Muni Update

January 21, 2020


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


Municipal Market Recap

Municipal prices started the week unchanged across the curve. On Tuesday, municipal prices strengthened across the curve. On Wednesday and Thursday prices were mixed. On Wednesday bonds maturing in the front-end were steady, while bonds maturing 10 years and longer strengthened. On Thursday, bonds maturing 10 years and in strengthened, while the long-end was stable. On Friday municipal prices were once again unchanged across the curve. This week’s projected issuance of $7.12B, which is above last week’s revised trading volume of $5.47B in issuance. This week’s expected issuance together with secondary market opportunities should provide market participants with a number of opportunities to meet their needs. Demand remains exceptionally strong in the municipal market due to a combination of high redemption flows, as well as inflows into municipal bond mutual funds

Investors in municipal bond funds put cash into funds for a 54th week, as weekly reporting funds experienced inflows of $2.340B after experiencing inflows of $2.888B the week prior. The four-week moving average was a positive $1.801B, after being in the green at $1.605B 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 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 0.90%, 1.29%, and 1.94%. Overall, week-over-week the yields on the two-and 30-year General Obligation (GO) bonds each fell four basis points (bps), while the yield on the 10-year GO bond fell six bps.

Last week the yields on the two- and 10-year maturities on the MMA Triple-A Scale each rose one bp from Thursday to Friday and they ended the week at 1.03% and 1.40%, respectively. Meanwhile the yield on the 30-year maturity on the MMA Triple-A Scale was unchanged from Thursday to Friday and ended the week at 2.01%. Overall, week-over-week the yield on the two-year GO bond fell four bps, while the yield on the 10-year GO bond fell six bps and the yield on the 30-year GO bond fell five bps.


New-Issue Volume is Forecasted to be $7.12B for Trading Week

Total new issuance for the holiday-shortened trading week per IHS Markit Ipreo is estimated to be $7.12B, which is above last week’s trading volume of $5.47B in issuance, according to revised data from Thomson Reuters. The calendar consists of $4.94B in negotiated deals and $2.18B of competitive sales. There are 20 deals scheduled with a par issuance amount of $100.0MM or larger. Ten of these $100-million-or-larger scheduled deals will either be partially or completely taxable.

The largest deal of the week will be from Partners Healthcare System, Inc., when it offers $1.004B of taxable corporate CUSIPs for Mass General Brigham. The deal is set for Wednesday and is rated Aa3 by Moody’s Investors Service and AA- by Standard and Poor’s Global Ratings (S&P). Also on Wednesday Cottage Health Credit Group, California, plans to offer $500.0MM of taxable corporate CUSIPs. This deal is rated AA- by Fitch Ratings (Fitch).

JobsOhio Beverage System plans to offer $370.865MM of statewide senior lien liquor profits taxable revenue refunding bonds on Thursday. The deal is expected to mature serially from 2021 through 2034 and include a term bond in 2038. The deal is rated Aa3 by Moody’s and AA by S&P. Also on Thursday, Hartford Healthcare plans to price $359.524MM of taxable corporate CUSIPs. The deal is rated A2 by Moody’s, A by S&P, and A+ by Fitch.

In the competitive arena, the State of Delaware plans to offer $300.0MM of GO bonds on Wednesday. The deal is rated triple-A by Moody’s, S&P, and Fitch. Also, on Wednesday, the University of Houston System, Board of Regents is selling a total of $478.025MM of consolidated revenue refunding and taxable bonds in two separate sales. The deals are rated Aa2 by Moody’s and AA by S&P.


Municipal Bond Funds Post Inflows for a 54th Week

Investors in municipal bond funds put cash into funds for a 54th week, as tax-exempt weekly reporting funds experienced inflows of $2.340B in the latest week, after experiencing inflows of $2.888B the week prior. The four-week moving average was a positive $1.801B, after being in the green at $1.605B the prior week.

Long-term municipal bond funds had inflows of $1.824B in the latest week after experiencing inflows of $1.886B the week prior. Intermediate-term funds had inflows of $376.446MM after inflows of $467.608MM the week prior. National funds had inflows of $2.608B after experiencing inflows of $2.608B the week prior. High-yield municipal funds reported inflows of $685.574MM in the latest week, after inflows of $611.643MM the week prior. Exchange traded funds reported inflows of $500.704MM after inflows of $557.555MM 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 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 two- and three-year maturities each widened one bp. Meanwhile the one-, five-, 10-, 15-, and 30-year maturities all tightened, with the largest tightening occurring in the 15-year maturities, eight bps.


Daily Overview of the General Market for the Week Ending January 17th

Last Monday prices on municipals were steady, as market participants prepped for the $6.64B in new-issue offering scheduled for the 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.

Prices on U.S. Treasurys weakened, as U.S. stock posted gains for the trading session. The Dow was up 0.29%, while the S&P was up 0.70% and the NASDAQ was up 1.04%. On the day, the yields on the two-, 10-, and 30-year maturities each rose two bps. The 10-year municipal-to-Treasury ratio slipped to 73.0% on Monday from last Friday’s level of 73.8%, while the 30-year municipal-to-Treasury ratio fell to 86.1% on Monday from last Friday’s level of 86.8%.

Last Tuesday prices on municipals strengthened, as a handful of new-issue offering were priced during the session. 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, despite several solid pre-market earnings reports, including a couple of major U.S. banks, finished mixed amid a couple of trade headlines that fueled uncertainty ahead of the expected signing of the phase one trade agreement. The Dow was up 0.11%, while the S&P and NASDAQ were down, 0.15% and 0.24%, respectively. On the day, the yield on the two-year maturity was unchanged, while the yields on the 10- and 30-year maturities each fell three bps. The 10-year municipal-to-Treasury ratio bumped to 73.1% on Tuesday from Monday’s level of 73.0%, while the 30-year municipal-to-Treasury ratio bumped up to 86.3% on Tuesday from Monday’s level of 86.1%.

Last Wednesday municipal prices were mixed, as a number of deals came to market including the City of Chicago’s (NR/BBB+/BBB-/A) GO bond piece of its planned refunding deal that totals about $1.5B. 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 two bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys strengthened, as U.S. stocks posted gains for the session. The Dow and the S&P closed up 0.31% and 0.19%, respectively, while the NASDAQ was up 0.08%. On the day, the yield on the two-year maturity fell two bps, while the yield on the 10-year maturity fell three bps and the yield on the 30-year maturity fell four bps. The 10-year municipal-to-Treasury ratio bumped up to 73.2% on Wednesday from Tuesday’s level of 73.1%, while the 30-year municipal-to-Treasury ratio rose to 87.0% on Wednesday from Tuesday’s level of 86.3%.

Last Thursday prices on municipals were mixed again, as the last of the week’s new-issue offerings came to market including Chicago’s Sales Tax Securitization Corporation deal that was as much as 40 times oversubscribed and bumped 30-35 bps in repricing. On the day, the yields on the two- and 10-year GO bonds each fell two bps, while the yield on the 30-year GO bond was unchanged, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices weakened, as U.S. stocks posted gains for the session. The Dow and S&P were both up, 0.92% and 0.84% respectively, while the NASDAQ rose 1.06%. On the day, the yields on the two- and 10-year maturities each rose two bps, while the yield on the 30-year maturity rose three bps. The 10-year municipal-to-Treasury ratio fell to 71.3% on Thursday from Wednesday’s level of 73.2%, while the 30-year municipal-to-Treasury ratio fell to 85.8% on Thursday from Wednesday’s level of 87.0%.

Last Friday prices on municipals were steady, as market participants were looking ahead to the $7.12B in new-issue long-term debt to be offered. On the day, the yields on the two-, 10-, and 30-year maturities were unchanged, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were mixed, as U.S. stocks posted gains for the session. The Dow and S&P were both up, 0.17% and 0.39%, respectively, while the NASDAQ was up 0.34%. On the day, the yield on the two-year maturity was unchanged, while the 10- and 30-year maturities each rose three bps. The 10-year municipal-to-Treasury ratio fell to 70.1% on Friday from Thursday’s level of 71.3%, while the 30-year municipal-to-Treasury ratio fell to 84.7% on Friday from Thursday’s level of 85.8%.


Taxable Market






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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