Muni Update

January 18, 2022


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


Municipal Market Recap

Municipal prices weakened on Monday, as a lack of new-issue supply contributed to elevated selling pressure in the secondary market. On Tuesday municipal prices were mostly steady, despite secondary selling pressure remaining elevated on bonds inside of 10 years. On Wednesday municipal prices were once again mostly steady across the curve. On Thursday municipal bond prices were mixed, as prices in the front-end were steady, while prices on bonds maturing 10 years and longer strengthened. On Friday municipal bond prices were steady across the curve.

This week, the projected level of new-issue offerings for the holiday-shortened trading week kicks up from last week’s level to $7.11B. This level of new-issue offerings 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. 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 45th week in a row, as tax-exempt weekly reporting funds data showed that funds experienced inflows of $231.121MM in the latest week, after experiencing inflows of $840.848MM the week prior. The four-week moving average was positive at $847.635MM, after being in the green at $980.815MM the week prior.

Last week the yields on the two-, 10-, and 30-year maturities on the MMD Triple-A Scale were unchanged from Thursday to Friday and they ended the week at 0.46%, 1.18%, and 1.64%, respectively. Overall, week-over-week the yield on the two-year general obligation (GO) bond rose six basis points (bps), while the yields on the 10- and 30-year GO bonds each rose one bp.

Last week the yields on the two-, 10-, and 30-year maturities on the MMA Triple-A Scale were also unchanged from Thursday to Friday and they ended the week at 0.38%, 1.43%, and 1.93%, respectively. Overall, week-over-week the yield on the two-year maturity rose six bps, while the yield on the 10-year maturity rose four bps and the yield on the 30-year maturity rose three bps.


New-Issue Volume is Forecasted to be $7.11B for the Trading Week

Total new-issue offerings for the holiday-shortened trading week per IHS Markit Ipreo are $7.11B, which is up from last week’s level of new-issue offering debt. This week’s projected level of bond issuance is comprised of $5.78B in negotiated deals and $1.33B in competitive deals. The largest deal of the week will come from the New York City Transitional Finance Authority (NYC TFA) which is set to offer $950.0MM of tax-exempt future tax secured subordinate bonds, Fiscal 2022 Series C, Subseries C-1, on Thursday. The deal is rated Aa1 by Moody’s Investors Service (Moody’s), and Triple-A by Standard and Poor’s Global Ratings (S&P) and Fitch Ratings (Fitch).

On Wednesday the New Jersey Transportation Trust Fund Authority is set to price $750.0MM of transportation program bonds, 2022 Series BB. The deal is rated Baa1 by Moody’s, BBB by S&P, BBB+ By Fitch, and A- by Kroll Bond Rating Agency (KBRA). Also on Wednesday, the Texas Department of Housing and Community Affairs is set to price $190.0MM of non-alternative minimum tax social residential mortgage revenue bonds, Series 2022A. The deal is rated Aaa by Moody’s and AA+ by S&P. Hawaii is set to price $273.655MM of alternative minimum tax (AMT) airports system revenue bonds, Series 2022A and refunding Series 2022B, consisting of $219.26MM of Series 1 and $54.395MM of Series 2 also on Wednesday. The deal is rated A1 by Moody’s and A+ by S&P and Fitch. Finally on Wednesday, Georgetown Independent School District (ISD), Texas, is set to price $165.845MM of unlimited tax school building bonds, Series 2022, guaranteed by the Texas, Permanent School Fund (PSF). Georgetown ISD is also set to offer $103.88MM, of taxable unlimited tax refunding bonds, Series 2022-A, on Wednesday.

On Thursday the Metropolitan Washington Airports Authority is set to price $739.815MM of Dulles Toll Road revenue refunding bonds, Series 2022. The deal is to be insured by Assured Guaranty Municipal Corporation and will consist of $418.64MM of second senior lien revenue refunding bonds, Series 2022A, and $321.175MM of federally taxable second senior lien revenue refunding bonds, Series 2022B. The deal is rated A2 by Moody’s and AA by S&P. Dallas Independent School District, Texas is set to price $387.07MMM of unlimited tax school building bonds, Series 2022 on Thursday. Finally, the Village of Skokie, Illinois, is set to price a $177.335MM offering that consists of $151.060MM, Series 2022A, and $26.275MMM of Series 2022B. The deal is rated AA by S&P and AA+ by Fitch.

In the competitive arena, the Virginia Public School Authority is set to sell $115.11MM of special obligation school financing bonds, Chesterfield County Series 2022 at 10:30 a.m. eastern on Tuesday. The deal is rated Triple-A by Moody’s, S&P and Fitch. On Wednesday at 10:45 a.m. eastern, Fairfax County, Virginia, is set to sell $272.255MM of public improvement bonds, Series 2022A. This deal is also rated Triple-A by Moody’s, S&P and Fitch. On Thursday the NYC TFA will competitively sell two offerings. The first is a $180.995MM offering of future tax secured taxable subordinate bonds, Fiscal 2022 Subseries C-2, at 10:45 a.m. eastern and is rated Triple-A by S&P. The second is a $69.005MM offering of future tax secured taxable subordinate bonds, Fiscal 2022 Subseries C-3 at 11:15 a.m. eastern, and is also rated Tiple-A by S&P. Finally on Thursday, Cobb County School District, Georgia is set to sell $100.0MM of short-term construction notes, Series 2022 at 10:30 a.m. eastern. The deal is rated MIG-1 by Moody’s and A-1+ by S&P.


