February 8, 2021
In this week’s Municipal Market Update, we highlight the following:
- Municipal prices started the week mixed, were steady on a daily basis through Thursday and on Friday they were mixed again, as reflected by weekly data for the Municipal Market Data (MMD) Triple-A Scale; also shown are the yields for the Municipal Market Advisors (MMA) Triple-A Scale;
- New-issue offerings are forecasted to be about $8.23B for the trading week;
- Municipal bond funds posted inflows for a 13th week in a row;
- Demand in the Bank Qualified (BQ) market remains strong;
- Day-by-day recap of activity in the General Market.
Municipal Market Recap
Municipal prices started the week mixed, as prices on both the front-end and long-end maturities were steady, while prices on intermediate maturities weakened. On Tuesday through Thursday, on a daily basis, municipal prices were were steady across the curve, while municipal-to-U.S. Treasury ratios continued to become richer and spreads continued to compress, leaving investors to search for any incremental yield in a supply-starved market. On Friday municipal prices were mixed, as bond maturing in the front end strengthened, while prices on bonds maturing 10 years and longer were steady.
Municipal volume in January fell year-over-year, as issuers hit the pause button while contemplating COVID-19 effects on their budgets and the potential for direct aid from Washington. Total volume, according to the Bond Buyer, fell 26.7% in January from $32.8B to $24.0B in 2020. Breaking it down, the data for January reflects that tax-exempt financings fell 32.6% from $24B to $14.7B, refunding activity fell 14.8% from $8.9B to $7.6B, and taxable bond issuance fell 18.6% from $8.3 to $6.7B in 2020.
The projected level of new-issue offerings for the trading week are $8.23B and coupled with general market (GM) offerings in the secondary market should provide market participants with some opportunities to fill their needs, especially as continued strong demand due to redemption activity, projected to be $28.0B in February, and overall solid inflows into funds contribute to demand outpacing supply. For the latest reporting period, investors in municipal bond funds put cash into funds for the a 13th week in a row, as evidenced by the latest tax-exempt weekly reporting funds data showing that funds experienced inflows of $1.58B in the latest week, after experiencing inflows of $2.79B the week prior.
Last week the yield on the two-year maturity on the MMD Triple-A Scale fell one basis point (bp) from Thursday to Friday and ended the week at 0.10%. Meanwhile, the yields on the 10 and 30-year maturities on the MMD Triple-A Scale were unchanged from Thursday to Friday and they ended the week at 0.73% and 1.38%, respectively. Overall, week-over-week the yield on the two-year general obligation (GO) bond fell one bp, while the yield on the 10-year GO bond rose one bp and the yield on the 30-year GO bond was unchanged.
Last week the yields on the two, 10-, and 30-year maturities on the MMA Triple-A Scale were unchanged from Thursday to Friday and they ended the week at 0.26%, 1.06%, and 1.61%, respectively. Overall, week-over-week the yields on the two-, 10-, and 30-year GO bonds were unchanged.
New-Issue Volume is Forecasted to be Around $8.23B for the Week
Total new-issue offerings for the trading week per IHS Markit Ipreo are estimated to be $8.23B. This week’s projected bond issuance is comprised of $5.13B in negotiated deals and $3.10B in competitive sales. Leading the way this week will be the $716.0MM of taxable higher education facilities second program bonds by the Tennessee State School Bond Authority. 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, this week the market will see $519.9MM of taxable sales tax revenue refunding bonds by the Regional Transportation District, Colorado. The New York City Industrial Development Agency will offer $507.8MM of Queens Baseball Stadium Project PILOT refunding bonds on Wednesday that will Assured Guaranty insured. The Lower Colorado River Authority (LCRA), Texas, will price $407.4MM of LCRA transmission services corporation project revenue bonds, rated A by S&P. The City of Chula Vista, California, plans to offer $398.4MM of taxable pension obligation bonds on Wednesday, rated AA by S&P. Staying in California, the California Statewide Communities Development Authority is set to price $198.0MM of essential housing revenue social bonds. The University of Washington will offer $325.0MM of taxable and tax-exempt general revenue and refunding bonds on Wednesday. The deal is rated Aaa by Moody’s and AA+ by S&P.
