Muni Update

February 22, 2021


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


Municipal Market Recap

Municipal prices started the holiday-shortened trading week mixed, as the front-end was steady, while prices on bonds maturing 10 years and longer weakened. On Wednesday and Thursday municipal prices weakened across the curve. The two-day rise in yield was welcomed by market participants and resulted in municipal-to-U.S. Treasury rations moving back towards being cheap, after becoming richer over the last two weeks. Still with technical (low supply/high demand) being what they currently are, rising yields may not have much further to go. Also, on Thursday, the thirty-year AAA municipal-bond yields rose about six basis points (bps) to 1.47%, marking a belated reaction by the municipal asset class to the current selloff in U.S. Treasurys. U.S. Treasury yields have risen, as investors factor in the economic impact of President Joe Biden’s proposed stimulus package. So far this year, municipal bonds have outperformed U.S. Treasurys, as investors continue to add to state and local debt funds, helping the debt eke out positive returns, according to Bloomberg Barclays indices.  On Friday municipal prices were mixed, as the front-end was steady, while prices on bonds maturing 10 years and longer weakened.

The projected level of new-issue offerings for the trading week are $9.97B and coupled with general market (GM) offerings in the secondary market should provide market participants with some opportunities to fill their needs, especially as strong demand continues due to redemption activity, and overall solid inflows into funds, which all contributing to demand outpacing supply. For the latest reporting period, investors in municipal bond funds put cash into funds for a 15th week in a row, as evidenced by the latest tax-exempt weekly reporting funds data showing that funds experienced inflows of $1.96B in the latest week, after experiencing inflows of $2.64B the week prior. The four-week moving average remained positive at $2.242B, after being in the green at $2.35B the week prior.

Last week the yields on the two-year maturity on the MMD Triple-A Scale was unchanged from Thursday to Friday and they ended the week at 0.12%. Meanwhile, the yields on the 10- and 30-year maturities on the MMD Triple-A Scale each rose five bps from Thursday to Friday and they ended the week at 0.89% and 1.52%, 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 20 bps and the yield on the 30-year GO bond rose 18 bps.

Last week the yield on the two-year maturity on the MMA Triple-A Scale rose two bps from Thursday to Friday and ended the week at 0.29%. Meanwhile, the yield on the 10-year maturity rose four bps and the yield on the 30-year maturity rose five bps on the MMD Triple-A Scale from Thursday to Friday and they ended the week at 1.18% and 1.72%, respectively. Overall, week-over-week the yield on the two-year GO bond rose five bps, while the yield on the 10-year GO bond rose 14 bps and the 30-year GO bond rose 15 bps.


New-Issue Volume is Forecasted to be Around $9.97B for the Week

Total new-issue offerings for the trading week per IHS Markit Ipreo are estimated to be $9.97B. This week’s projected bond issuance is comprised of $8.40B in negotiated deals and $1.57B in competitive sales. Leading the way this week will be the Regents of the University of California, which plans to bring several deals to market this week, starting with two offerings of taxable general revenue bonds totaling $1.09B on Wednesday. The deals are rated Aa2 by Moody’s Investors Service (Moody’s), and AA by both Standard and Poor’s Global Ratings (S&P) and Fitch Ratings (Fitch). Also, this week the Regents of the University of California plans to offer $289.8MM of general revenue bonds 2021 Series BH, also rated Aa2 by Moody’s and AA by S&P and Fitch.

On Thursday, the Regents of the University of California plans to offer $892.9MM of limited project revenue bonds 2021 Series Q. The deal is rated Aa3 by Moody’s and AA- by S&P and Fitch. Also, this week the Regents of the University of California plans to offer $448.9MM of taxable limited project revenue bonds 2021 Series R and $397.4MM of limited project forward delivery revenue bonds 2022 Series S. Both deals are rated Aa3 by Moody’s and AA- by S&P and Fitch.

Other notable negotiated deals this week include but are not limited to the $537.4MM offering of subordinate sales tax revenue short-term notes (limited tax bonds) 2021 Series A, serials 2022 by the San Diego County Regional Transportation Commission. The deal is rated AA by S&P. The New York City Municipal Water Finance Authority plans to offer $523.0MM of water and sewer system second general resolution revenue bonds, Fiscal 2021 Series CC, $221.0MM of Series CC-1, $150.0MM of Series CC-2, and $152.0MM of Series CC-3, terms 2032, all on Tuesday. The deals are rated Aa1 by Moody’s and AA+ by S&P and Fitch. Also, on Tuesday, the Indianapolis Local Public Improvement Bond Bank is set to price $390.1MM of revenue bonds. The deal is rated A2 by Moody’s and A+ by Fitch.

