Muni Update

February 14, 2022


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


Municipal Market Recap

Municipal bond prices started the week mixed, as prices on bonds maturing 10 years and in were steady, while prices on bonds on the longer end weakened. On Tuesday municipal prices weakened across the curve. On Wednesday municipal prices were steady across the curve. On Thursday and Friday municipal prices weakened across the curve.

This week, the projected level of new-issue offerings for the trading week are $5.19B. This level of new-issue offerings coupled with bank qualified (BQ) and general market (GM) offerings in the secondary market should provide market participants a number of opportunities to fill their needs, especially as demand continues to outpace supply. For February municipal bond redemptions will total $34.0B, which will be the largest amount for the month in five years. Issuers will also be paying out $14.0B of interest in the month, thus investors will receive a total of $48.0B of cash to be spent or reinvested.

Investors put cash into funds for the week, as tax-exempt weekly reporting funds data showed that funds experienced inflows of $215.512MM in the latest week, after experiencing three weeks of large outflows, including last week’s $2.906B of outflows. The four-week moving average fell to a negative $1.09B, from a negative $1.08B the week prior.

Last week the yield on the two-year maturity on the MMD Triple-A Scale rose 10 basis points (bps) from Thursday to Friday and ended the week at 1.05%. Meanwhile, the yield on the 10-year maturity rose eight bps, while the yield on the 30-year maturity rose seven bps on the MMD Triple-A Scale from Thursday to Friday and they ended the week at 1.61% and 2.03%, respectively. Overall, week-over-week the yields on the two- and 10-year general obligation (GO) bonds each rose 17 bps, while the yield on the 30-year GO bond rose 19 bps.

Last week the yield on the two-year maturity on the MMA Triple-A Scale rose five bps from Thursday to Friday and finished the week at 0.90%. Meanwhile, the yield on the 10-year maturity rose six bps, while the yield on the 30-year maturity rose seven bps on the MMD Triple-A Scale from Thursday to Friday and they ended the week at 1.90% and 2.42%, respectively. Overall, week-over-week the yields on the two- and 10-year maturities each rose 15 bps, while the yield 30-year maturity rose 17 bps.


New-Issue Volume is Forecasted to be $5.19B for the Trading Week

Total new-issue offerings for the trading week per IHS Markit Ipreo are $5.19B. This week’s projected level of bond issuance is comprised of $3.62B in negotiated deals and $1.57B in competitive deals. The largest deal of the week will come Tuesday from the University of Washington, which is set to price $400.855MM of general revenue bonds: consisting of $75.0MM, Series 2022A; $225.845MM of taxable refunding bonds, Series 2022B; and $100.01MM of term-rate refunding bonds, Series 2022C. The deal is rated Aaa by Moody’s Investors Service (Moody’s) and AA+ by Standard and Poor’s Global Ratings (S&P).

Other deals on Tuesday include Mount Nittany Medical Center, Pennsylvania, which will offer $300.0MM of corporate CUSIP taxable revenue bonds, Series 2022. The deal is rated A+ by S&P and AA- by Fitch Ratings (Fitch). The Peninsula Corridor Joint Powers Board, California is set to price $140.0MM of green climate-certified Measure RR sales tax revenue bonds, 2022 Series A. The deal is rated AA+ by S&P and AAA by Fitch. Finally on Tuesday, Northside Independent School District, Texas, is set to price $100.42MM of unlimited tax school building bonds, Series 2022A, guaranteed by Permanent School Fund Guarantee Program.

On Wednesday, the Pennsylvania Housing Finance Agency is set to price $255.495MM of non-alternative minimum tax social single-family mortgage revenue bonds, Series 2022-138. The deal is rated Aa1 by Moody’s and AA+ by S&P. Also on Wednesday Sanger Unified School District, California is set to price $105.0MM of 2022 certificate of participation. On Thursday, the Waco Independent School District, Texas is set to price $185.0MM of unlimited tax school building bonds, Series 2022.

Finally, on the day-to-day calendar are two major deals. First is the Georgetown Independent School District, Texas, which his set to price $103.88MM of taxable unlimited tax refunding bonds, Series 2022-A, guaranteed by Permanent School Fund Guarantee Program. The second is from State of Wisconsin, which is set to price $236.975MM of taxable GO refunding bonds of 2022, Series 2. The deal is rated Aa1 by Moody’s, AA+ by S&P, and AAA by Fitch.

In the competitive arena Wake County, North Carolina is set to sell $202.45MM of GO public improvement bonds, Series 2022A at 11 a.m. eastern on Tuesday. Wake County, North Carolina will also sell $42.215MM of GO parks, greenways, recreation and open space bonds, Series 2022C at 11:30 a.m. eastern on Tuesday. The deals are rated Triple-A by Moody’s, S&P and Fitch. Also on Tuesday, Waco, Texas is set to sell $25.295MM of GO refunding bonds, Series 2022 at 11 a.m. and $103.22MM of combination tax and revenue certificates of obligation, Series 2022A at 11:30 a.m. The deals are rated Aa1 by Moody’s and AA+ by S&P.  On Wednesday, the State of Delaware is set to sell $251.55MM of GO bonds, Series 2022 at 11 a.m. eastern.


