Muni Update

February 7, 2022


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


Municipal Market Recap

Municipal bond prices started the week mixed, as prices on bonds in the front-end weakened, while prices on bonds maturing 10 years and longer were steady. On Tuesday municipal prices were mixed again, as prices in the front-end weakened, while intermediate prices were steady and prices on the long end strengthened. On Wednesday and Thursday municipal prices strengthened across the curve. On Friday municipal prices were mixed again, as prices on bonds in the front-end were steady, while prices on bonds maturing 10 years and longer weakened.

This week, the projected level of new-issue offerings for the trading week are $5.39B. 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 February municipal bond redemptions will total $34.0B, which will be the largest amount for the month in five years. Issuers will also be paying out $14.0B of interest in the month, thus investors will receive a total of $48.0B of cash to be spent or reinvested.

Investors pulled cash out of funds for a third week in a row, as tax-exempt weekly reporting funds data showed that funds experienced outflows of $2.906B in the latest week, after experiencing outflows of $1.432B the week prior. The withdrawal last week is one of the largest withdrawals from the state and local government debt market on record, according to Refinitiv Lipper U.S. Fund Flows data. The outflow is the biggest since investors exited the market in droves in March 2020 during a pandemic-induced retreat and marks the seventh-biggest outflow on records going back to the early 1990s. The four-week moving average fell to a negative $1.087B, from a negative $149.964MM the week prior.

Last week the yield on the two-year maturity on the MMD Triple-A Scale was steady from Thursday to Friday and ended the week at 0.88%. Meanwhile, the yield on the 10-year maturity rose one bp, while the yield on the 30-year maturity rose two bps on the MMD Triple-A Scale from Thursday to Friday and they ended the week at 1.44% and 1.84%, respectively. Overall, week-over-week the yield on the two-year general obligation (GO) bond fell one bp, while the yields on the 10- and 30-year GO bonds each fell 11 bps.

Last week the yield 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 0.80%, 1.75%, and 2.25%, respectively. Overall, week-over-week the yield on the two-year maturity was unchanged, while the yield on the 10-year maturity fell two bps and the yield on the 30-year maturity fell four bps.


New-Issue Volume is Forecasted to be $5.39B for the Trading Week

Total new-issue offerings for the trading week per IHS Markit Ipreo are $5.39B. This week’s projected level of bond issuance is comprised of $3.40B in negotiated deals and $1.99B in competitive deals. The largest deal of the week comes from the Port of Portland, Oregon, which plans to offer $511.35MM of alternative tax minimum (AMT) Portland International Airport revenue bonds, Series Twenty-Eight.

On Tuesday a number of deals will be offered starting with the $285.9MM offering of airport facilities revenue bonds by the Greater Orlando Aviation Authority. The deal will be offered in five series consisting of consisting of $182.66MM of alternative minimum tax bonds (AMT), Series 2022A, $62.955MM of taxable bonds, Series 2022B, $8.73MM of AMT refunding bonds, Series 2022C, $20.045MM million of non-alternative minimum tax refunding bonds, Series 2022D, and $11.51MM of taxable refunding bonds, Series 2022E. The deal is rated Aa3 by Moody’s Investors Service (Moody’s) and AA- by Standard and Poor’s Global Ratings (S&P), Fitch Ratings (Fitch) and Kroll Bond Rating Agency (KBRA). The Arlington Independent School District, Texas plans to offer $195.035MM of unlimited tax school building and refunding bonds, Series 2022, guaranteed by the Permanent School Fund Guarantee Program on Tuesday. Also on Tuesday, the San Diego County Water Authority Financing Agency is set to price $170MM of water revenue bonds, Series 2022A. The deal is rated Aa2 by Moody’s, AAA by S&P, and AA+ by Fitch. Finally on Tuesday, the New York City Municipal Water Finance Authority is set to price $100.0MM of water and sewer system second general resolution revenue bonds, Adjustable Rate Fiscal 2022 Series DD.

On Thursday the State of Ohio (Aa1/AA+/AA+/) is set to price $426.755 of taxable GO refunding bonds, consisting of; $181.905MM of infrastructure improvement bonds, Series 2022A, $32.33MM of conservation projects bonds, Series 2022A, and $212.52MM of common schools’ bonds, Series 2022A. The deal is rated Aa1 by Moody’s and AA+ by S&P and Fitch. Also on Thursday, Norwich, Connecticut is set to price $145.0MM of GO bonds, Issue of 2022. The deal is rated AA by S&P.

In the competitive arena on Tuesday, the Las Vegas Valley Water District is set to sell $259.11MM of limited tax GO water refunding bonds, Series 2022C, at 10:15 a.m. eastern, and $33.66MM of limited tax GO water refunding bonds, Series 2022B, at 10:45 a.m. eastern. Also on Tuesday, Washington State is set to sell three deals. The first will be for $200.645MM of various purpose GO bonds, Series 2022C – Bid Group 1, at 10:30 a.m. eastern, the second is for $277.42MM of various purpose GO bonds, Series 2022C – Bid Group 2, at 11 a.m. eastern and finally deal will be for $265.475MM of various purpose GO bonds, Series 2022C – Bid Group 3, at 11:30 a.m. eastern. All the deals are rated Aaa by Moody’s, and AA+ by S&P and Fitch. On Thursday, the University System of Maryland will sell two offering, the first is for $97.64MM of auxiliary facility and tuition revenue bonds, 2022 Series A, at 10:30 a.m. eastern and the other is for $23.95MM of auxiliary facility and tuition revenue bonds, 2022 Refunding Series B, at 10:45 a.m. eastern.


