Muni Update

January 22, 2019


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 they were mixed, as prices on bonds maturing 10 years and in strengthened, while the long-end was unchanged. On Wednesday bonds maturing 10 years and in were unchanged, while prices on the long-end weakened. On Thursday prices were steady across the curve. On Friday prices were mixed, as the front-end was steady, while prices on bonds maturing 10 years and longer weakened. Issuance this week is forecasted to be $5.1B, which is below last week’s revised issuance of $6.59B, but is expected due to the holiday-shortened trading week. The lighter new issue calendar coupled with bid lists should provide market participants with opportunities to fill their needs, as municipals remain in demand, especially with the current above-average redemption flows.

Investors in municipal bond funds put cash into funds for a second week, as weekly reporting funds experienced inflows of $945.911MM, after experiencing inflows of $1.554B the week prior. The four-week moving average was a positive $707.936MM, after being a positive $535.216MM 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 was unchanged from Thursday to Friday and ended the week at 1.70%. Meanwhile, the yield on the 10-year maturity rose on basis point (bp) and the yield on the 30-year maturity rose two bps on the MMD Triple-A Scale from Thursday to Friday and they ended the week at 2.21% and 3.06%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond fell two bps, while the yield on the 10-year GO bond was unchanged and the yield on the 30-year GO rose three bps.

Last week the yields on the two- and 10-year maturities on the MMA Triple-A Scale were unchanged from Thursday to Friday and they ended the week at 1.75% and 2.46%, respectively. Meanwhile the yield on the 30-year maturity on the MMA Triple-A Scale rose two bps from Thursday to Friday and ended the week at 3.15%. Overall, week-over-week the yields on the two- and 10-year GO bonds each fell one bp, while the yield on the 30-year GO bond rose three bps.

 

New Issue Volume is Forecasted to be $5.1B for the Week

Total issuance for the trading week is estimated to be $5.1B, which is below last week’s trading volume of $6.59B in issuance, according to revised data from Thomson Reuters. This lower level of issuance is expected due to the holiday-shortened trading week. This week’s trading calendar is comprised of $3.6B in negotiated offerings and $1.5B in competitive offerings.  There are a dozen deals scheduled this week with a par offering amount of $100.0MM or larger, with three of those being competitive.

The biggest deal of the week is scheduled to be the Connecticut Health and Educational Facilities Authority’s offering of $535.865MM of revenue bonds for Yale University on Thursday. The deal is rated triple-A by Moody’s Investors Service (Moody’s) and S&P Global Ratings (S&P).

The New Jersey Turnpike Authority plans to offer $426.0MM of revenue bonds also on Thursday. The deal is rated A2 by Moody’s, A+ by S&P and A by Fitch Ratings (Fitch).

The Iowa Finance Authority plans to offer $258.97MM of state revolving fund revenue green bonds and taxable green bonds on Wednesday. The deal carries top-tier ratings from Moody’s, S&P and Fitch.

 

Municipal Bond Funds Post Inflows for a Second Week

Investors in municipal bond funds put cash into funds for a second week, according to the latest data from Lipper. The weekly reporting funds saw inflows of $945.911MM, after experiencing inflows of $1.554B the week prior. The four-week moving average was a positive $707.936MM, after being a positive $535.216MM the week prior.

Long-term municipal bond funds had inflows of $401.730MM in the latest week after experiencing inflows of $949.276MM the week prior. Intermediate-term funds had inflows of $497.610MM after inflows of $494.374MM the week prior. National funds had inflows of $774.506MM after experiencing inflows of $1.388B the week prior. High-yield municipal funds reported inflows of $411.038MM in the latest week, after outflows of $508.889MM the week prior. Exchange traded funds reported outflows of $306.220MM, after inflows of $205.218MM the week prior.

 

Demand in the Bank Qualified (BQ) Market Remains Strong

Last week, the BQ market had good activity, due in part to 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 (15 years and longer with 3.0% or higher coupons). 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 were mixed, as all maturities except the 30-year maturity which was unchanged, tightened, with the largest tightening occurring in the five-year maturity, 16 bps.

 

Daily Overview of the General Market for the Week Ending January 18th

Last Monday prices on municipals were steady, as market participants prepped for Tuesday’s eight deals that were scheduled for a $100.0MM or larger, including the biggest deal of the week and even some retail order periods.  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. Treasuries were mixed, as U.S. equities prices were down for the session. On the day, the yield on the two-year maturity fell two bps, while the yield on the 10-year maturity was unchanged and the yield on the 30-year maturity rose two bps. The 10-year municipal-to-Treasury ratio was unchanged on Monday from last Friday’s level of 81.6%, while the 30-year municipal-to-Treasury dropped to 99.0% on Monday from last Friday’s level of 99.7%.

Last Tuesday prices on municipals were mixed, as a number of deals were priced just as market firmed, benefitting issuers. On the day, the yield on the two-year GO Bond fell two bps, while the yield on the 10-year GO bond fell one bp and the yield on the 30-year GO bond was steady, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasuries were mixed on the day, as stocks posted gains for the session. On the day, the yield on the two-year maturity was steady, while the yield on the 10-year maturity rose one bp and the yield on the 30-year maturity rose two bps. The 10-year municipal-to-Treasury ratio fell to 80.9% on Tuesday from Monday’s level of 81.6%, while the 30-year municipal-to-Treasury fell to 98.4% on Tuesday from last Monday’s level of 99.0%.

Last Wednesday prices on municipals were mixed again, as the two biggest deals of the week priced. On the day, the yields on the two- and ten year GO bonds were steady, while 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 were mixed, as stocks posted gains for a second session in a row. On the day, the yield on the two-year maturity rose two bps, while the yield on the 10-year maturity rose one bp and the yield on the 30-year maturity fell one bp. The 10-year municipal-to-Treasury ratio slipped to 80.6% on Wednesday from Tuesday’s levels of 80.9%, while the 30-year municipal-to-Treasury ratio rose to 99.0% on Wednesday from Tuesday’s level of 98.4%.

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 rose for a third session in a row. On the day, the yield on the two-year maturity rose one bp, 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 fell to 80.0% on Thursday from Wednesday’s level of 80.6%, while the 30-year municipal-to-Treasury was unchanged on Thursday from Wednesday’s level of 99.0%.

Last Friday, prices on municipals were mixed, as market participants were looking ahead to the coming holiday-shortened trading week and its week’s $5.1B in new issuance offerings. On the day, 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, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were weaker across the curve, as stocks rose for the fourth session in a row, as the partial U.S. Government shutdown continued. On the day, 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 two bps. The 10-year municipal-to-Treasury fell to 79.2% on Friday from Thursday’s level of 80.0%, while the 30-year municipal-to-Treasury ratio was unchanged on Friday from Thursday’s level of 99.0%.

 

Taxable Market







Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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