Muni Update

February 19, 2019


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

 

Municipal Market Recap

Municipal prices were mixed through Wednesday. On Monday and Tuesday prices on bonds maturing 10 years and in were steady, while the long-end weakened. On Wednesday prices were once again mixed, as the front-end was steady, while bonds maturing 10 years and longer weakened. On Thursday municipal prices strengthened across the curve. On Friday municipal prices were unchanged. Issuance this week is forecasted to be $2.8B, which is below last week’s revised level of issuance, but is expected due to the holiday-shortened trading week. The lighter new issue calendar coupled with bid lists should provide market participants with opportunities to fill their needs, as municipals remain in demand, especially with the current above-average redemption flows.

Investors in municipal bond funds put cash into funds for a sixth week, as weekly reporting funds experienced inflows of $1.451B after experiencing inflows of $1.149B the week prior. The four-week moving average was a positive $ 1.125B, after being a positive $998.486MM the week prior. Investors still facing low rates overseas continue to find higher-yielding U.S. assets attractive. These factors, should have both traditional and non-traditional market participants continuing to look for opportunities in the U.S. municipal market.Last week the yields on the two-, 10- and 30-year maturities on the MMD Triple-A Scale were steady from Thursday to Friday and they ended the week at 1.60%, 2.12% and 3.00%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond fell one basis point (bp), while the yield on the 10-year GO bond was unchanged and the yield on the 30-year GO bond rose three bps.

Last week the yields on the two-, 10- and 30-year maturities on the MMA Triple-A Scale were steady from Thursday to Friday and they ended the week at 1.67%, 2.40% and 3.10%, respectively. Overall, week-over-week the yield on the two-year GO bond was unchanged, while the yield on the 10-year GO bond rose two bps and the yield on the 30-year GO bonds rose three bps.

 

New Issue Volume is Forecasted to be $2.8B for the Week

Total issuance for the trading week is estimated to be $2.8B, which is below last week’s trading volume of in issuance, according to revised data from Thomson Reuters. This level of issuance should be well received by market participants due to strong demand driven in large part by high redemptions. This week’s trading calendar is comprised of $1.6B in negotiated offerings and $1.2B in competitive offerings.

Topping this week’s new issue slate is a GO bond sale from the State of Louisiana (State). The State will competitively sell $309.845 million of Series 2019A GOs on Thursday. Proceeds will be used to finance various improvement projects. The deal is rated AA- by S&P Global Ratings (S&P) and Fitch Ratings (Fitch). On Wednesday, Collin County, Texas, plans to competitively selling $151.285MM of Series 2019 limited tax permanent improvement GOs. The deal is rated AAA by S&P.

In the negotiated sector, the North Carolina Medical Care Commission plans to offer $206.71MM in Series 2019A-D healthcare facilities revenue bonds for the Wake Forest Baptist Obligated Group on Wednesday. The deal is rated A2 by Moody’s Investors Service (Moody’s) and A by S&P.

Also this week, the San Francisco Bay Area Toll Authority plans to offer $125.0MM of Series 2019S-H subordinate toll bridge revenue bonds. The deal is rated A1 by Moody’s and AA- by S&P and Fitch. In addition, the San Francisco City and County Airport Commission plans to offer $125.0MM of special facilities lease revenue bonds for the SFO Fuel Company. The deal consists of Series 2019A bonds subject to the alternative minimum tax (AMT) and Series 2019B taxable bonds. The deal is rated A1 by Moody’s and A by S&P.

 

Municipal Bond Funds Post Inflows for a Sixth Week

Investors in municipal bond funds put cash into funds for a sixth week, according to the latest data from Lipper. The weekly reporting funds saw inflows of $1.451B, after experiencing inflows of $1.149B the week prior. The four-week moving average was a positive $1.125B, after being a positive $998.786MM the week prior.

Long-term municipal bond funds had inflows of $998.428MM in the latest week after experiencing inflows of $712.920MM the week prior. Intermediate-term funds had inflows of $417.524MM after inflows of $604.747MM the week prior. National funds had inflows of $1.240B after experiencing inflows of $1.013B the week prior. High-yield municipal funds reported inflows of $452.473MM in the latest week, after inflows of $296.447MM the week prior. Exchange traded funds reported inflows of $821.0MM, after outflows of $378.137MM the week prior.

