Muni Update

February 24, 2020


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


Municipal Market Recap

Municipal prices started the week stronger across the curve. On Wednesday municipal prices were steady across the curve. On Thursday and Friday municipals prices strengthened across the curve. This strengthening in municipal prices, especially in the 10- and 30-year maturities, resulted in the municipal yields for these maturities reaching new lows. We note, that numerous market participants believe that the coronavirus outbreak is responsible for this flight to quality that has driven prices higher and yields lower as various capital market participants move money from equities to municipals. Issuance for the trading week is projected to be $13.0B, which is well above last week’s new issue levels. 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 59th week, as weekly reporting funds experienced inflows of $1.767B after experiencing inflows of $2.128B the week prior. The four-week moving average was a positive $1.838B, after being in the green at $1.896B 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 has 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 fell three basis points (bps) from Thursday to Friday and ended the week at 0.81%. Meanwhile the yield on the 10-year maturity fell five bps and the yield on the 30-year maturity fell seven bps on the MMD Triple-A Scale from Thursday to Friday and they ended the week at 1.09% and 1.69%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond fell six bps, while the yield on the 10-year GO bond fell nine bps and the yield on the 30-year GO bond fell 13 bps.

Last week the yield on the two-year maturity on the MMA Triple-A Scale fell three bps from Thursday to Friday and ended the week at 0.87%. Meanwhile the yield on the 10-year maturity fell four bps and the yield on the 30-year maturity fell five bps on the MMA Triple-A scale from Thursday to Friday and they ended the week at 1.21% and 1.80%, respectively. Overall, week-over-week the yield on the two-year GO bond fell six bps, while the yield on the 10-year GO bond fell two bps and the yield on the 30-year GO bond fell 10 bps.


New Issue Volume is Forecasted to be $13.0B for the Week

Total new issuance for the trading week per IHS Markit Ipreo is estimated to be $13.0B, which is well above last week’s revise level of issuance. The calendar consists of two deals that are expected to come in at over $1.0B and a total of 22 deals are scheduled to be $100.0MM or larger in par, with five of them competitive. Eight of the $100.0MM or larger par sized deals are taxables.

The largest deal of the week will be the Buckeye Tobacco Settlement Financing Authority’s $5.24B offering of asset-backed refunding senior and taxable bonds on Wednesday. The issue caries various ratings for different maturities. The taxable tranche is expected to come in around $427.005MM and the rest will be tax-exempt.

On Thursday, the Regents of the University of California plans to price $1.5B of medical center pooled revenue taxable bonds. The deal is rated Aa3 by Moody’s Investors Service (Moody’s), and AA- by Standard and Poor’s Global Ratings (S&P) and Fitch Ratings (Fitch). Staying in California, the Department of Airports of the City of Los Angeles’ plans to price $738.575MM of senior refunding revenue private activity non-alternative minimum tax (non-AMT) bonds for Los Angeles International Airport on Wednesday. The deal is rated Aa2 by Moody’s, and AA by S&P and Fitch.

In the competitive arena, gilt-edged Baltimore County, Maryland is set to sell a total of $596.0MM in three separate sales in two days this week. The county’s first sale will take place on Wednesday, with $246.0MM of consolidated public improvement bonds. Then on Thursday, it will sell $205.0MM of bond anticipation notes (BANS) and $145 million of consolidated public improvement BAN’s.


Municipal Bond Funds Post Inflows for a 59th Week

Investors in municipal bond funds put cash into funds for a 59th week, as tax-exempt weekly reporting funds experienced inflows of $1.767B in the latest week, after experiencing inflows of $2.128B the week prior. The four-week moving average was a positive $1.838B, after being in the green at $1.896B the prior week.

Long-term municipal bond funds had inflows of $1.124B in the latest week after experiencing inflows of $1.394B the week prior. Intermediate-term funds had inflows of $497.491MM after inflows of $384.906MM the week prior. National funds had inflows of $1.562B after experiencing inflows of $1.880B the week prior. High-yield municipal funds reported inflows of $481.181MM in the latest week, after inflows of $636.037MM the week prior. Exchange traded funds reported inflows of $180.347MM after inflows of $226.376MM 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 rolloff dates looming, 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 15-year maturity was unchanged, while all the other maturities (one-, two-, three-, five-, 10-, and 30-year) all widened, with the largest widening occurring in the two- and three-year maturities, eight bps each.


Daily Overview of the General Market for the Week Ending February 21st

Last Tuesday prices on municipals strengthened, as market participants prepped for the coming week’s $5.24B in new issue offerings. On the day, the yields on the two- and 10-year GO bonds each fell two bps, while the yield on the 30-year GO bond fell three bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasuries also strengthened, as U.S. stocks were mixed for the session. The Dow fell 0.57%, while the S&P fell 0.29% and the NASDAQ was relatively unchanged. On the day, the yield on the two-year maturity fell one bp, while the yields on the 10- and 30-year maturities each fell four bps. The 10-year municipal-to-Treasury ratio rose to 74.8% on Tuesday from last Friday’s level of 74.2%, while the 30-year municipal-to-Treasury ratio bumped up to 89.5% on Tuesday from Monday’s level of 89.2%.

Last Wednesday municipal prices were steady, as a number of deals came to market including $650.0MM of GO bonds in three separate sales from the Commonwealth of Massachusetts. 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. Treasuries weakened, as U.S. stocks posted gains for the session. The Dow and the S&P closed up 0.40% and 0.47%, respectively, while the NASDAQ closed up 0.87%. On the day, the yields on the two-, 10- and 30-maturities each fell on bp. The 10-year municipal-to-Treasury ratio slipped to 74.4% on Wednesday from Tuesday’s level of 74.8%, while the 30-year municipal-to-Treasury ratio slipped to 89.1% on Wednesday from Tuesday’s level of 89.5%.

Last Thursday prices on municipals strengthened, as the last of the week’s new issue offerings came to market, including the largest deal of the week, the $1.05B offering of income tax secured revenue and revenue refunding bonds by the District of Columbia. 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 strengthened, as U.S. stocks posted losses for the session. The Dow and S&P were down, 0.44% and 0.38% respectively, while the NASDAQ was down 0.67%. 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 four bps. The 10-year municipal-to-Treasury ratio rose to 75.0% on Thursday from Wednesday’s level of 74.4%, while the 30-year municipal-to-Treasury ratio bumped up to 89.3% on Thursday from Wednesday’s level of 89.1%.

Last Friday prices on municipals strengthened again, as market participants continue their flight to quality while also looking ahead to the expected $13.0B in new issue long-term debt to be offered. On the day, the yield on the two-year GO bond fell three bps, while the yield on the 10-year GO bond fell five bps and the yield on the 30-year GO bond fell seven bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices strengthened, as global markets fell as fears over the coronavirus (COVID-19) rose due to a renewed wave of cases in other countries. The Dow was down 0.78%, while the S&P and the NASDAQ were down 1.05% and 1.79%, respectively. On the day, the yield on the two-year maturity fell five bps, while the yield on the 10-year maturity fell six bps and the yield on the 30-year maturity fell seven bps. The 10-year municipal-to-Treasury ratio slipped to 74.7% on Friday from Thursday’s level of 75.0%, while the 30-year municipal-to-Treasury ratio slipped to 89.0% on Friday from Thursday’s level of 89.3%.


Taxable Market







Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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