Muni Update

February 18, 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 prices were once again steady across the curve. On Wednesday municipal prices were mixed, as the front-end was steady, while prices on bonds maturing 10 years and longer weakened. On Thursday prices were 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 $5.24B, which is well below last week’s revised total of $10.09B. 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 58th week, as weekly reporting funds experienced inflows of $2.128B after experiencing inflows of $1.631B the week prior. The four-week moving average was a positive $1.896B, after being in the green at $1.949B 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 two bps on the MMD Triple-A Scale from Thursday to Friday and they ended the week at 1.18% and 1.82%, respectively. Overall, week-over-week the yields on the two- and 10-year General Obligation (GO) bonds were unchanged, while the yield on the 30-year GO bond fell one bp.

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 yields on the 10- and 30-year maturities each fell one bp on the MMA Triple-A scale from Thursday to Friday and they ended the week at 1.29% and 1.90%, respectively. Overall, week-over-week the yields on the two- and 10-year GO bonds were each unchanged, while the yield on the 30-year GO bond fell one bp.


New-Issue Volume is Forecasted to be $5.24B for Trading Week

Total new issuance for the trading week per IHS Markit Ipreo is estimated to be $5.24B, which is well below last week’s revised total of $10.09B. The calendar consists of $3.44B in negotiated deals and $1.80B of competitive sales. There are 12 scheduled deals of $100.0MM or larger in par, of which five of them will be sold competitively.

The largest deal of the week will come from the District of Columbia, which plans to offer $961.460MM of income tax secured revenue and revenue refunding bonds on Thursday. The deal is rated Aa1 by Moody’s Investors Service (Moody’s), triple-A by Standard and Poor’s Global Ratings (S&P), and AA+ by Fitch Ratings (Fitch). Also on Thursday, the Texas Transportation Commission plans to offer $695.335MM of revenue bonds for the central Texas turnpike system on Thursday. The deal is expected to come in three tranches: $277.174MM of first-tier revenue refunding taxable bonds, scheduled to mature serially from 2023 through 2030 and include a term bond in 2040; $225.0MM of first-tier revenue refunding PUT taxable term bond in 2042; and $193.160MM of first-tier revenue refunding tax-exempt bond, scheduled to mature serially from 2040 through 2041. The deal is rated A3 by Moody’s and A by S&P and Fitch.

In the competitive space, Massachusetts is set to sell a total of $650.0MM of GO bonds in three separate sales on Wednesday. The deal is rated AA+ by Fitch at this time. On Thursday, the New York Thruway Authority will sell a total of $450.0MM of general revenue bonds in two separate sales. The deals are rated A1 by Moody’s and A by S&P.


Municipal Bond Funds Post Inflows for a 58th Week

Investors in municipal bond funds put cash into funds for a 58th week, as tax-exempt weekly reporting funds experienced inflows of $2.128B in the latest week, after experiencing inflows of $1.631B the week prior. The four-week moving average was a positive $1.896B, after being in the green at $1.949B the prior week.

Long-term municipal bond funds had inflows of $1.394B in the latest week after experiencing inflows of $1.121B the week prior. Intermediate-term funds had inflows of $384.906MM after inflows of $172.314MM the week prior. National funds had inflows of $1.880B after experiencing inflows of $1.459B the week prior. High-yield municipal funds reported inflows of $636.037MM in the latest week, after inflows of $713.091MM the week prior. Exchange traded funds reported inflows of $226.376MM after inflows of $139.119MM 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 February 15th being a large rolloff date, BQ participants continue to have significant demand for BQ paper. The expected level of new-issue paper this week coupled 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 spreads on the one-, three-, and 15-year maturities were all unchanged. Meanwhile, the spreads on the two-, five-, and 10-year maturities all tightened, with the largest tightening occurring in the 10-year maturity, seven bps. Finally, the spread on the 30-year maturity widened one bp.


Daily Overview of the General Market for the Week Ending February 14th

Last Monday prices on municipals were steady, as market participants prepped for the coming week’s $8.33B in new-issue offerings, and a handful of deals priced. 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. posted gains for the session. The Dow was up 0.60%, while the S&P was up 0.73% and the NASDAQ was up 1.13%. On the day, the yield on the two-year maturity fell four bps, while the yield on the 10-year maturity fell three bps and he yield on the 30-year maturity fell two bps. The 10-year municipal-to-Treasury ratio rose to 75.6% on Monday from last Friday’s level of 74.1%, while the 30-year municipal-to-Treasury ratio rose to 90.2% on Monday from last Friday’s level of 89.3%.

Last Tuesday prices on municipals were steady, as a handful of new-issue offerings came to market, including the largest deal of the week, the Grand Parkway Transportation Corporation, Texas’s offering of $2.313B of tax-exempt and taxable bonds, more than nearly doubling the taxable portion. 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 stocks were little changed for the session. The Dow was up unchanged, while the S&P and NASDAQ rose minimally, 0.17% and 0.11%, respectively. On the day, the yield on the two-year maturity rose four bps, 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 74.2% on Tuesday from Monday’s level of 75.6%, while the 30-year municipal-to-Treasury ratio fell to 89.3% on Tuesday from Monday’s level of 90.2%.

Last Wednesday municipal prices were mixed, as more deals came to market including three GO offerings (one negotiated and two competitive) from the City of New York that together totaled $1.5B. 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 rose one bp, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys weakened, as U.S. stocks posted solid gains. The Dow and the S&P closed up 0.94% and 0.64%, respectively, while the NASDAQ closed up 0.90%. 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 four bps. The 10-year municipal-to-Treasury ratio fell to 73.5% on Wednesday from Tuesday’s level of 74.2%, while the 30-year municipal-to-Treasury ratio fell to 88.0% on Wednesday from Tuesday’s level of 89.3%.

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 losses for the session. The Dow and S&P were down, 0.43% and 0.16% respectively, while the NASDAQ was down 0.14%. 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 two bps. The 10-year municipal-to-Treasury ratio bumped up to 73.9% on Thursday from Wednesday’s level of 73.5%, while the 30-year municipal-to-Treasury ratio rose to 88.9% on Thursday from Wednesday’s level of 88.0%.

Last Friday prices on municipals were mixed, as market participants were looking ahead to the $5.24B in new-issue long-term debt to be 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.

U.S. Treasury prices strengthened, as U.S. stocks finished the session mixed. The Dow was down 0.09%, while the S&P and the NASDAQ were both up 0.18% and 0.20%, respectively. On the day, the yields on the two- and 10-year maturities each fell two bps, while the yield on the 30-year maturity fell three bps. The 10-year municipal-to-Treasury ratio bumped up to 74.2% on Friday from Thursday’s level of 73.9%, while the 30-year municipal-to-Treasury ratio bumped up to 89.2% on Friday from Thursday’s level of 88.9%.


Taxable Market






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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