Muni Update

January 13, 2020



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


Municipal Market Recap

Municipal prices started the week mixed, as the front-end was steady, while bonds maturing 10 year and longer strengthened. Last Tuesday, municipal prices strengthened across the curve. The rest of the week prices were mixed daily. On Wednesday bonds maturing 10 years and in were steady, while the long-end weakened. On Thursday the front-end was steady, while bonds maturing 10 years and longer were weaker. On Friday the front-end weakened, while bonds maturing 10 years and longer were unchanged. Issuance for the trading week is forecasted to be $6.64B. This week’s projected issuance together with secondary market opportunities should provide market participants with a number of opportunities to meet demand, especially given the continued strong demand in the municipal market. Driving this strong demand in the municipal market is the continuing combination of high-redemption flows, as well as inflows into municipal bond mutual funds, which continues to be strong at this time. Note, according to CreditSights, called and maturing bonds will total $24.6B in January, of which $2.6B will be taxable. January 1st redemptions totaled $15.1B with the largest amounts in Illinois ($2.0B), Massachusetts ($1.2B), Georgia ($1.1B), and California ($1.1B).

Investors in municipal bond funds put cash into funds for a 53rd week, as weekly reporting funds experienced inflows of $2.888B after experiencing inflows of $280.585MM the week prior. The four-week moving average was a positive $1.605B, after being in the green at $1.272B 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 yield on the two-year maturity on the MMD Triple-A Scale fell two basis points (bps) from Thursday to Friday and ended the week at 0.94%. 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 1.35% and 1.98%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond fell four bps, while the yields on the 10- and 30-year GO bonds each fell two bps.

Last week the yields on the two-, 10-, and 30-year maturities on the MMA Triple-A Scale each fell one bp from Thursday to Friday and they ended the week at 1.07%, 1.46%, and 2.06%, respectively. Overall, week-over-week the yield on the two-year GO bond fell five bps, while the yield on the 10-year GO bond fell three bps and the yield on the 30-year GO bond fell four bps.


New-Issue Volume is Forecasted to be $6.64B for Trading Week

Total new issuance for the trading week per IHS Markit Ipreo is estimated to be $6.64B. The calendar consists of $5.91B in negotiated deals and $734.0MM of competitive sales. There are 14 scheduled deals schedule with a par issuance amount of $100.0MM or larger. Four of the $100-million-or-larger scheduled deals will either be partially or completely taxable.

The Chicago Sales Tax Securitization Corporation plans to offer a total of $911.975MM of second lien refunding bonds in two offerings. The tax-exempt portion is anticipated to be $602.90MM, while the taxable tranche should be about $309.075MM. Both will be offered on Thursday and are rated AA- by Standard and Poor’s Global Ratings (S&P).

Also this week the National Finance Authority, New Hampshire plans to offer $454.891MM of municipal certificates. The deal is rated BBB by S&P and thus should offer investors more yield. Another deal this week that should provide some yield to investors will be the $346.875MM City of Chicago GO refunding deal on Wednesday. The deal is rated BBB+ by S&P, BBB- by Fitch Ratings (Fitch), and A by Kroll Rating Bond Agency (Kroll).  Also this week, the Red River Education Finance Corporation plans to offer $313.255MM of higher education revenue refunding and improvement taxable bonds for the Texas Christian University Project. The deal is rated Aa3 by Moody’s Investors Service (Moody’s) and AA- by S&P.

While there are no scheduled competitive deals of $100.0MM or larger, there is one on the day-to-day schedule. A $210.0MM offering of public education capital outlay refunding bonds from the Florida Board of Education that could potentially find its way to the market, given the lack of competition in the competitive space this week.


Municipal Bond Funds Post Inflows for a 53rd Week

Investors in municipal bond funds put cash into funds for a 53rd week, as tax-exempt weekly reporting funds experienced inflows of $2.888B in the latest week, after experiencing inflows of $280.585MM the week prior. The four-week moving average was a positive $1.605B, after being in the green at $1.272B the prior week.

