Muni Update

February 3, 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 Tuesday they were steady. On Wednesday they were once again steady, as the Federal Open Market Committee (FOMC) kept rates unchanged at a range of 1.50% to 1.75%, and offered little guidance about its next move. On Thursday prices were mixed, as the front-end was steady, while bonds maturing 10 years and longer strengthened. On Friday municipal prices were steady across the curve. The spreading coronavirus outbreak is pushing municipal-bond yields to record lows. The yields on top-rated 10-year and 30-year securities dropped to 1.15% and 1.83%, respectively, the lowest since the Bloomberg BVAL indexes begin in 2011. It was spurred by investors’ rush into the safest assets amid fears over the spread of the virus beyond China, giving an external jolt to a market where prices had already climbed to heady levels as the pace of new debt sales fails to keep up with a flood of cash coming in.

This week’s projected issuance is $7.06B and together with secondary market opportunities should provide market participants with a number of opportunities to meet their needs. As mentioned above, demand remains exceptionally strong in the municipal market due to a combination of high redemption flows, as well as inflows into municipal bond mutual funds.

Investors in municipal bond funds put cash into funds for a 56th week, as weekly reporting funds experienced inflows of $1.825B after experiencing inflows of $1.999B the week prior. The four-week moving average was a positive $2.263B, after being in the green at $1.877B 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.

Last week the yields on the two-, 10-, and 30-year maturities on the MMD Triple-A Scale were unchanged from Thursday to Friday and they ended the week at 0.83%, 1.15%, and 1.80%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond fell two basis points (bps), while the yields on the 10- and 30-year GO bonds each fell eight bps.

Last week the yield on the two-year maturity on the MMA Triple-A Scale fell one bp from Thursday to Friday and ended the week at 0.91%. Meanwhile the yields on the 10- and 30-year maturities on the MMA Triple-A Scale were unchanged from Thursday to Friday and they ended the week at 1.27% and 1.88%, respectively. Overall, week-over-week the yield on the two-year GO bond fell five bps, while the yields on the 10- and 30-year GO bonds each fell seven bps.


New-Issue Volume is Forecasted to be $7.06B for Trading Week

Total new issuance for the trading week per IHS Markit Ipreo is estimated to be $7.06B. The calendar consists of $5.80B in negotiated deals and $1.26B of competitive sales. Topping the week’s slate will be an $813.0MM offering from the California State University of 2020B taxable systemwide revenue bonds. Proceeds will be used to improve school facilities and to refund some debt for savings. The deal is rated Aa1 by Moody’s Investors Service (Moody’s) and AA- by Standard and Poor’s Global Ratings (S&P).

The New York City Municipal Water Finance Authority plans to offer $465.0MM of Fiscal 2020 Series DD water and sewer second general resolution revenue bonds. Proceeds will be used to fund capital projects and refund certain outstanding bonds for savings. The deal is rated Aa1 by Moody’s and AA+ by S&P and Fitch Ratings (Fitch).

Also this week the Anaheim Housing and Public Improvement Authority (Authority), California plans to offer $307.0MM of bonds in two deals. One will be $236.6MM of electric utility distribution system in three series; the Series 2020A revenue bonds, Series 2020B taxable revenue refunding bonds and Series 2020C revenue refunding bonds. In addition, Authority will offer $71.0MM of Series 2020A water system project revenue refunding bonds and Series 2020B water system taxable refunding bonds. The deals are rated AA- by both S&P and Fitch.

On Tuesday the Reedy Creek Improvement District, Florida plans to offer $337.0MM of Series 2020A taxable ad valorem tax refunding bonds on Tuesday. Disney World is the major property owner in the district. The deal is rated Aa3 by Moody’s and AA- by both S&P and Fitch.


Municipal Bond Funds Post Inflows for a 56th Week

Investors in municipal bond funds put cash into funds for a 56th week, as tax-exempt weekly reporting funds experienced inflows of $1.825B in the latest week, after experiencing inflows of $1.999B the week prior. The four-week moving average was a positive $2.263B, after being in the green at $1.877B the prior week.

Long-term municipal bond funds had inflows of $1.438B in the latest week after experiencing inflows of $1.418B the week prior. Intermediate-term funds had inflows of $289.330MM after inflows of $203.819MM the week prior. National funds had inflows of $1.592B after experiencing inflows of $1.731B the week prior. High-yield municipal funds reported inflows of $656.406MM in the latest week, after inflows of $490.462MM the week prior. Exchange traded funds reported inflows of $82.548MM after inflows of $62.224MM 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 1st being another large rolloff date, BQ participants continue to have significant demand for BQ paper. The expected level of new-issue paper this week, will have many BQ participants looking to secondary-market 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 one-year maturity tightened by two bps, while all the other maturities (two-, three-, five-, 10-, 15-, and 30-year) all widened, with the largest widening occurring in the five-year maturity, 19 bps.