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

Investors in municipal bond pulled cash out of funds for a third week in a row, as tax-exempt weekly reporting funds experienced outflows of $2.906B in the latest week, after experiencing outflows of $1.432B the week prior. The four-week moving average fell to negative $1.087B, after being a negative $149.964MM the week prior.

Long-term municipal bond funds had outflows of $1.982B in the latest week, after experiencing outflows of $760.347MM the week prior. Intermediate-term funds had outflows of $294.395MM after outflows of $157.818MM the week prior. National funds had outflows of $2.968B after experiencing outflows of $1.291B the week prior. High-yield municipal funds reported outflows of $1.456B in the latest week, after outflows of $453.999MM the week prior. Exchange traded funds reported inflows of $62.53MM, after outflows of $209.02MM 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 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. Week-over-week, BQ spreads tightened across the curve, with the largest tightening occurring in the two-year maturity, 15 bps.


Daily Overview of the General Market for the Week Ending February 4th

On Monday municipal prices were mixed, as the first of the trading week’s $8.07B in new-issue long-term debt was offered. On the day, the yield on the two-year GO bond rose one bp, while the yields on the 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 Monday, as U.S. stocks gained for the session, as traders shook off a months’ worth of equity market volatility and looked ahead to another packed week of corporate earnings results and economic data. The Dow finished up 406 points or 1.2%, while the S&P was up 1.9% and the NASDAQ was up 3.4%. On the day, the yield on the two-year maturity rose three bps, while the yield on the 10-year maturity rose one bp and the yield on the 30-year maturity rose four bps. The 10-year municipal-to-Treasury ratio fell to 86.6% on Monday from last Friday’s level of 87.1%, while the 30-year municipal-to-Treasury ratio fell to 92.4% on Monday from last Friday’s level of 94.2%.

On Tuesday municipals prices were mixed again, as the primary market got underway with several large new-issue offerings being priced. On the day, the yield on the two-year GO bond rose one bp, while the yield on the 10-year GO bond fell five bps and the yield on the 30-year GO bonds fell four bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were also mixed on Tuesday, while U.S. stocks rose for a third session in a row, as investors continue to price in tighter monetary policy and weigh a lineup of big-name earnings reports. The Dow was up 272 points or 0.8%, while the S&P was up 0.7% and the NASDAQ was up 0.8%. On the day, the yield on the two-year maturity was unchanged, while the yield on the 10-year maturity rose two bps and the yield on the 30-year maturity one bp. The 10-year municipal-to-Treasury ratio fell to 82.9% on Tuesday from Monday’s level of 86.6%, while the 30-year municipal-to-Treasury ratio fell to 90.1% on Tuesday from Monday’s level of 92.4%.

On Wednesday municipals prices strengthened across the curve, especially in the long end, as a number of new-issue offerings 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 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.

Prices on U.S. Treasurys also strengthened on Wednesday, while U.S. stocks rose in a choppy session. The Dow finished up 224 points or 0.6%, while the S&P was up 0.8% and the NASDAQ was up at 0.5%. On the day, the yield on the two-year maturity fell two 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 81.5% on Wednesday from Tuesday’s level of 82.9%, while the 30-year municipal-to-Treasury ratio fell to 87.2% on Wednesday from Tuesday’s level of 90.1%.

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

U.S. Treasury prices weakened on Thursday, while U.S. stocks fell for the session. The Dow finished down 518 points or 1.5%, while the S&P was down 2.4% and the NASDAQ was down 3.7%. On the day, the yields on the two- and 30-year maturities each rose three bps, while the yield on the 10-year maturity rose four bps. The 10-year municipal-to-Treasury ratio fell to 78.6% on Thursday from Wednesday’s level of 81.5%, while the 30-year municipal-to-Treasury ratio fell to 85.1% on Thursday from Wednesday’s level of 87.2%.

Last Friday municipals prices were mixed, as market participants also looked ahead to the $5.39B in expected new-issue offerings in the upcoming trading week. On the day, the yield on the two-year GO bond was unchanged, while the yield on the 10-year GO bond rose one bp and the yield on the 30-year GO bond rose two bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices weakened on Friday, while U.S. stocks finished mixed for the session. The Dow was barely down 21 points or 0.1%, while the S&P was up 0.5% and the NASDAQ was up 1.6%. On the day, the yield on the two-year maturity rose 12 bps, while the yield on the 10-year maturity rose 11 bps and the yield on the 30-year maturity rose nine bps. The 10-year municipal-to-Treasury ratio fell to 74.6% on Friday from Thursday’s level of 78.6%, while the 30-year municipal-to-Treasury fell to 82.5% on Friday from Thursday’s level of 85.1%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks

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