Muni Update

February 1, 2021



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 municipal prices strengthened across the curve and the Federal Open Market Committee (FOMC) started its two-day meeting. On Wednesday municipal prices were mixed, as the front-end was steady, while prices on bonds maturing 10 years and longer strengthened and the FOMC ended its January meeting and voted to keep its target overnight rate range unchanged. On Thursday municipal prices were steady across the curve. On Friday municipal prices were mixed again, as prices on both the front-end and long-end maturities were steady, while prices on intermediate maturities weakened.

The  projected level of new-issue offerings for the trading week are $7.44B and coupled with general market (GM) offerings in the secondary market should provide market participants with some opportunities to fill their needs, especially as continued strong demand due to redemption activity and overall solid inflows into funds contribute to demand outpacing supply. For the latest reporting period, investors in municipal bond funds put cash into funds for the a 12th week in a row, as evidenced by the latest tax-exempt weekly reporting funds data showing that funds experienced inflows of $2.79B in the latest week, after experiencing inflows of $2.38B the week prior. It was the sixth week in a row of $1.0B-plus inflows and the third week in a row of $2.0B-plus inflows.

Fueled by these strong fund flows and redemptions, municipal demand has exceeded year-to-date (IYTD) supply and the need for municipal paper will be getting a big boost next week from February 1st redemptions. On February 1st, investors will be receiving $12.4B in principal from maturing and called bonds. That amount is on top of the $20.8B that was returned in January, note, both figures exclude the amount of interest paid out to investors. An additional $14.2B in principal is due to be paid out over the rest of the month.

Last week the yields on the two and 30-year maturities on the MMD Triple-A Scale were unchanged from Thursday to Friday and they ended the week at 0.11% and 1.38%, respectively. Meanwhile, the yield on the 10-year maturity on the MMD Triple-A Scale rose one basis points (bp) from Thursday to Friday and ended the week at 0.72%. Overall, week-over-week the yield on the two-year general obligation (GO) bond fell two bps, while the yield on the 10-year GO bond fell five bps and the yield on the 30-year GO bond fell six bps.

Last week the yields on the two and 10-year maturities on the MMA Triple-A Scale were unchanged from Thursday to Friday and they ended the week at 0.26% and 1.06%, respectively. Meanwhile, the yield on the 30-year maturity on the MMA Triple-A Scale rose one bp from Thursday to Friday and ended the week at 1.61%. Overall, week-over-week the yield on the two-year GO bond fell one bp, while the yields on the 10- and 30-year GO bonds each fell five bps.


New-Issue Volume is Forecasted to be Around $7.44B for the Week

Total new-issue offerings for the holiday shortened trading week per IHS Markit Ipreo are estimated to be $7.44B. This week’s projected bond issuance is comprised of $5.42B in negotiated deals and $2.02B in competitive sales. Leading the way this week will be the New York City Transitional Finance Authority’s (NYC TFA) offering of (Aa1/AAA/AAA/) $900.0MM of future tax-secured subordinate refunding bonds on Wednesday. The deal is rated Aa1 by Moody’s Investors Service (Moody’s) and Triple-A by both Standard and Poor’s Global Ratings and (S&P) and Fitch Ratings (Fitch). The NYC TFA will also price $90.0MM of future tax-secured subordinate bonds, Fiscal 2010 Subseries F-5 (remarketing) serials 2029-2033 this week. Also, from New York this week will be the Nassau County Interim Finance Authority’s offerings of $577.65MM of sales tax-secured bonds and the $561.75 million of taxable sales tax-secured bonds on Wednesday. The deals are rated Triple-A by S&P and Fitch.

Staying on the east coast and starting off the week will be the $125.5MM offering of limited tax GOs on Monday from Worcester, Massachusetts. The deal is rated A- by S&P. Staying in Massachusetts, the Massachusetts Port Authority plans to offer $227.0MM of taxable revenue refunding bonds on Wednesday. The deal is rated Aa2 by Moody’s, AA- by S&P and AA by Fitch. The Community Development Administration of the Maryland Department of Housing and Community Development plans to offer $197.0MM of residential revenue bonds on Tuesday. The deal is rated Aa1 by Moody’s and AA by Fitch. Wake County, North Carolina, is set to price $304 million of limited GO bonds on Wednesday. The deal is rated Aa1 by Moody’s and AA+ by S&P and Fitch. Broward County, Florida, School District is set to sell $221.6MM of unlimited tax GO on Tuesday. The deal is rated AA- by S&P.

Other notable deals this week in other parts of the country include the State of Louisiana plans to offer $135.9MM of taxable unclaimed property special revenue refunding bonds in two series: $64.78MM Series 2021 (I-49 North Project) and $71.1MM Series 2021 (I-49 South Project) serials. The deal is rated A1 by Moody’s and A+ by S&P. Also, out of Louisiana, the City of New Orleans is set to price $191.6MM of taxable water revenue refunding bonds insured by Assured Guaranty and $185.0MM of taxable sewerage service revenue refunding bonds, both on Thursday.