In the competitive arena, On Tuesday, the New York Metropolitan Transportation Authority (NYC MTA) has three sales on tap totaling $700.0MM of transportation revenue bonds, transportation revenue green bonds, and transportation revenue green bonds (CBI certified). The offerings are rated A3 by Moody’s and A- by S&P. Also, on Tuesday, the State of Washington will offer four deals; two of which are various purpose GO and two are motor vehicle fuel tax and vehicle-related fees GO’s. Also on Tuesday, Richland County, South Carolina, plans to offer $100.0MM of transportation sales and use tax GO bonds. On Wednesday, the Las Vegas Valley Water District, Nevada, is set to sell $154.0MM of GO limited tax water refunding bonds (additionally secured by SNWA pledged revenues) and $35.0MM of GO limited tax water refunding bonds (additionally secured by pledged revenues
On Thursday, the Maryland University System is set to sell $108.0MM of auxiliary facility and tuition taxable refunding revenue bonds and $230.0MM of auxiliary facility and tuition tax-exempt refunding revenue bonds.
Municipal Bond Funds Posted Inflows for an 13th Week in a Row
Investors in municipal bond put cash into funds for a 13th week in a row, as tax-exempt weekly reporting funds experienced inflows of $1.58B in the latest week, after experiencing inflows of $2.798 the week prior. Long-term and high-yield funds also saw inflows, while intermediate-term funds experienced outflows in the latest reported period.
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 to 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 in 15-years and longer, 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 replace weaker credits, at this time. Week-over-week, BQ spreads were mixed, as the spread on the one-year maturity widened by two bps and the spread on the two-year maturity was unchanged. Meanwhile, week-over-week the spreads on the three-, five, 10-, 15-, and 30-year maturities all tightened, with largest tightening occurring in the 30-year maturity, 20 bps.
Daily Overview of the General Market for the Week Ending February 5th
Last Monday municipals prices were mixed, as the first of the trading week’s $7.44B in new-issue long-term debt was offered. On the day, the yields on the two- and 30-year GO bonds were unchanged, while the yield on the 10-year GO bond rose one bp, according to the final read of the MMD Triple-A Scale.
Prices on U.S. Treasurys were mixed also on Monday, as U.S. Stock prices rose for the session. The Dow finished up 229 points, or 0.8%, while the S&P was up 1.6% and the NASDAQ was up 2.6%. On the day, 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 maturities fell three bps. The 10-year municipal-to-Treasury ratio rose to 67.0% on Monday from last Friday’s level of 64.9%, while the 30-year municipal-to-Treasury rose to 75.0% on Monday from Last Friday’s level of 73.8%.
Last Tuesday municipals prices were steady across the curve, as several new-issue offerings came to market including the retail pricing of the $900.MM of future tax-secured subordinate refunding bonds for the New York City Transitional Finance Authority. 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 were mixed on Tuesday, as U.S. stock prices were up for the session. The Dow finished up 475 points, or 1.6%, while the S&P was up 1.4% and the NASDAQ was up 1.6%. On the day, the yield on the two-year maturity was unchanged, while the yields on the 10- and 30-year maturities each rose three bps. The 10-year municipal-to-Treasury ratio fell to 65.2% on Tuesday from Monday’s level of 67.0%, while the 30-year municipal-to-Treasury fell to 73.8% on Tuesday from Monday’s level of 75.0%.
Last Wednesday municipals prices were steady, as a handful of new deals were priced including the institutional pricing of the $900.0MM of future tax-secured subordinate refunding bonds for the New York City Transitional Finance Authority (TFA), as well as the TFA’s $205.0MM offering of taxable future tax-secured subordinate bonds. 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 were mixed on Wednesday, as were U.S. stock prices which saw little movement for the session. The Dow finished up 36 points or 0.1%, while the S&P was also up 0.1% and the NASDAQ was relatively unchanged. On the day, the two-year maturity was unchanged, while the yield on the 10-year maturity rose three bps and the yield on the 30-year maturity rose five bps. The 10-year municipal-to-Treasury ratio fell to 63.5% on Wednesday from Tuesday’s level of 65.2%, while the 30-year municipal-to-Treasury ratio fell to 71.9% on Wednesday from Tuesday’s level of 73.8%.
Last Thursday municipals prices were steady, as the last of the week’s new-issue offerings came to market including the $577.65MM offering of sales tax-secured bonds for the Nassau County Interim Finance Authority and the $175.0MM of unlimited tax exempt and taxable social bonds for Detroit, with as much as 30 bp lower yields from original pricing wires. 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 were mixed on Thursday, as prices on U.S. Stocks rose for the session. The Dow was up 322 points or 1.6%. The S&P was also up 1.6%, while the NASDAQ was up 1.2%. On the day, the yields on the two- and 10-year maturities were unchanged, while the yield on the 30-year maturity rose one bp. The 10-year municipal-to-Treasury ratio was unchanged on Thursday from Wednesday’s level of 63.5%, while the 30-year municipal-to-Treasury ratio fell to 71.5% on Thursday from Wednesday’s level of 71.9%.
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP