Muni Update

January 14, 2019


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

 

Municipal Market Recap

Municipal prices were mixed daily through Wednesday. On Monday, bonds maturing 10 years and in were steady, while the long-end weakened. On Tuesday, the front-end was steady, while bonds maturing ten years and longer weakened. Wednesday was a repeat of Tuesday’s prices action. On Thursday, prices were steady across the curve. On Friday, prices strengthened across the curve. Issuance this week is forecasted to be $6.4B, which is above last week’s revised issuance of $4.92B. This level of new issue volume coupled with bid lists should provide market participants with opportunities to fill their needs. Separately, CUSIP Global Services said requests for municipal identified dropped in December, indicating a possible near-term slowdown in issuance.

Investors in municipal bond funds put cash into funds last week, as weekly reporting funds experienced inflows of $1.554B, after experiencing outflows of $599.184MM the week prior. The four-week moving average was a positive $535.216MM, after being a positive $67.686MM the week prior. Investors still facing low rates overseas continue to find higher-yielding U.S. assets attractive. These factors, 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 one basis point (bp) from Thursday to Friday and ended the week at 1.72%. Meanwhile, the yield on the 10-year maturity fell three bps and the yield on the 30-year maturity fell two bps on the MMD Triple-A Scale from Thursday to Friday and they ended the week at 2.21% and 3.03%, 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 rose eight bps.

Last week the yield on the two-year maturity on the MMA Triple-A Scale fell one bp from Thursday to Friday and ended the week at 1.76%. Meanwhile the yields on the 10- and 30-year maturities on the MMA Triple-A Scale each fell two bps from Thursday to Friday and they ended the week at 2.47% and 3.12%, respectively. Overall, week-over-week 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.

 

New Issue Volume is Forecasted to be $7.77B for the Week

Total issuance for the trading week is estimated to be $6.4B, which is above last week’s trading volume of $4.92B in issuance, according to revised data from Thomson Reuters. This week’s trading calendar is comprised of $4.9B in negotiated offerings and $1.5B in competitive offerings.

Topping this week’s slate is the Chicago Sales Tax Securitization Corporation’s $551.0MM taxable sales tax securitization bonds. The deal is set to be priced into two fixed-rate term bonds: a $222.0MM maturity due in 2038 and a $329.0MM maturity due in 2048. The sale wraps up the sales tax securitization refunding program that was launched in 2017 to trim existing interest costs. The deal is rated AA- by S&P Global Ratings (S&P) and AAA by Fitch Ratings (Fitch) and Kroll Bond Rating Agency (Kroll).

Also this week the New York City Municipal Water Finance Authority plans to offer $450.0MM of tax-exempt fixed-rate second general resolution revenue bonds on Wednesday, after a one-day retail order period. Proceeds will be used to fund capital projects. The deal is rated Aa1 by Moody’s Investors Service (Moody’s) and AA+ by S&P and Fitch.

The Massachusetts Department of Transportation plans to offer $441.0MM of metropolitan highway system revenue refunding bonds. The bonds are rated Aa2 by Moody’s, AA by S&P and AA+ by Fitch.

 

Municipal Bond Funds Post Inflows for the Week

Investors in municipal bond funds put cash into funds last week, according to the latest data from Lipper. The weekly reporting funds saw inflows of $1.554BMM, after experiencing outflows of $599.184MM the week prior. The four-week moving average was a positive $535.216MM, after being a positive $67.686MM the week prior.

Long-term municipal bond funds had inflows of $949.276MM in the latest week after experiencing outflows of $542.820MM the week prior. Intermediate-term funds had inflows of $494.374MM after outflows of $550.066MM the week prior. National funds had inflows of $1.388B after experiencing outflows of $156.142MM the week prior. High-yield municipal funds reported outflows of $508.889MM in the latest week, after outflows of $8.143MM the week prior. Exchange traded funds reported inflows of $205.218MM, after inflows of $107.278MM the week prior.

