Muni Update

January 10, 2022


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


Municipal Market Recap

Municipal prices weakened on Monday and Tuesday. On Wednesday municipal prices were steady across the curve. On Thursday and Friday municipal prices once again weakened across the curve.

This week, the projected level of new-issue offerings for the trading week is $4.1B and coupled with bank qualified (BQ) and general market (GM) offerings in the secondary market should offer market participants numerous opportunities to fill their needs, especially as demand continues to outpace supply. This continued strong demand in the municipal market is being driven by redemption activity and inflows into funds. As stated last week, for January 2022, the amount of money expected to be redeemed is approximately $20.2B. Bondholders will also receive $13.7B of interest in January, bringing the total amount potentially available for reinvestment to $33.8B.

For funds latest reporting period, investors in municipal bond funds put cash into funds for a 44th week in a row, as tax-exempt weekly reporting funds data showed that funds experienced inflows of $840.848MM in the latest week, after experiencing inflows of $1.202B the week prior. The four-week moving average was positive at $980.815MM, after being in the green at $971.511MM the week prior.

Last week the yields on the two-, 10-, and 30-year maturities on the MMD Triple-A Scale each rose five basis points (bps) from Thursday to Friday and they ended the week at 0.40%, 1.17%, and 1.63%, respectively. Overall, week-over-week the yield on the two-year general obligation (GO) bond rose 16 bps, while the yields on the 10- and 30-year GO bonds each rose 14 bps.

Last week the yields on the two-, 10-, and 30-year maturities on the MMA Triple-A Scale each rose five bps from Thursday to Friday and they ended the week at 0.32%, 1.39%, and 1.90%, respectively. Overall, week-over-week the yield on the two-year maturity rose 12 bps, while the yield on the 10-year maturity rose 13 bps and the yield on the 30-year maturity rose 14 bps.


New-Issue Volume is Forecasted to be $4.1B for the Trading Week

Total new-issue offerings for the trading week per IHS Markit Ipreo are $4.1B.  This week’s projected level of bond issuance is comprised of $2.3B in negotiated deals and $1.8B in competitive deals. The largest deal of the week will come from the Chicago Board of Education, which is set to price $862.65MM of dedicated revenues, consisting of $500.0MM of Series 2022A and $362.65MM of Series 2022B on Wednesday. The deal is rated BB+ by Fitch Ratings (Fitch) and BBB by Kroll Bond Rating Agency (KBRA).

Other major deals this week include the Tomball Independent School District, Texas which is set to price $127.39MM of unlimited tax school building bonds, Series 2022 on Wednesday. The deal is backed by the Texas Permanent School Fund Guarantee. On Thursday the State of Louisiana will offer $651.035MM of taxable gasoline and fuels tax revenue refunding bonds, 2022 Series A. The deal is rated Aa2 by Moody’s Investors Service (Moody’s) and AA- by Standard and Poor’s Global Ratings (S&P). Also on Thursday, the Comal Independent School District, Texas is set to price $445.825MM of unlimited tax school building bonds, Series 2022. The deal is backed by the Texas Permanent School Fund Guarantee. Finally, on Thursday the Los Angeles Department of Water and Power, California, is set to price $375.0MM of power system revenue bonds, 2022 Series A. The deal is rated Aa2 by Moody’s, AA- by S&P, and AA by Fitch.

In the competitive arena the Iowa Board of Regents is set to sell $101.38MM of hospital revenue bonds, Series S.U.I. 2022B at 11:30 a.m. eastern on Tuesday. The Iowa Board of Regents is also set to sell $201.755MM of hospital revenue bonds, Series S.U.I. 2022A at 11 a.m. on Tuesday. The Louisville and Jefferson County Metropolitan Sewer District is set to sell $225.0MM of green sewer and drainage system revenue bonds, Series 2022A at 10:30 a.m. on Tuesday. On Wednesday, Stoneham, Massachusetts, is set to sell $135.16MM of GO municipal purpose loan of 2022 bonds, at 11 a.m. eastern. The Las Vegas Valley Water District is set to sell $288.49MM of GO limited tax water improvement bonds at 10:30 a.m. on Wednesday. The deal is rated Aa1 by Moody’s and AA by S&P. The Port of Seattle is set sell $94.645MM of taxable, limited tax GO and refunding bonds, Series 2022B at 11:30 a.m. on Thursday. This issuer is also set sell $15.73MM of alternative minimum tax, limited tax GO bonds, Series 2022A at 11 a.m. eastern on Thursday. The offerings are rated Aaa by Moody’s and AA- by S&P and Fitch.


