Muni Update

January 11, 2021


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


Municipal Market Recap

Municipal prices started the week steady across the curve. On Tuesday municipal prices were mixed, as the front-end was steady, while prices on bonds maturing 10 years and longer strengthened. On Wednesday, municipal prices were once again mixed, as the front-end was steady, while prices on bonds maturing 10 years and longer weakened. Thursday and Friday’s municipal price action was a repeat of Wednesday’s, with prices on bonds in the front-end being steady, while prices on bonds maturing 10 years and longer being weaker.

The projected level of new-issue offerings for the week is $6.9B and, coupled with secondary market, offerings should provide market participants with various opportunities to fill their needs, as demand continues to outpace supply. The continued strong demand is due to strong continued redemption activity and overall solid inflows into funds.

Investors in municipal bond funds put cash into funds for the a ninth week in a row, as evidenced by the latest tax-exempt weekly reporting funds data showing that funds experienced inflows of $1.142B in the latest week, after experiencing inflows of $1.767B the week prior. The four-week moving average was a positive $1.278B, after being in the green at $1.240B the week prior. Investors still facing low or negative rates overseas continue to find positive-yielding U.S. assets attractive.

Last week the yield on the two-year maturity on the MMD Triple-A Scale was unchanged from Thursday to Friday and ended the week at 0.15%. Meanwhile the yields on the 10- and 30-year maturities on the MMD Triple-A Scale each rose four basis points (bps) from Thursday to Friday, and they ended the week at 0.78% and 1.46%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond was unchanged, while the yields on the 10- and 30-year GO bonds each rose seven bps.

Last week the yield on the two-year maturity on the MMA Triple-A Scale rose one bp from Thursday to Friday and ended the week at 0.30%. Meanwhile the yields on the 10- and 30-year maturities on the MMA Triple-A Scale each rose two bps from Thursday to Friday and they ended the ended the week at 1.14% and 1.68%, respectively. Overall, week-over-week the yield on the two-year GO bond rose three bps, while the yields on the 10- and 30-year GO bonds each rose five bps.


New-Issue Volume is Forecasted to be Around $6.9B for the Week

Total new-issue offerings for the trading week per IHS Markit Ipreo are estimated to be $6.9B. This week’s projected bond issuance is comprised of $4.78B in negotiated deals and $2.09B in competitive sales. The Pennsylvania Turnpike Commission plans to price $442.0 of turnpike subordinate revenue bonds tis week. The deal is rated  A3 by Moody’s Investors Service (Moody’s), A- by Standard and Poor’s Global Ratings (S&P) and A+ by Fitch Ratings (Fitch) Also this week the Virginia College Building Authority is set to sell $356.9MM of taxable educational facilities revenue refunding bonds on Wednesday.

Other deals scheduled to price this week starting on Tuesday include a $300.0MM offering of taxable bonds for the Trinity Health Credit Group. The deal is rated Aa3 by Moody’s and AA- by S&P and Fitch. Also, the Texas Veterans Land Board plans to offer $250.0MM of variable rate demand bonds with terms due in 2051. The deal is rated Aaa by Moody’s.

On Wednesday the Long Island Power Authority plans to offer $250.0MM of electric system general revenue notes. The deal is rated A2 by Moody’s and A by S&P and Fitch. The City of El Cajon, Texas, plans to offer $147.0MM taxable pension obligation bonds. The deal is rated Aa by S&P. Finally, on Wednesday, Fremont, California Unified School District (USD) is set to sell $126.5MM of GO bonds.

On Thursday Cook County, Illinois plans to offer $340.0MM of GO refunding bonds. The deal is rated A2 by Moody’s, and A+ by S&P and Fitch. Following Wednesday’s sale, the Freemont, California ISD plans to offer $100.0MM of taxable GO refunding bonds. Also, on Thursday, American University is set to price $100.0MM taxable bonds.

In the competitive arena Multnomah County, Oregon (County) will $229.4MM of taxable GO bonds on Tuesday. The County will also sell $157.0MM of tax-exempt GOs on Tuesday. On Wednesday, the State of South Carolina will sell $180.0MM of tax-exempt GO bonds.


Municipal Bond Funds Posted Inflows for a Ninth Week in a Row

Investors in municipal bond put cash into funds for a ninth week, as tax-exempt weekly reporting funds experienced inflows of $1.142B in the latest week, after experiencing inflows of $1.767B the week prior. The four-week moving average was a positive $1.278B, after being in the green at $1.240B the week prior.