Long-term municipal bond funds had inflows of $1.886B in the latest week after experiencing inflows of $76.066MM the week prior. Intermediate-term funds had inflows of $467.608MM after inflows of $151.192MM the week prior. National funds had inflows of $2.608B after experiencing inflows of $275.471MM the week prior. High-yield municipal funds reported inflows of $611.643MM in the latest week, after inflows of $38.564MM the week prior. Exchange traded funds reported inflows of $557.555MM after inflows of $136.257MM 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 rise in new-issue opportunities and secondary market bid lists that were well received. With January 1st and 15th, as well as February 1st being large rolloff dates, BQ participants continue to have significant demand for BQ paper. The expected level of new-issue paper this week, together with an increase in General Market participants crossing over to fill their demand needs with BQ paper, 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 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, 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 widened two bps. Meanwhile the two-, three-, five-, 10-, 15-, and 30-year maturities all tightened, with the largest tightening occurring in the 10- and 30-year maturities, 10 bps.


Daily Overview of the General Market for the Week Ending January 10th

Last Monday prices on municipals were mixed, as the New York Metropolitan Transportation Authority (NY MTA) sold $1.5B of transportation revenue bond anticipation notes (RANs) on Monday in two offerings. On the day, the yield on the two-year GO bond was steady, while the yield on the 10-year GO bond fell one bp and the yield on the 30-year GO bond fell two bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys weakened, as U.S. stock posted gains after spending most of the day in negative territory, as the risk-off shift related to elevated tensions in the Middle East faded during the trading session. The Dow was up 0.24%, while the S&P was up 0.35% and the NASDAQ was up 0.56%. On the day, the yields on the two- and 10-year maturities each rose one bp, while the yield on the 30-year maturity rose two bps. The 10-year municipal-to-Treasury ratio fell to 75.1% on Monday from last Friday’s level of 76.1%, while the 30-year municipal-to-Treasury ratio fell to 86.8% on Monday from last Friday’s level of 88.5%.

Last Tuesday prices on municipals strengthened, as the State of New Jersey brought its first GO sale in just over three years to the competitive market, with tax-exempt and taxable deals. 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.

Prices on U.S. Treasurys were mixed, as U.S. stocks finished down for the session. The Dow and S&P were down 0.42% and 0.28%, while the NASDAQ was down 0.03%. 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 rose three bps. The 10-year municipal-to-Treasury ratio fell to 73.2% on Tuesday from Monday’s level of 75.1%, while the 30-year municipal-to-Treasury ratio fell to 84.9% on Tuesday from Monday’s level of 86.8%.

Last Wednesday municipal prices were mixed, as a number of deals came to market. On the day, the yields on the two- and 10-year GO bonds were unchanged, while the 30-year maturity rose one bp, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys weakened, as U.S. stocks turned higher after President Donald Trump assuaged investor worries over further escalation of tensions between the United States and Iran. The Dow and the S&P closed up 0.56% and 0.49%, respectively, while the NASDAQ was up 0.67%. On the day, the yields on the two-, 10-, and 30-year maturities each rose four bps. The 10-year municipal-to-Treasury ratio fell to 71.7% on Wednesday from Tuesday’s level of 73.2%, while the 30-year municipal-to-Treasury ratio fell to 83.8% on Wednesday from Tuesday’s level of 84.9%.

Last Thursday prices on municipals were mixed, as the last of the week’s new issue offerings came to market. 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 one bp, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were also mixed, as U.S. stocks posted gains for the session on easing geopolitical tensions. The Dow and S&P were both up, 0.74% and 0.67% respectively, while the NASDAQ rose 0.81%. 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 maturity rose three bps. The 10-year municipal-to-Treasury ratio rose to 73.0% on Thursday from Wednesday’s level of 71.7%, while the 30-year municipal-to-Treasury ratio fell to 83.2% on Thursday from Wednesday’s level of 83.8%.

Last Friday prices on municipals were mixed, as market participants were looking ahead to the $6.64B in new-issue long-term debt forecasted to be offered. On the day, the yield on the two-year maturity fell two bps, while the yields on the 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 posted losses for the session. The Dow and S&P were both down, 0.46% and 0.29%, respectively, while the NASDAQ was down 0.27%. On the day, the yields on the two- and 10-year maturities each fell two bps, while the yield on the 30-year maturity fell 10 bps. The 10-year municipal-to-Treasury ratio rose to 73.8% on Friday from Thursday’s level of 73.0%, while the 30-year municipal-to-Treasury ratio rose to 86.8% on Friday from Thursday’s level of 83.2%.


Taxable Market






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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