Muni Update

January 19, 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 weakened. For the rest of the week daily, municipal prices were steady across the curve.

The projected level of new-issue offerings for the holiday-shortened trading week is $6.01B and coupled with secondary market offerings should provide market participants with various opportunities to fill their needs, especially as continued strong demand due to redemption activity and overall solid inflows into funds contribute to demand outpacing supply. For the latest reporting period, investors in municipal bond funds put cash into funds for the a tenth week in a row, as evidenced by the latest tax-exempt weekly reporting funds data showing that funds experienced inflows of $2.6B in the latest week, after experiencing inflows of $1.142B the week prior.

Last week the yields on the two-, 10-, and 30-year maturities on the MMD Triple-A Scale was unchanged from Thursday to Friday and they ended the week at 0.15%, 0.79%, and 1.47%, 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 one basis point (bp).

Last week the yields on the two, 10-, and 30-year maturities on the MMA Triple-A Scale were unchanged from Thursday to Friday and they ended the ended the week at 0.29%, 1.14%, and 1.69%, respectively. Overall, week-over-week the yield on the two-year GO bond fell one bp, while the yield on the 10-year GO bond was unchanged and the yield on the 30-year GO bond rose one bp.


New-Issue Volume is Forecasted to be Around $6.01B for the Week

Total new-issue offerings for the holiday shortened trading week per IHS Markit Ipreo are estimated to be $6.01B. This week’s projected bond issuance is comprised of $4.77B in negotiated deals and $1.24B in competitive sales. This week the New Jersey Turnpike Authority plans to offer two negotiated offerings totaling almost $1.5B. The larger offering will be comprised of $953.0MM of taxable bonds to be priced on Thursday and with serials maturities from 2023 to 2036 and a term bond due in 2040. The smaller offering will consist of $502.5MM of tax-exempt bonds, also to be sold on Thursday. The deals are rated A2 by Moody’s Investors Service (Moody’s), A+ by Standard & Poor’s Global Ratings (S&P), and A by Fitch Ratings (Fitch).

Other large taxable offerings this week include a $450.0MM offering from AHS Hospital Corporation, which will be priced by on Wednesday. The bonds are rated Aa3 by Moody’s, and AA- by S&P. The J. Paul Getty Trust will offer $311.0MM in refunding taxable corporate CUSIP bonds, in a deal structured as a single serial maturity in 2024. The bonds are triple-A rated by Moody’s and S&P. The Houston Community College System, on behalf of Harris and Fort Bend Counties, will sell $301.4MM of limited tax taxable refunding bonds on Thursday. The deal, which is rated triple-A by Moody’s and AA+ by S&P and is structured as serials between 2023 and 2039, with a term bond in 2043. The deal will also be priced on Thursday. Finally, the California Endowment plans to offer $300.0MM in taxable corporate CUSIP bonds on Tuesday. The social bonds are rated triple-A by both Moody’s and S&P.


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

Investors in municipal bond put cash into funds for a tenth week, as tax-exempt weekly reporting funds experienced inflows of $2.6B in the latest week, after experiencing inflows of $1.142B the week prior. Long-term municipal bond funds had inflows of $1.6B in the latest week, after experiencing inflows of $1.278B the week prior. Intermediate-term funds had inflows of $440.0MM after inflows of $149.612MM the week prior. High-yield municipal funds reported inflows of $1.1B in the latest week, after inflows of $98.262MM 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 continue 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 two-year maturity was unchanged, while the spreads on the one-, three-, five-, 10-, 15-, and 30- maturities all widened, with the largest widening occurring in the five-year maturity, 10 bps.


Daily Overview of the General Market for the Week Ending January 15th

Last Monday municipals prices were steady, as the first of the trading week’s $6.9B in new-issue long-term debt was offered. 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 were down for the session. The Dow finished down 89 points, or 0.3%, while the S&P was down 0.7% and the NASDAQ was down 1.3%. 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 one bp. The 10-year municipal-to-Treasury ratio fell to 67.8% on Monday from last Friday’s level of 69.0%, while the 30-year municipal-to-Treasury fell to 77.7% on Monday from last Friday’s level of 78.1%.

Last Tuesday municipals prices were mixed, as a handful of new-issue offerings were priced, including the $168.60MM offering of sales tax revenue bonds from Cook County, Illinois. 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.

Prices on U.S. Treasurys were steady on Tuesday, as U.S. stock prices barely rose for the session. The Dow finished up 60 points, or 0.2%, while the S&P was up 0.1% and the NASDAQ was up 0.3%. On the day, the yields on the two-, 10- and 30-year maturities were unchanged. The 10-year municipal-to-Treasury ratio rose to 68.7% on Tuesday from Monday’s level of 67.8%, while the 30-year municipal-to-Treasury ratio rose to 78.2% on Tuesday from Monday’s level of 77.7%.

Last Wednesday municipals prices were steady, as a handful of new deals were priced including the $250.0MM offering of electric system revenue notes by the Long Island Power Authority and a $130.4MM offering of GO limited tax school improvement bonds from Washoe County School District, Nevada. 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, as were U.S. stock prices for the session. The Dow finished barely down 8 points or less than 0.1%, while the S&P was up 0.2% and the NASDAQ was up 0.4%. On the day, the yield on the two-year maturity was unchanged, while the yield on the 10-year maturity fell five bps and the yield on the 30-year maturity fell six bps. The 10-year municipal-to-Treasury ratio rose to 71.8% on Wednesday from Tuesday’s level of 68.7%, while the 30-year municipal-to-Treasury ratio rose to 80.8% on Wednesday from Tuesday’s level of 78.2%.

Last Thursday municipals prices were steady again, as the last of the week’s new-issue offerings came to market including the $335.0MM GO refunding bonds by Cook County, Illinois. 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 on Thursday, as did prices on U.S. stocks for the session. The Dow finished down 69 points or 0.2%, while the S&P was down 0.4% and the NASDAQ was barely down 0.1%. On the day, the yield on the two-year maturity rose two bps, while the yield on the 10-year maturity rose five bps and the yield on the 30-year maturity rose six bps. The 10-year municipal-to-Treasury ratio fell to 68.7% on Thursday from Wednesday’s level of 71.8%, while the 30-year municipal-to-Treasury ratio fell to 78.2% on Thursday from Wednesday’s level of 80.8%.

Last Friday municipal prices were steady once again, as market participants started looking ahead to the $6.01B in expected new-issue offerings next 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 strengthened, while U.S. stocks prices fell for the session. The Dow finished down 177 points, or 0.6%, while the S&P was down 0.7% and the NASDAQ was down 0.9%. On the day, the yields on the two- and 30-year maturities each fell three bps, while the yield on the 10-year maturity fell four bps. The 10-year municipal-to-Treasury ratio rose to 71.2% on Friday from Thursday’s level of 68.7%, while the 30-year municipal-to-Treasury rose to 79.5% on Friday from Thursday’s level of 78.2%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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