 

Demand in the Bank Qualified (BQ) Market Remains Strong

Last week, the BQ market had good activity, due in part to new issue opportunities and secondary market bid lists that continue to be well received. With rolloffs expected to continue at a brisk pace, BQ participants will continue to have significant demand for BQ paper. The low level of projected new issue paper this week, will have market participants looking to secondary market opportunities to provide them with additional chances to address their needs,  while picking up attractive structures, especially those in the long-end of the curve. For banks, selling shorter maturities with lower yields and reinvesting out on the curve (now 15+ years) is again presenting an opportunity for banks because of the higher tax rates of retail investors who have been buying the shorter paper with extremely low take-out yields. Participants should also continue to utilize extension swaps, as the bid side for municipals continues to remain strong. Week-over-week, bank qualified spreads tightened across the curve, with the largest tightening occurring in the two-, three- and five-year maturities, five bps each.

 

Daily Overview of the General Market for the Week Ending February 15th

Last Monday prices on municipals were mixed, as market participants were looking forward to the $6.4B in new issue offerings scheduled for the week. On the day, the yields on the two- and 10-year GO bonds were steady, while the yield on the 30-year GO bond rose one bp, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasuries were weaker, as U.S. equity markets finished the day mixed. The Dow was down, while the S&P and NAQDAQ finished slightly up for the session. On the day, the yields on the two- and 30-year maturities rose three bps, while the yield on the 10-year maturity rose two bps. The 10-year municipal-to-Treasury ratio fell to 80.0% on Monday from last Friday’s level of 80.6%, while the 30-year municipal-to-Treasury ratio fell to 99.3% on Monday from last Friday’s level of 100.0%.

Last Tuesday prices on municipals were mixed, as the negotiated Dormitory Authority of the State of New York (DASNY) and a competitive sale from the State of Texas kicked off the action in the primary market. On the day, the yields on the two- and 10-year GO bonds were steady, while the yield on the 30year GO Bond rose three bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasuries were weaker, as U.S. stocks rallied on hopes the President will sign a bipartisan spending deal and his top trade negotiators can make enough progress with Chinese officials to prevent tariff increases on March 1st. On the day, the yields on the two- and 30-year maturities each rose two bps, while the yield on the 10-year maturity rose three bps. The 10-year municipal-to-Treasury ratio fell to 79.1% on Tuesday from Monday’s level of 80.0%, while the 30-year municipal-to-Treasury rose to 99.7% on Tuesday from Monday’s level of 99.3%.

Last Wednesday prices on municipals were mixed again, as more new supply hit the market, led by GO deals from the District of Columbia and the State of Delaware. 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 rose two bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasuries were weaker again, as U.S. stocks posted modest gains on the session. 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 slipped to 79.0% on Wednesday from Tuesday’s levels of 79.1%, while the 30-year municipal-to-Treasury ratio was unchanged on Wednesday from Tuesday’s level of 99.7%.

Last Thursday prices on municipals strengthened across the curve, as the last of the week’s big new issues came to market. On the day, the yield on the two-year GO bond fell one bp, while the yield on the 10-year GO bond fell two bps 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 also finished the day stronger, as U.S. equity markets finished the day mixed. The Dow and S&P were down, while the NAQDAQ finished slightly up for the session. On the day, the yields on the two- and 30-year maturities each fell three bps, while the yield on the 10-year maturity fell five bps. The 10-year municipal-to-Treasury ratio rose to 79.7% on Thursday from Wednesday’s levels of 79.1%, while the 30-year municipal-to-Treasury ratio was unchanged on Thursday from Wednesday’s level of 99.7%.

Last Friday, prices on municipals were steady, as market participants were looking ahead to the coming holiday-shortened trading week and its week’s $2.8B 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.

U.S. Treasury prices finished the day mixed, as U.S. equity markets finished the session mixed. The Dow was down, while the S&P and NAQDAQ finished slightly up for the session. On the day, the yield on the two-year maturity rose two bps, while the yield on the 10-year maturity was steady and the yield on the 30-year maturity fell one bp. The 10-year municipal-to-Treasury was unchanged on Friday from Thursday’s level of 79.7%, while the 30-year municipal-to-Treasury ratio bumped up to 100.0% on Friday from Thursday’s level of 99.7%.







Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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