Daily Overview of the General Market for the Week Ending January 31st

Last Monday prices on municipals strengthened, as market participants saw the first offerings of the week come to market. On the day, the yield on the two-year GO bond fell two bps, while the yields on the 10- and 30-year GO bonds each fell five bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys also strengthened, as U.S. stock joined the global sell-off at the open due to concerns over the continuing spread of coronavirus. The Dow was down 1.51%, while the S&P was down 1.58% and the NASDAQ was down by 1.84%. On the day, the yield on the two-year maturity fell five bps, while the yields on the 10- and 30-year maturities each fell nine bps. The 10-year municipal-to-Treasury ratio rose to 73.3% on Monday from last Friday’s level of 72.4%, while the 30-year municipal-to-Treasury ratio rose to 89.3% on Monday from last Friday’s level of 87.9%.

Last Tuesday prices on municipals were steady, as a handful of new-issue offerings priced, including two of the largest negotiated deals of the week; the Dormitory Authority of the State of New York’s $464.5mm deal for Langone Medical Center and the Escambia County Health Facilities Authority, Florida’s $610.35MM of healthcare facilities revenue and taxable revenue bonds for Baptist Health Care Corp., Obligated Group. 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 fears over the coronavirus abated overnight and better-than-expected economic data allowed U.S. stocks to bounce back on the open and hold onto gains made during the session. The Dow was up 0.65%, while the S&P and NASDAQ were up, 1.01% and 1.43%, respectively. On the day, the yield on the two-year maturity rose one bp, while the yield on the 10-year maturity rose four bps and the yield on the 30-year maturity rose five bps. The 10-year municipal-to-Treasury ratio fell to 71.5% on Tuesday from Monday’s level of 73.3%, while the 30-year municipal-to-Treasury ratio fell to 87.1% on Tuesday from Monday’s level of 89.3%.

Last Wednesday municipal prices were steady once again, as a number of deals came to market; including the $623.320MM of Wisconsin general fund appropriation refunding taxable bonds and the $458.315MM of Ohio turnpike revenue refunding and junior lien revenue refunding taxable bonds, to name a few. 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 strengthened, as the FOMC kept rates unchanged at a range of 1.50% to 1.75%. U.S. stocks opened the session up, but essentially gave up most of their gains by the close to finish mixed. The Dow and the NASDAQ closed up 0.04% and 0.06%, respectively, while the S&P closed down 0.09%. 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 five bps. The 10-year municipal-to-Treasury ratio rose to 73.8% on Wednesday from Tuesday’s level of 71.5%, while the 30-year municipal-to-Treasury ratio rose to 89.3% on Wednesday from Tuesday’s level of 87.1%.

Last Thursday prices on municipals were mixed, as the last of the week’s new-issue offerings including a century deal (2120 maturity) came to market and was well-received. 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 three bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices strengthened, as U.S. stocks fell in the morning as a soft 4Q GDP report and fears over the coronavirus continued to drag sentiment lower. In the afternoon the World Health Organization held a press conference declaring the coronavirus situation a global health emergency, thereby freeing up additional resources to help contain the outbreak.  The announcement bolstered sentiment who helped push stocks up for the session. The Dow and S&P were both up, 0.43% and 0.10% respectively, while the NASDAQ rose 0.26%. On the day, the yields on the two- and 30-year maturities each fell one bp, while the yield on the 10-year maturity fell three bps. The 10-year municipal-to-Treasury ratio fell to 73.3% on Thursday from Wednesday’s level of 73.8%, while the 30-year municipal-to-Treasury ratio fell to 88.2% on Thursday from Wednesday’s level of 89.3%.

Last Friday prices on municipals were steady, as market participants were looking ahead to the $7.06B in new-issue long-term debt to be offered. 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 strengthened, as U.S. stocks continued to post losses on weaken economic reports from France and the EU, as well as continued concerns over the coronavirus situation. The Dow and S&P were both down, 2.10% and 1.78%, respectively, while the NASDAQ was down 1.59%. On the day, the yield on the two-year maturity fell eight bps, while the yield on the 10-year maturity fell six bps and the yield on the 30-year maturities fell five bps. The 10-year municipal-to-Treasury ratio rose to 76.2% on Friday from Thursday’s level of 73.3%, while the 30-year municipal-to-Treasury ratio rose to 90.5% on Friday from Thursday’s level of 88.2%.


Taxable Market






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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