Municipal Bond Funds Posted Inflows for a 44th Week in a Row

Investors in municipal bond put cash into funds for a 44th week in a row, as tax-exempt weekly reporting funds experienced inflows of $840.848MM in the latest week, after experiencing inflows of $1.202B the week prior. The four-week moving average remained positive at $970.815MM after being in the green at $971.511MM the week prior.

Long-term municipal bond funds had inflows of $717.697MM in the latest week, after experiencing inflows of $1.009B the week prior. Intermediate-term funds had inflows of $224.168MM after inflows of $179.553MM the week prior. National funds had inflows of $826.058MM after experiencing inflows of $1.226B the week prior. High-yield municipal funds reported inflows of $398.025MM in the latest week, after inflows of $424.034MM the week prior. Exchange traded funds reported inflows of $246.341MM, after inflows of $474.034MM the week prior.


Demand in the Bank Qualified (BQ) Market Remains Strong

BQ participants would normal be focused on both BQ and general market (GM) new-issue offering to fill their needs, however, with issuance expected to be light for the week and demand to continue to be strong, BQ participants will have to look to the secondary market for either BQ or general market (GM) opportunities to fill their needs. 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.

At this time of year, we encourage participants 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 15-year maturity, 20 bps.


Daily Overview of the General Market for the Week Ending January 7th

On Monday municipals prices were little changed except for the December-to-January roll, as activity was light to start the year. On the day, the yield on the two-year GO bond rose three bps, while the yields on the 10- and 30-year Go bonds each rose one bp, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys weakened on Monday, while U.S. stocks rose for the session. The Dow was up 247 points or 0.7%, while the S&P was up 0.6% and the NASDAQ was up 1.2%. On the day, the yield on the two-year maturity rose five bps, while the yield on the 10-year maturity rose nine bps and the yield on the 30-year maturity rose 11 bps. The 10-year municipal-to-Treasury ratio fell to 63.8% on Monday from last Friday’s level of 67.8%, while the 30-year municipal-to-Treasury ratio fell to 74.6% on Monday from last Friday’s level of 78.4%.

On Tuesday municipals prices weakened across the curve, as selling pressure picked up due to a lack of new-issue paper to start the year. On the day, the yields on the two-, 10-, and 30-year GO bonds each rose three bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed on Tuesday, as were U.S. stocks for the session. The Dow was up 215 points or 0.6%, while the S&P was barely down 0.1% and the NASDAQ was down 1.3%. On the day, the yield on the two-year maturity fell one bp, while the yield on the 10-year maturity rose three bps and the yield on the 30-year maturity rose six bps. The 10-year municipal-to-Treasury ratio rose to 64.5% on Tuesday from Monday’s level of 63.8%, while the 30-year municipal-to-Treasury ratio fell to 73.9% on Tuesday from Monday’s level of 74.6%.

On Wednesday municipals prices were steady, despite the selloff in the U.S. Treasury Market after the release of the Federal Open Market Committee’s (FOMC) December minutes, and the lack of new-issue municipal supply to start the year. 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 fell for the session. The Dow finished down 392 points or 1.1%, while the S&P was down 1.9% and the NASDAQ was down 3.3%. On the day, the yield on the two-year maturity rose six bps, while the yield on the 10-year maturity rose five bps and the yield on the 30-year maturity rose two bps. The 10-year municipal-to-Treasury ratio fell to 62.6% on Wednesday from Tuesday’s level of 64.5%, while the 30-year municipal-to-Treasury ratio fell to 73.2% on Wednesday from Tuesday’s level of 73.9%.

Last Thursday municipals prices weakened cross the curve, as nearly half the week’s projected new-issue par was offered in three issues. On the day, the yields on the two-, 10-, and 30-year GO bonds each rose five bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were mixed on Thursday, as U.S. stocks closed lower after a choppy session. The Dow was down 171 points or 0.5%, while the S&P and NASDAQ were barely down 0.1%. On the day, the yield on the two-year maturity rose five 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 rose to 64.7% on Thursday from Wednesday’s level of 62.6%, while the 30-year municipal-to-Treasury ratio rose to 75.6% on Thursday from Wednesday’s level of 73.2%.

Last Friday municipals prices weakened, as market participants looked ahead to the $4.1B in expected new-issue offerings in the upcoming trading week. On the day, the yields on the two-, 10-, and 30-year GO bonds each rose five bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were mixed, while U.S. stocks fell for the session. The Dow was barely down 5 points or 0.01%, while the S&P was down 0.3% and the NASDAQ was down at 1.0%. On the day, the yield on the two-year maturity fell one bp, while the yield on the 10-year maturity rose three bps and the yield on the 30-year maturity rose two bps. The 10-year municipal-to-Treasury ratio rose to 66.5% on Friday from Thursday’s level of 64.7%, while the 30-year municipal-to-Treasury rose to 77.3% on Friday from Thursday’s level of 75.6%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks

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