Muni Update

February 10, 2020


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 and Wednesday municipal prices weakened across the curve. On Thursday prices were once again steady across the curve. On Friday prices were mixed, as the front-end was steady, while bonds maturing 10 years and longer strengthened. This week’s projected issuance is estimated to be $8.33B, which is above last week’s revised total of $6.51B. This level of new-issue offerings coupled with secondary market opportunities should provide market participants with a number of opportunities to meet their needs.

Investors in municipal bond funds put cash into funds for a 57th week, as weekly reporting funds experienced inflows of $1.631B after experiencing inflows of $1.825B the week prior. The four-week moving average was a positive $1.949B, after being in the green at $2.263B the week prior. 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 mentioned above, as well as investors seeking 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 and driving demand.

Last week the yield on the two-year maturity on the MMD Triple-A Scale was unchanged from Thursday to Friday and ended the week at 0.87%. Meanwhile the yield on the 10-year maturity fell one basis point (bp) and the yield on the 30-year maturity fell three bps on the MMD Triple-A Scale from Thursday to Friday and they ended the week at 1.20% and 1.83%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond rose four bps, while the yield on the 10-year GO bond rose five bps and the yield on the 30-year Go bond rose three bps.

Last week the yield on the two-year maturity on the MMA Triple-A Scale was unchanged from Thursday to Friday and ended the week at 0.93%. Meanwhile the yield on the 10-year maturity fell three bps and the yield on the 30-year maturity fell two bps on the MMA Triple-A scale from Thursday to Friday and they ended the week at 1.29% and 1.91%, respectively. Overall, week-over-week the yields on the two- and 10-year GO bonds each rose two bps, while the yield on the 30-year GO bond rose three bps.


New-Issue Volume is Forecasted to be $8.33B for Trading Week

Total new issuance for the trading week per IHS Markit Ipreo is estimated to be $8.33B, which is above last week’s revised total of $6.51B. The calendar consists of $6.20B in negotiated deals and $2.13B of competitive sales. There are 17 scheduled deals of $100.0MM or larger in par, of which three of them will be sold competitively. We note, that there are two deals this week that exceed $1.0B in par and the largest one will be the $1.51B offering of tax-exempt and taxable bonds on Tuesday from the Grand Parkway Transportation Corporation, Texas. Also on Tuesday, the state of Utah plans to offer $449.625 million of GO bonds. The state is rated triple-A by Moody’s, S&P and Fitch.

On Wednesday the City of New York will bring the other billion dollar offering when they price $1.09B of GO bonds. The deal is rated Aa1 by Moody’s Investors Service (Moody’s) and AA by Standard and Poor’s Global Ratings (S&P) and Fitch Ratings (Fitch).

In the competitive arena, the state of Washington is scheduled to sell a total of $740.15MM in two separate sales. The sales will consist of $619.73MM of various purpose GO bonds and $120.420MM of motor vehicle fuel tax and vehicle related fees GO bonds. The deals are rated Aaa by Moody’s and AA+ by S&P and Fitch.


Municipal Bond Funds Post Inflows for a 57th Week

Investors in municipal bond funds put cash into funds for a 57th week, as tax-exempt weekly reporting funds experienced inflows of $1.631B in the latest week, after experiencing inflows of $1.825B the week prior. The four-week moving average was a positive $1.949B, after being in the green at $2.263B the prior week.

Long-term municipal bond funds had inflows of $1.121B in the latest week after experiencing inflows of $1.438B the week prior. Intermediate-term funds had inflows of $172.314MM after inflows of $289.330MM the week prior. National funds had inflows of $1.459B after experiencing inflows of $1.591B the week prior. High-yield municipal funds reported inflows of $713.091MM in the latest week, after inflows of $656.406MM the week prior. Exchange traded funds reported inflows of $139.119MM after inflows of $82.548MM the week prior.


Demand in the Bank Qualified (BQ) Market Remains Strong

Last week, the BQ market had good activity, due in part to the new-issue opportunities and secondary market bid lists being well received. With March 1st and 15th being large rolloff dates, BQ participants continue to have significant demand for BQ paper. The expected level of new-issue paper this week together with secondary market opportunities should provide BQ market participants with opportunities to fill their needs. BQ market participants should continue to look at the long-end (15+ years) of the curve for a chance to address their needs while picking up attractive structures.

We also continue to encourage participants to utilize extension swaps and portfolio clean up, 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. Week-over-week, bank qualified spreads were mixed, as the for the one-, two-, three-, five-, and 10-year maturities all tightened, with the largest tightening occurring in the three-year maturity, 10 bps. Meanwhile the spread on the 15-year maturity was unchanged, while the spread on the 30-year maturity widened two bps.


Daily Overview of the General Market for the Week Ending February 7th

Last Monday prices on municipals were steady, as market participants prepped for the coming week’s $7.06B in new-issue offerings. 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, as U.S. stock rebound from last week’s sharp selloff over the potential fallout from the global coronavirus outbreak to post solid gains for the session. The Dow was up 0.51%, while the S&P was up 0.73% and the NASDAQ was up 1.34%. On the day, the yields on the two- and 10-year maturities each rose three bps, while the yield on the 30-year maturity rose two bps. The 10-year municipal-to-Treasury ratio fell to 74.7% on Monday from last Friday’s level of 76.2%, while the 30-year municipal-to-Treasury ratio fell to 89.6% on Monday from last Friday’s level of 90.5%.

Last Tuesday prices on municipals weakened, as a handful of new-issue offering came to market and were priced. On the day, the yield on the two-year maturity rose two bps, while the yields on the 10- and 30-year GO bonds each rose three bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys also weakened, as fears over the coronavirus continued to abate, better than expected economic data was reported, and the People’s Bank of China stepped in and injected billions of yuan to prop up the Chinese stock market. All these factors contributed to stock rising on the open and finishing with another session of solid gains. The Dow was up 1.44%, while the S&P and NASDAQ were up, 1.50% and 2.10%, respectively. On the day, the yield on the two-year maturity rose five bps, while the yields on the 10- and 30-year maturities each rose seven bps. The 10-year municipal-to-Treasury ratio fell to 73.3% on Tuesday from Monday’s level of 74.7%, while the 30-year municipal-to-Treasury ratio fell to 88.0% on Tuesday from Monday’s level of 89.6%.

Last Wednesday municipal prices weakened across the curve, as more deals came to market and were priced, including four of the top six biggest deals of the week. On the day, the yield on the two-year maturity rose two bps, while the yields on the 10- and 30-year GO bonds each rose three bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys also weakened, as stock again posted solid gains due to investors growing more optimistic that medical researchers will find a way to treat people infected with the deadly coronavirus. The Dow and the S&P closed up 1.68% and 1.13%, respectively, while the NASDAQ closed up 0.43%. On the day, the yield on the two-year maturity rose three bps, 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 72.9% on Wednesday from Tuesday’s level of 73.3%, while the 30-year municipal-to-Treasury ratio fell to 86.9% on Wednesday from Tuesday’s level of 88.0%.

Last Thursday prices on municipals were steady, as the last of the week’s new-issue offerings came to market and were well received. 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, as U.S. stocks posted gains. The Dow and S&P were both up, 0.30% and 0.33% respectively, while the NASDAQ rose 0.67%. On the day, the yield on the two-year maturity was unchanged, while the yield on the 10-year maturity fell one bp and the yield on the 30-year maturity fell three bps. The 10-year municipal-to-Treasury ratio bumped up to 73.3% on Thursday from Wednesday’s level of 72.9%, while the 30-year municipal-to-Treasury ratio rose to 88.2% on Thursday from Wednesday’s level of 86.9%.

Last Friday prices on municipals were mixed, as market participants were looking ahead to the $8.33B in new-issue long-term debt to be offered. On the day, the yield on the two-year GO bond was steady, while the yield on the 10-year maturity fell one bp and the yield on the 30-year GO bond fell three bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices strengthened, as U.S. stocks finished the session down. The S&P and the NASDAQ were both down 0.54%, while the Dow was down 0.94%. On the day, the yield on the two-year maturity fell three bps, while the yields on the 10- and 30-year maturities each fell six bps. The 10-year municipal-to-Treasury ratio rose to 75.5% on Friday from Thursday’s level of 73.3%, while the 30-year municipal-to-Treasury ratio rose to 89.3% on Friday from Thursday’s level of 88.2%.


Taxable Market






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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