 

Demand in the Bank Qualified (BQ) Market Remains Strong

Last week, the BQ market good activity, due in part to the rise in new issue opportunities and secondary market bid lists that were well received. With January 15th and February 1st being large rolloff dates, BQ participants continue to have significant demand for BQ paper. The projected level of new issue paper this week, together with secondary opportunities, should provide market participants the chance to address their needs while picking up attractive structures, especially those in the long-end of the curve. Participants should also continue to utilize extension swaps and perform portfolio cleanup, as the bid side for municipals continues to remain strong. Week-over-week, bank qualified spreads tightened across the curve, with the largest tightening occurring in the 15- and 30-year maturities, six bps each.

 

Daily Overview of the General Market for the Week Ending January 11th

Last Monday prices on municipals were mixed, as market participants prepped for the week’s $7.8B in projected new issue offerings. On the day, the yields on the two- and 10-year GO bonds were steady, while the yield on the 30-year GO bond rose two bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasuries weakened on the day, as U.S. equities prices opened the session down, but by midmorning prices began to rise and continued to climb into the afternoon before fading a bit by the end of the day. Overall, the Dow gained 98 points, while the S&P 500 advanced 0.7% and the NASDAQ rose 1.3%. On the day, the yields on the two- and 10-year maturities each rose three bps, while the yield on the 30-year maturity rose one bp. The 10-year municipal-to-Treasury ratio fell to 81.5% on Monday from last Friday’s level of 82.4%, while the 30-year municipal-to-Treasury bumped up to 99.3% on Monday from last Friday’s level of 99.0%.

Last Tuesday prices on municipals were mixed, as New York and Massachusetts issuers led a spate of new deals, as analysts highlighted the relative stability of municipal bonds in these turbulent financial markets. On the day, the yield on the two-year GO Bond was unchanged, while the yield on the 10-year GO bond rose three bps and the yield on the 30-year GO bond rose one bp, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasuries weakened on the day, as stocks gained for a third consecutive session, after an up-and-down day of trading of which almost all it was contained within positive territory. On the day, the yield on the two-year maturity rose five bps, while the yield on the 10-year maturity rose three bps and the yield on the 30-year maturity rose one bp. The 10-year municipal-to-Treasury ratio bumped up to 81.7% on Tuesday from Monday’s level of 81.5%, while the 30-year municipal-to-Treasury rose to 100.7% on Tuesday from last Monday’s level of 99.3%.

Last Wednesday prices on municipals were mixed again, as market participant demand was good, as a number of new deals were priced. On the day, the yield on the two-year GO bond was steady while the yield on the 10-year GO bond rose one bp and the yield on the 30-year GO bond rose three bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasuries were mixed, as another day of ups and downs for U.S. equities left the S&P 500 higher for a fourth consecutive session for the first time since September. On the day, the yield on the two-year maturity fell two bps, while the yield on the 10-year maturity rose one bp and the yield on the 30-year maturity rose three bps. Both the 10- and 30-year municipal-to-Treasury ratios were essential unchanged on Wednesday from Tuesday’s levels of 81.7% and 100.7%, respectively.

Last Thursday prices on municipals were steady, 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 were unchanged, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices finished the day mixed, as stocks closed near the highs of the day for the session. On the day, the yield on the two- and 10-year maturities were each unchanged, while the yield on the 30-year maturity rose three bps. The 10-year municipal-to-Treasury ratio was unchanged on Thursday from Wednesday’s level of 81.7%, while the 30-year municipal-to-Treasury slipped to 99.7% on Thursday from Wednesday’s level of 100.7%.

Last Friday, prices on municipals strengthened, as market participants were looking ahead to the coming week’s $6.4B in new issuance offerings. On the day, the yield on the two-year GO bond fell one bp, while the yield on the 10-year GO bond fell three bps and the yield on the 30-year GO bonds fell two bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were also stronger, as stocks fell dramatically at the open, only to spend all session fighting to gain almost all of it back, closing with minimal losses. On the day, the yield on the two-year maturity fell one bp, while the yield on the 10-year maturity fell three bps and the yield on the 30-year maturity fell two bps. The 10-year municipal-to-Treasury slipped to 81.6% on Friday from Thursday’s level of 81.7%, while the 30-year municipal-to-Treasury ratio was unchanged on Friday from Thursday’s level of 99.7%.








Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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