Municipal Bond Funds Posted Inflows for the Week

Investors in municipal bond put cash into funds for the week, as tax-exempt weekly reporting funds experienced inflows of $215.512MM in the latest week, after experiencing outflows of $2.906B the week prior. The four-week moving average was a negative $1.09B, after being a negative $1.08B the week prior.

Long-term municipal bond funds had inflows of $222.678MM in the latest week, after experiencing outflows of $1.982B the week prior. Intermediate-term funds had outflows of $86.388MM after outflows of $294.395MM the week prior. National funds had inflows of $297.247MM after experiencing outflows of $2.968B the week prior. High-yield municipal funds reported outflows of $65.586MM in the latest week, after outflows of $1.456B the week prior. Exchange traded funds reported inflows of $754.758MM, after inflows of $62.53MM the week prior.


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 demand continues to remain strong. This significant demand for all types of municipal paper is being driven in large part by investors having to replace rolloffs due to continued strong redemption activity and demand from funds despite the recent outflows. We also note that customers should be watching the outflows from funds, because the bond funds will have to “liquidate” or sell to meet redemptions and when they do, they typically sell their high-grade credits to get the most value possible when liquidating. This may create opportunities for our bank customers.

We encourage participants to continue 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 missed, as the spreads on the one-, two- and three-year maturities all tightened, with the largest tightening occurring in the three-year maturity, 13 bps. Meanwhile the spreads on the five-, 10-, 15-, and 30-year maturities all widened, with the largest widening occurring in the 30-year maturity, 23 bps.


Daily Overview of the General Market for the Week Ending February 11th

On Monday municipal prices were mixed, as the first of the trading week’s $5.39B in new-issue long-term debt was offered. On the day, the yields on the two- and 10-year GO bond were steady, while the yield on the 30-year GO bond rose two bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys strengthened on Monday, as U.S. stocks were mixed for the session. The Dow finished relatively unchanged, while the S&P was down 0.4% and the NASDAQ was down 0.6%. On the day, the yields on the two-, 10-, and 30-year maturities each fell one bp. The 10-year municipal-to-Treasury ratio rose to 75.0% on Monday from last Friday’s level of 74.6%, while the 30-year municipal-to-Treasury ratio rose to 83.8% on Monday from last Friday’s level of 82.5%.

On Tuesday municipals prices weakened across the curve, following U.S. Treasury yields higher for the session, as the primary market got underway with several large new-issue offerings being priced. On the day, the yield on the two-year GO bond rose two bps, while the yield on the 10-year GO bond rose four bps and the yield on the 30-year GO bonds rose five bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys weakened on Tuesday, while U.S. stocks rose for the session. The Dow was up 372 points or 1.1%, while the S&P was up 0.8% and the NASDAQ was up 1.3%. On the day, the yield on the two-year maturity rose five bps, while the yield on the 10-year maturity rose four bps and the yield on the 30-year maturity rose three bps. The 10-year municipal-to-Treasury ratio rose to 75.5% on Tuesday from Monday’s level of 75.0%, while the 30-year municipal-to-Treasury ratio rose to 84.9% on Tuesday from Monday’s level of 83.8%.

On Wednesday municipals prices were steady across the curve, as a number of new-issue offerings came to 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 were mixed on Wednesday, while U.S. stocks rose in for the session. The Dow finished up 306 points or 0.9%, while the S&P was up 1.5% and the NASDAQ was up at 2.1%. On the day, the yield on the two-year maturity rose one bp, while the yield on the 10-year maturity fell two bps and the yield on the 30-year maturity was unchanged. The 10-year municipal-to-Treasury ratio rose to 76.3% on Wednesday from Tuesday’s level of 75.5%, while the 30-year municipal-to-Treasury was unchanged on Wednesday from Tuesday’s level of 84.9%.

On Thursday, while municipals prices weakened across the curve thy did outperform U.S. Treasurys, 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 each rose five bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices also weakened on Thursday, while U.S. stocks fell for the session. The Dow finished down 527 points or 1.5%, while the S&P was down 1.8% and the NASDAQ was down 2.1%. On the day, the yield on the two-year maturity rose 25 bps, while the yield on the 10-year maturity rose nine bps and the yield on the 30-year maturity rose five bps. The 10-year municipal-to-Treasury ratio fell to 75.4% on Thursday from Wednesday’s level of 76.3%, while the 30-year municipal-to-Treasury ratio bumped up to 85.2% on Thursday from Wednesday’s level of 84.9%.

Last Friday municipals prices weakened again, as market participants looked ahead to the $5.19B in expected new-issue offerings in the upcoming trading week. On the day, the yield on the two-year GO bond rose 10 bps, while the yield on the 10-year GO bond rose eight bps and the yield on the 30-year GO bond rose seven bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices strengthened on Friday, while U.S. stocks finished down for the session. The Dow was down 503 points or 1.5%, while the S&P was down 1.9% and the NASDAQ was down 2.8%. On the day, the yields on the two- and 10-year maturities each fell 11 bps, while the yield on the 30-year maturity fell six bps. The 10-year municipal-to-Treasury ratio rose to 83.9% on Friday from Thursday’s level of 75.4%, while the 30-year municipal-to-Treasury fell to 90.6% on Friday from Thursday’s level of 85.2%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks

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