Long-term municipal bond funds had inflows of $1.278B in the latest week, after experiencing inflows of $704.323MM the week prior. Intermediate-term funds had inflows of $149.612MM after inflows of $140.243MM the week prior. National funds had inflows of $1.112B after experiencing inflows of $1.684B the week prior. High-yield municipal funds reported inflows of $98.262MM in the latest week, after inflows of $228.745MM the week prior. Exchange traded municipal funds reported inflows of $243.109MM, after inflows of $288.931MM 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 buyers continue to outpace sellers. BQ participants continue to have significant demand for municipal paper due in large part to 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, 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 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 was unchanged, while the spreads on the two-, three-, five-, 10-, 15-, and 30- maturities all tightened, with the largest tightening occurring in the 15-year maturity, 15 bps.


Daily Overview of the General Market for the Week Ending January 8th

Last Monday municipals prices were steady, and the overall lack of new-issue supply relative to redemption active continued to keep the municipal-to-Treasury ratios low. 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, as U.S. Stock opened the session higher, only to fall for most of the day before rallying back and offsetting some of the session’s losses. The Dow finished down 383 points, or 1.3%, while the S&P and the NASDAQ were both down 1.5%. On the day, the yield on the two-year maturity fell two bps, while the yield on the 10-year maturity was unchanged and the yield on the 30-year maturity rose one bp. The 10-year municipal-to-Treasury ratio rose to 77.4% on Monday from last Friday’s level of 76.3%, while the 30-year municipal-to-Treasury bumped to 84.3% on Monday from Last Friday’s level of 84.2%.

Last Tuesday municipals prices were mixed, as a handful of new-issue offerings were priced, including the $370.0MM in competitive offerings from Nassau County, New York. On the day, the yield on the two-year GO bond was unchanged, while the yields on the 10- and 30-year GO bonds each fell one bp, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys weakened on Tuesday, as U.S. Stock prices rose for the session. The Dow finished up 168 points, or 0.6%, while the S&P was up 0.7% and the NASDAQ was up 1.0%. On the day, the yield on the two-year maturity rose two bps, while the yield on the 10-year maturity rose three bps and the yield on the 30-year maturity rose four bps. The 10-year municipal-to-Treasury ratio fell to 74.0% on Tuesday from Monday’s level of 77.4%, while the 30-year municipal-to-Treasury ratio fell to 81.8% on Tuesday from Monday’s level of 84.3%.

Last Wednesday municipals prices were mixed, as a handful of new deals were priced. On the day, the yield on the two-year GO bond was unchanged, while the yields on the 10- and 30-year GO bonds each rose two bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys weakened on Wednesday, as U.S. stocks were mixed for the session. The Dow finished up 438 points or 1.4%, while the S&P was up 0.6% and the NASDAQ was down 0.6%. On the day, the yield on the two-year maturity rose one bp, while the yield on the 10-year maturity rose eight bps and the yield on the 30-year maturity rose 11 bps. The 10-year municipal-to-Treasury ratio fell to 70.2% on Wednesday from Tuesday’s level of 74.0%, while the 30-year municipal-to-Treasury ratio fell to 77.9% on Wednesday from Tuesday’s level of 81.8%.

Last Thursday municipals prices were mixed once again, as the last of the week’s new-issue offerings came to market including the $450.0MM GO refunding bonds by the City and County of Denver School District No.1 and the $350.0MM Series 2021QQQ school facilities construction social bonds form the New Jersey Economic Development Authority. On the day, the yield on the two-year GO bond was unchanged, while the yields on the 10- and 30-year GO bonds each rose two bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were also mixed on Thursday, as U.S. stocks rose for the session. The Dow finished up 212 points or 0.7%, while the S&P was up 1.5% and the NASDAQ was up 2.6%. On the day, the yield on the two-year maturity was unchanged, while the yields on the 10- and 30-year maturities each rose four bps. The 10-year municipal-to-Treasury ratio fell to 69.4% on Thursday from Wednesday’s level of 70.2%, while the 30-year municipal-to-Treasury ratio fell to 77.3% on Thursday from Wednesday’s level of 77.9%.

Last Friday prices on municipals were mixed, as market participants started looking ahead to the $6.9B in expected new-issue offerings next week. On the day, the yield on the two-year GO bond was unchanged, while the yields on the 10- and 30-year GO bonds each rose three bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were also mixed, while U.S. stocks prices rose for the session. The Dow finished up 57 points, or 0.2%, while the S&P was up 0.6% and the NASDAQ was up 1.0%. On the day, the yield on the two-year maturity was unchanged, 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 69.0% on Friday from Thursday’s level of 69.4%, while the 30-year municipal-to-Treasury rose to 78.1% on Friday from Thursday’s level of 77.3%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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