In the competitive arena this week Mecklenburg County, North Carolina will sell $225.0MM of GO school bonds on Tuesday. The deal is rated Triple-A by Moody’s, S&P, and Fitch. On Wednesday, Brookline, Massachusetts is set to sell $167.9MM of GO municipal purpose Loan of 2021 bonds. The deal is rated Triple-A by Moody’s and S&P. Also, on Wednesday the State of Maryland is set to sell three competitive loans. The first, $207.4MM of GOs, at 10 a.m. The second, $217.5MM of GOs, at 10:30 a.m. and the last will be $50.0MM of taxable GO bonds at 11 a.m. The deals are rated AAA by Fitch.


Municipal Bond Funds Posted Inflows for an 15th Week in a Row

Investors in municipal bond put cash into funds for a 15th week in a row, as tax-exempt weekly reporting funds experienced inflows of $1.96B in the latest week, after experiencing inflows of $2.64B the week prior. The four-week moving average was a positive $2.24B, after being in the green $2.35B the week prior.

Long-term municipal bond funds had inflows of $1.374B in the latest week after experiencing inflows of $1.652B the week prior. Intermediate-term funds had inflows of $332.887MM after inflows of $572.938MM the week prior. National funds had inflows of $1.800B after experiencing inflows of $2.502B the week prior. High-yield municipal funds reported inflows of $577.723MM in the latest week, after inflows of $832.187MM the week prior. Exchange traded funds reported inflows of $353.171MM, after inflows of $372.334MM the week prior.


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. This significant demand is being driven in large part by 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 maturing, 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 portfolio’s and look to sell odd lots, replace distressed credits, and sell lower coupons (e.g., 2%) with long finals to alleviate price volatility in the portfolio.  Week-over-week, BQ spreads were mixed, as the spreads on the one-, two-, three-, 10-, and 15-year maturities all widening, with largest widening occurring in the three-year maturity, 11 bps. Meanwhile the spread on the five-year maturity tightened two bps, and the week-over-week spread on the 30-year maturity was unchanged.


Daily Overview of the General Market for the Week Ending February 19th 

Last Tuesday municipals prices were mixed, as the first of the trading week’s $5.67B in new-issue long-term debt was offered. 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 two bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys weakened on Tuesday, as U.S. stock prices rose for the session. The Dow finished up 62 points or 0.2%, while the S&P was barely down 0.06% and the NASDAQ was down 0.3%. On the day, the yield on the two-year maturity rose two bps, while the yield on the 10-year maturity rose ten bps and the yield on the 30-year maturity rose seven bps. The 10-year municipal-to-Treasury ratio fell to 54.6% on Tuesday from last Friday’s level of 57.5%, while the 30-year municipal-to-Treasury fell to 65.4% on Tuesday from Last Friday’s level of 66.7%.

Last Wednesday municipals prices weakened, as a handful of new deals were priced including the competitive offering of $551.0MM of Nashville Davidson Counties, Tennessee, GO unlimited tax bonds and the $295.0MM negotiated offering of taxable GO refunding bonds by the State of Wisconsin. On the day, the yield on the two-year GO bond rose two bps, while the yields on the 10- and 30-year GO bonds each rose by five bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys strengthened on Wednesday, as U.S. stocks were mixed for the session. The Dow finished up 90 points or 0.3%, while the S&P was barely down at under 0.1% and the NASDAQ was down 0.6%. On the day, the yields on the two-and 30-year maturity each fell two bps, while the yield on the 10-year maturity fell one bp. The 10-year municipal-to-Treasury ratio rose to 58.9% on Wednesday from Tuesday’s level of 54.6%, while the 30-year municipal-to-Treasury ratio rose to 68.5% on Wednesday from Tuesday’s level of 65.4%.

Last Thursday municipals prices weakened, as the last of the week’s new-issue offerings came to market. On the day, the yield on the two-year GO bond rose two bps, while the yields on the 10- and 30-year GO bonds each rose six bps, 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 fell for the session. The Dow was down 119 points or 0.4%, while the S&P was also down 0.4% and the NASDAQ was down 0.7%. On the day, the yields on the two- and 10-year maturities were unchanged, while the yield on the 30-year maturity rose two bps. The 10-year municipal-to-Treasury ratio rose to 63.6% on Thursday from Wednesday’s level of 58.9%, while the 30-year municipal-to-Treasury ratio rose to 70.7% on Thursday from Wednesday’s level of 68.5%.

Last Friday municipal prices were mixed, as market participants started looking ahead to the $9.97B in expected new-issue offerings next week. 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 five bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were mixed on Friday, as were U.S. stocks prices for the session. The Dow was basically unchanged on the day, while the S&P was down 0.2% and the NASDAQ was up 0.1%. On the day, the yield on the two-year maturity was unchanged, 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 rose to 64.9% on Friday from Thursday’s level of 63.6%, while the 30-year municipal-to-Treasury bumped up to 71.0% on Friday from Thursday’s level of 70.7%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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