Muni Update

February 28, 2022


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


Municipal Market Recap

Municipal bond prices were steady across the curve on Tuesday and Wednesday. On Thursday municipal prices strengthened across the curve and on Friday they weakened across the curve. This week, the projected level of new issue offerings for the trading week are $5.45B. 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 the week investors pulled cash out of funds for a second week in a row, as tax-exempt weekly reporting funds data showed that funds experienced outflows of $1.154B in the latest week, after experiencing outflows of $1.293B the week prior. The four-week moving average was a negative $1.285B, from a negative $1.354B the week prior.

Last week the yields on the two- and 10-year maturities on the MMD Triple-A Scale each rose three basis points (bps) from Thursday to Friday and they ended the week at 1.08% and 1.60%, respectively. Meanwhile, the yield on the 30-year maturity rose four bps on the MMD Triple-A Scale from Thursday to Friday and they ended the week at 1.98%. Overall, week-over-week the yield on the two-year general obligation (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 four bps.

Last week the yields on the two-, 10-, and 30-year maturities on the MMA Triple-A Scale each rose one bp from Thursday to Friday and they ended the week at 0.99%, 1.88%, and 2.41%, respectively. Overall, week-over-week the yield on the two-year maturity fell one bp, while the yields on the 10- and 30-year maturities each fell three bps.


New-Issue Volume is Forecasted to be $5.45B for the Trading Week

Total new issue offerings for the trading week per IHS Markit Ipreo are $5.45B. This week’s projected level of bond issuance is comprised of $3.30B in negotiated deals and $2.15B in competitive deals. The largest deal of the week will be the $792.83MM offering of water and sewer system second general resolution revenue bonds, Fiscal 2022 Series EE bonds from the New York City Municipal Water Finance Authority on Tuesday. The deal is rated Aa1 by Moody’s Investors Service (Moody’s) and AA+ by Standard and Poor’s Global Ratings (S&P) and Fitch Ratings (Fitch). Also on Tuesday, the Arizona Sports and Tourism Authority is set to price $146.25MM of senior revenue and revenue refunding bonds, Series 2022. The deal is rated A1 by Moody’s and A by Fitch.

Other major negotiated deals this week include the $500.0MM offering of taxable corporate CUSIP bonds, Series H by the Massachusetts Institute of Technology. The deal is rated triple-A by Moody’s and S&P. The Los Angeles Department of Water and Power is set to price two deals this week. The first is for $300.0MM of water system revenue bonds, 2022 Series A; consisting of $100.0MM of Series A1, $100.0MM of Series A2, and $100.0MM of Series A3. The second is for $270.0MM of fixed-rate water system revenue bonds, 2022 Series B. The deals are rated Aa2 by Moody’s, AA by Fitch, and AA+ by Kroll Bond Rating Agency (KBRA). Finally, the Arlington Higher Education Finance Corporation, Texas is set to price $164.27MM of education revenue bonds, Series 2022, guaranteed by Permanent School Fund Guarantee Program.

In the competitive arena the Omaha Metropolitan Utilities District, Nebraska is set to sell $118.56MM of gas system revenue bonds, Series 2022, at 10 a.m. eastern on Tuesday. The deal is rated Aa2 by Moody’s and AA+ by Fitch. Also on Tuesday, the Springdale Public Schools, Arkansas, is set to sell $171.345MM million of refunding and construction bonds, Series B, at noon eastern. The deal is rated Aa2 by Moody’s. On Wednesday Baltimore County, Maryland is set to sell two deals. The first is for $225.0MM of GO bonds consolidate public improvement bonds – 2022 Series at 10:15 a.m. eastern and the other is for $100.0MM of certificates of participation (COPs), Series 2022, at 10:45 a.m. eastern. Also on Wednesday, the Virginia Transportation Board is set to sell $263.985MM of transportation capital projects revenue and refunding bonds, Series 2022, at 10:30 a.m. eastern. The deal is rated Aa1 by Moody’s and AA+ by S&P and Fitch. Finally on Thursday, Baltimore County, Maryland will sell $150.0MM of Metropolitan District GO anticipation notes, 2022 Series, at 10:15 a.m. eastern.