Municipal Bond Funds Posted Inflows for a 45th Week in a Row

Investors in municipal bond put cash into funds for a 45th week in a row, as tax-exempt weekly reporting funds experienced inflows of $231.121MM in the latest week, after experiencing inflows of $840.848MM the week prior. The four-week moving average remained positive at $847.635MM after being in the green at $980.815MM the week prior.

Long-term municipal bond funds had inflows of $118.140MM in the latest week, after experiencing inflows of $717.697MM the week prior. Intermediate-term funds had inflows of $275.655MM after inflows of $224.168MM the week prior. National funds had inflows of $308.661MM after experiencing inflows of $826.058MM the week prior. High-yield municipal funds reported outflows of $363.862MM in the latest week, after inflows of $398.025MM the week prior. Exchange traded funds reported inflows of $350.607MM, after inflows of $246.341MM 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 demand continues to remain strong. 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 (ongoing 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 were mixed, as the spreads on the one-, two-, and three-year maturities all tightened, with the largest tightening occurring in the two-year maturity, five bps. Meanwhile the spreads on the five-, 10-, 15-, and 30-year maturities all widened, with largest widening occurring in the 30-year maturity, 12 bps.


Daily Overview of the General Market for the Week Ending January 14th

On Monday municipals prices weakened across the curve, as the first of the trading week’s $4.1B in new-issue long-term debt was offered. On the day, the yield on the two-year GO bond rose six bps, 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 were mixed on Monday, while U.S. stocks sank on the open only to pare back losses in the afternoon and finish mixed for the session. The Dow was down 163 points or 0.5%, while the S&P was barely down 0.1% and the NASDAQ was barley in the green at 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 66.9% on Monday from last Friday’s level of 66.5%, while the 30-year municipal-to-Treasury ratio rose to 78.2% on Monday from last Friday’s level of 77.3%.

On Tuesday municipals prices were mostly steady and while secondary selling pressure remained elevated on bonds inside 10 years, the primary market got underway, as evidenced by a number of new-issue offerings coming 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.

Prices on U.S. Treasurys strengthened on Tuesday, while U.S. stocks started the day down, only to bounce back in the afternoon and finish the session in the green. The Dow was up 183 points or 0.5%, while the S&P was up 0.9% and the NASDAQ was up 1.4%. On the day, the yield on the two-year maturity fell two bps, while the yields on the 10- and 30-year maturities each fell three bps. The 10-year municipal-to-Treasury ratio rose to 68.0% on Tuesday from Monday’s level of 66.9%, while the 30-year municipal-to-Treasury ratio rose to 79.3% on Tuesday from Monday’s level of 78.2%.

On Wednesday municipals prices were mostly steady, as a number of negotiated and competitive 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.

Prices on U.S. Treasurys were mixed on Wednesday, while U.S. stocks rose for the session, as investors eyed a new report on inflation, which showed another decades-high rate of price increases across the recovering economy. The Dow finished up 38 points or 0.1%, while the S&P was up 0.3% and the NASDAQ was up 0.2%. On the day, the yield on the two-year maturity rose two bps, while the yield on the 10-year maturity fell one bp and the yield on the 30-year maturity was unchanged. The 10-year municipal-to-Treasury ratio rose to 68.4% on Wednesday from Tuesday’s level of 68.0%, while the 30-year municipal-to-Treasury ratio was unchanged on Wednesday from Tuesday’s level of 79.3%.

Last Thursday municipals prices were mixed, as the last of the week’s new-issue offering came to market and were well received. 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.

U.S. Treasury prices strengthened on Thursday, while U.S. stocks fell for the session, as investors considered a fresh read on weekly unemployment claims and wholesale price inflation out of Washington. The Dow was down 177 points or 0.5%, while the S&P was down 1.4% and the NASDAQ was down 2.5%. On the day, the yield on the two-year maturity fell one bp, while the yield on the 10-year maturity fell four bps and the yield on the 30-year maturity fell three bps. The 10-year municipal-to-Treasury ratio rose to 69.4% on Thursday from Wednesday’s level of 68.4%, while the 30-year municipal-to-Treasury ratio rose to 80.0% on Thursday from Wednesday’s level of 79.3%.

Last Friday municipals prices were steady across the curve, as market participants looked ahead to the $7.11B in expected new-issue offerings in the upcoming holiday-shortened trading week. 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 weakened, while U.S. stocks were mixed for the session. The Dow was down 202 points or 0.6%, while the S&P was barely up 0.1% and the NASDAQ was up 0.6%. On the day, the yields on the two- and 10-year maturities each rose eight bps, while the yield on the 30-year maturity rose seven bps. The 10-year municipal-to-Treasury ratio fell to 66.3% on Friday from Thursday’s level of 69.4%, while the 30-year municipal-to-Treasury fell to 77.4% on Friday from Thursday’s level of 80.0%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks

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