-alternative minimum tax private activity bonds and taxable bonds for the NTE Mobility Partners LLC North Tarrant Express Managed Lanes Project. The deal is rated Baa2 by Moody’s Investors Service (Moody’s) and BBB by Ritch Ratings (Fitch) and will price on Tuesday.

The Foothill/Eastern Transportation Corridor Agency will offer $892.86MM of toll road refunding revenue federally taxable bonds. The deal is rated Baa2 by Moody’s, A- by Standard and Poor’s Global Ratings (S&P), and BBB by Fitch on Tuesday. Also on Tuesday the Illinois State Toll Highway Authority plans to offer $703.375MM of senior revenue refunding bonds. The deal is rated A1 by Moody’s and AA- by Fitch.

The State of Connecticut plans to offer $897.955MM of GO and GO refunding bonds on Thursday. The deal is rated A1 by Moody’s, A by S&P, and A+ by Fitch. Also on Thursday the New York City Transitional Finance Authority (NYC TFA) plans to offer $850.0MM of future tax secured subordinate bonds. The deal is rated Aa1 by Moody’s, and triple-A by S&P and Fitch.  The NYC TFA is also selling $300.0MM competitively in two separate sales, also on Thursday.


Municipal Bond Funds Post Inflows for a 48th Week

Investors in municipal bond funds put cash into funds for a 48th week, as weekly tax-exempt weekly reporting funds experienced inflows of $614.882MM in the latest week, after experiencing inflows of $2.355B the week prior. The four-week moving average was a positive $1.553B, after being in the green at $1.676B the prior week.

Long-term municipal bond funds had inflows of $464.451MM in the latest week after experiencing inflows of $1.534B the week prior. Intermediate-term funds had inflows of $84.099MM after inflows of $497.841MM the week prior. National funds had inflows of $504.030MM after experiencing inflows of $2.139B the week prior. High-yield municipal funds reported inflows of $171.625MM in the latest week, after inflows of $477.878MM the week prior. Exchange traded funds reported inflows of $203.703MM after inflows of $397.663MM the week prior.


Demand in the Bank Qualified (BQ) Market Remains Strong

BQ market participants expect demand, despite the jump in issuance the past few weeks 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 (15+ 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 were mixed, as the three-, five-, 10-, 15-, and 30-year maturities tightened, with the largest tightening occurring in the 30-year maturity, 14 bps. Meanwhile, the one-year maturity widened by four bps and the spread on the two-year maturity was unchanged.


Daily Overview of the General Market for the Week Ending December 6th

Last Monday prices on municipals were weaker, as the first 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 each rose four bps,  according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed, as U.S. stocks posted losses for the session due in part to manufacturing contracting for the fourth month in a row, and the statement by U.S. Commerce Secretary Wilbur Ross reminding Wall Street that the trade war between the U.S. and China may yet get worse before it gets better. The Dow was down 0.96%, while the S&P was down 0.86% and the NASDAQ was down 1.12%. 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 seven bps. The 10-year municipal-to-Treasury ratio slipped to 82.5% on Monday from last Friday’s level of 82.6%, while the 30-year municipal-to-Treasury ratio fell to 92.1% on Monday from last Friday’s level of 93.2%.

Last Tuesday prices on municipals strengthened, as a number of new-issue offerings came to market. 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 four bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were also stronger, as U.S. stocks finished lower for the session, marking it’s the third day of losses after President Donald Trump said a trade deal with China might not be accomplished until after the 2020 election. On the day, the yield on the two-year maturity fell eight bps, while the yields on the 10- and 30-year maturities each fell 11 bps. The 10-year municipal-to-Treasury ratio rose to 85.5% on Tuesday from Monday’s level of 82.5%, while the 30-year municipal-to-Treasury rose to 94.9% on Tuesday from Monday’s level of 92.1%.

Last Wednesday municipal prices were steady across the curve, as more new-issue offerings flooded into the 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.

Prices on U.S. Treasurys weakened, while U.S. stocks opened up due to a
Bloomberg report prior to the market opening that reported both sides (U.S. and China) were moving closer to a trade deal, despite recent developments that appear to show tensions moving higher. For the session the Dow and the S&P closed up 0.53% and 0.63%, respectively, while the NASDAQ was up 0.54%. On the day, the yields on the two-, 10-, and 30-year maturity each fell five bps. The 10-year municipal-to-Treasury ratio fell to 83.1% on Wednesday from Tuesday’s level of 85.5%, while the 30-year municipal-to-Treasury ratio fell to 92.8% on Wednesday from Tuesday’s level of 94.9%.

Last Thursday prices on municipals were mixed, as the last of the week’s new-issue offerings came to market, including offering from the Metropolitan Nashville Airport, the San Diego County Regional Transportation Commission, the Hampton Roads Transportation Accountability Commission and the New York City Housing Development Corporation to name a few. On the day, the yield on the two-year GO bond was unchanged, 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.

U.S. Treasury prices were also mixed, as U.S. stocks posted minimal gains for the session. The Dow and S&P both finished up 0.10% and 0.15% respectively, while the NASDAQ rose 0.05%. On the day, the yield on the two-year maturity was unchanged, while the yield on the 10-year maturity rose three bps and the yield on the 30-year maturity rose two bps. The 10-year municipal-to-Treasury ratio fell to 81.1% on Thursday from Wednesday’s level of 83.1%, while the 30-year municipal-to-Treasury ratio fell to 91.5% on Thursday from Wednesday’s level of 92.8%.

Last Friday prices on municipals were weaker, as market participants were looking ahead to the $13.21B in new-issue long-term debt forecasted to be offered. 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 each rose two bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices also weakened, as U.S. stocks posted good gains for the session due to strong jobs data on the day. The Dow and S&P both were up on the day, 1.22% and 0.91%, respectively, while the NASDAQ was up 1.00%. On the day, the yield on the two-year maturity rose three bps, while the yield on the 10-year maturity rose four bps and the yield on the 30-year maturity rose five bps. The 10-year municipal-to-Treasury ratio fell to 80.4% on Friday from Thursday’s level of 81.1%, while the 30-year municipal-to-Treasury ratio fell to 90.4% on Friday from Thursday’s level of 91.5%.


Taxable Market






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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