In the competitive arena, the Tarrant Regional Water District, Texas, is set to sell $299.4MM of taxable revenue bonds on Tuesday. The deal is rated AAA by S&P.


Municipal Bond Funds Posted Inflows for an 12th Week in a Row

Investors in municipal bond put cash into funds for a 12th week in a row, as tax-exempt weekly reporting funds experienced inflows of $2.79B in the latest week, after experiencing inflows of $2.38 the week prior. Long-term, intermediate-term, and high yield funds also all saw inflows for latest reported period.


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 GM secondary market offerings, as BQ secondary market offerings are just about non-existent, and BQ participants continue to have significant demand for municipal paper. This significant demand is being driven in large part to investors having to replace rolloffs due to continued strong redemption activity. 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 continue to review their portfolios and look to replace weaker credits, at this time. Week-over-week, BQ spreads were mixed, as the spreads on the one-, two-, three-, five-, and 10-year maturities widened, with all maturities widening two bps, except the one-year, which widened one bp.  Meanwhile, the spreads on the 15- and 30- maturities tightened, with both tightening five bps.


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

Last Monday municipals prices were steady, as the first of the trading week’s $6.01B in new-issue long-term debt was 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.

Prices on U.S. Treasurys were mixed on Tuesday, as were U.S. stock prices for the session. The Dow finished down 37 points, or 0.1%, while the S&P was up 0.4% and the NASDAQ was up 0.7%. On the day, the yield on the two-year maturity was unchanged, while the yields on the 10- and 30-year maturities each fell five bps. The 10-year municipal-to-Treasury ratio rose to 73.3% on Monday from last Friday’s level of 70.0%, while the 30-year municipal-to-Treasury rose to 80.0% on Monday from Last Friday’s level of 77.8%.

Last Tuesday municipals prices strengthened, especially on the long end of the maturity curve, as the FOMC started it two-day meetings. Also, a few new-issue offerings came to market including the negotiated offering of the $1.06B gas supply revenue refunding bonds for the Texas Municipal Gas Acquisition and Supply Corporation. 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 mixed, as U.S. Stock prices were barely down across the three major indices for the session. The Dow finished down 23 points, or 0.1%, while the S&P and NASDAQ were also down 0.1%. On the day, the yield on the two-year maturity fell two bps, while the yields on the 10- and 30-year maturities were unchanged. The 10-year municipal-to-Treasury ratio fell to 69.5% on Tuesday from Monday’s level of 73.3%, while the 30-year municipal-to-Treasury fell to 77.8% on Tuesday from Monday’s level of 80.0%.

Last Wednesday municipals prices were mixed, as a handful of new deals were priced including the $807.0MM offering of Los Angeles International Airport revenue refunding bonds for the Department of Airports of the City of Los Angeles. The deal was upsized from $664.3MM and yields were reduced by as much as 11 bps in a re-pricing. The FOMC ended its January meeting and voted to keep its target overnight rate range unchanged at 0.00-0.25% and recommitted to leaving rates untouched until labor market conditions and inflation trends achieved the Fed’s targets. The Fed also said it would continue its crisis-era asset purchase program at the current rate of $120.0B per month. 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 by two bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were also mixed on Wednesday, as U.S. stock prices fell for the session. The Dow finished down 634 points or 2.1%, while the S&P and NASDAQ were each down 2.6%. 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 one bp. The 10-year municipal-to-Treasury ratios fell to 68.3% on Wednesday from Tuesday’s level of 69.5%, while the 30-year municipal-to-Treasury fell to 77.1% on Wednesday from Tuesday’s level of 77.8%.

Last Thursday municipals prices were steady, as the last of the week’s new-issue offerings came to market and the $560.0MM of unlimited tax GO and refunding GO bonds for the Board of Education of the City of Chicago were repriced. Yields across the deal were lowered by 22 to 37 bps after the repricing. 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 prices on U.S. Stocks rose for the session. The Dow was up 300 points or 1.0%, while the S&P was also up 1.0% and the NASDAQ was up 0.5%. 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 66.4% on Thursday from Wednesday’s level of 68.3%, while the 30-year municipal-to-Treasury ratio fell to 76.2% on Thursday from Wednesday’s level of 77.1%.

Last Friday municipal prices were mixed, as market participants started looking ahead to the $7.44B in expected new-issue offerings next week. On the day, the yields on the two- and 30-year GO bonds were unchanged, while the yield on the 10-year GO bond rose one bp, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were also mixed on Friday, as U.S. stocks prices fell for the session. The Dow finished down 620 points, or 2.0%, while the S&P was down 1.9% and the NASDAQ was also down 2.0%. On the day, the yield on the two-year maturity fell one bp, while the yield on the 10-year maturity rose four bps and the yield on the 30-year maturity rose six bps. The 10-year municipal-to-Treasury ratio fell to 64.9% on Friday from Thursday’s level of 66.4%, while the 30-year municipal-to-Treasury fell to 73.8% on Friday from Thursday’s level of 76.2%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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