Municipal Bond Funds Posted Outflows for the Second Week in a Row

Investors in municipal bond pulled cash out of funds for the week, as tax-exempt weekly reporting funds experienced outflows of $1.154B in the latest week, after experiencing inflows of $1.293B the week prior. The four-week moving average was a negative $1.285B, after being a negative $1.354B the week prior.

Long-term municipal bond funds had outflows of $524.743MM in the latest week, after experiencing outflows of $1.176B the week prior. Intermediate-term funds had outflows of $262.040MM after outflows of $114.022MM the week prior. National funds had outflows of $909.473MM after experiencing outflows of $975.591MM the week prior. High-yield municipal funds reported outflows of $282.504MM in the latest week, after outflows of $775.854MM the week prior. Exchange traded funds reported inflows of $288.247MM, after inflows of $493.186MM 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 continue to 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. Tax loss swaps are also presenting opportunities, as are fixed-to-floating rate swaps, especially in the expected rising rate environment we face. Week-over-week, BQ spreads were mixed as the one- 10- and 15-year maturities saw their spreads tighten, with the largest tightening occurring in the 15-year maturity, four bps. Meanwhile, the spreads on the two-, three-, five-, and 30-year maturities all widened, with the largest widening occurring in the three-year maturity, 14 bps.


Daily Overview of the General Market for the Week Ending February 25th

On Tuesday municipal prices were steady, as the first of the trading week’s $4.98B in new issue long-term debt was offered. On the day, the yields on the two-, 10-, and 30-year GO bonds were steady, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed on Tuesday, as U.S. Stocks fell for the session on increasing concerns over the Ukraine and Russia. The Dow finished down 483 points or 1.4%, while the S&P was down 1.0% and the NASDAQ was down 1.2%. On the day, the yield on the two-year maturity rose nine bps, while the yield on the 10-year maturity rose two bps and the yield on the 30-year maturity was unchanged. The 10-year municipal-to-Treasury ratio fell to 85.1% on Tuesday from last Friday’s level of 85.9%, while the 30-year municipal-to-Treasury ratio was unchanged on Tuesday from last Friday’s level of 90.2%.

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 weakened on Wednesday, while U.S. stocks sank in late afternoon trading due to continued worries about the likelihood of an imminent invasion of Ukraine by Russia. The Dow finished down 464 points or 1.4%, while the S&P was down 1.8% and the NASDAQ was down 2.6%. On the day, the yield on the two-year maturity rose two bps, while the yields on the 10- and 30-year maturities each rose five bps. The 10-year municipal-to-Treasury ratio fell to 82.9% on Wednesday from Tuesday’s level of 85.1%, while the 30-year municipal-to-Treasury fell to 88.2% on Wednesday from Tuesday’s level of 90.2%.

On Thursday, municipal prices strengthened across the curve, as the last of the week’s new issue offerings came to market. On the day, the yield on the two-year GO bond fell six bps, while the yields on the 10- and 30-year GO bonds each fell eight bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices strengthened on Thursday, while U.S. stocks fell on the open, and at one point they were down over 2% over concerns over Russia’s invasion of the Ukraine in the morning session. In mid-to late-day activity U.S Stocks staged a rally and moved back into the green across the board for the session. The Dow finished up 91 points or 0.3%, while the S&P was up 1.5% and the NASDAQ was up 3.3%. 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 the yield on the 30-year maturity fell one bp. The 10-year municipal-to-Treasury ratio fell to 80.1% on Thursday from Wednesday’s level of 82.9%, while the 30-year municipal-to-Treasury ratio fell to 85.1% on Thursday from Wednesday’s level of 88.2%.

Last Friday municipals prices weakened, as market participants looked ahead to the $5.45B in expected new issue offerings in the upcoming trading week. On the day, the yields on the two- and 10-year GO bonds each rose three bps, while the yield on the 30-year GO bond rose four bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices also weakened on Friday, while U.S. stocks rose for the session, as markets eyed the latest developments in Russia’s invasion of the Ukraine and the world’s response. The Dow was up 835 points or 2.5%, while the S&P was up 2.2% and the NASDAQ was up 1.6%. On the day, the yields on the two-, 10-, and 30-year maturities each rose one bps. The 10-year municipal-to-Treasury ratio rose to 81.2% on Friday from Thursday’s level of 80.1%, while the 30-year municipal-to-Treasury rose to 86.5% on Friday from Thursday’s level of 85.1%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks

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