Muni Update

January 24, 2022


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


Municipal Market Recap

Municipal bond prices weakened daily basis through Thursday. On Friday municipal bond prices were mixed, as prices on bonds in the front-end weakened, while prices on bonds maturing 10 years and longer were steady.

This week, the projected level of new-issue offerings for the trading week are $4.95B. This level of new-issue offerings coupled with bank qualified (BQ) and general market (GM) offerings in the secondary market should offer market participants a number of 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 pulled cash out of funds for the first time in 46 weeks, as tax-exempt weekly reporting funds data showed that funds experienced outflows of $283.926MM in the latest week, after experiencing inflows of $231.121MM the week prior. The four-week moving average was positive at $508.754MM, after being in the green at $847.645MM the week prior.

Last week the yield on the two-year maturity on the MMD Triple-A Scale rose two basis points (bps) from Thursday to Friday and ended the week at 0.58%. Meanwhile, the yields on the 10- and 30-year maturities on the MMD Triple-A Scale were unchanged from Thursday to Friday and they ended the week at 1.28% and 1.72%, respectively. Overall, week-over-week the yield on the two-year general obligation (GO) bond rose 12 bps, while the yield on the 10-year GO bond rose 10 bps and the yield on the 30-year GO bond rose eight bps.

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 0.48%, 1.51%, and 2.02%, respectively. Overall, week-over-week the yield on the two-year maturity rose 10 bps, while the yield on the 10-year maturity rose eight bps and the yield on the 30-year maturity rose nine bps.


New-Issue Volume is Forecasted to be $4.95B for the Trading Week

Total new-issue offerings for the trading week per IHS Markit Ipreo are $4.95B. This week’s projected level of bond issuance is comprised of $3.80B in negotiated deals and $1.15B in competitive deals. The largest deal of the week will come on Thursday, when the Brightline West Passenger Rail Project will offer $894.3MM of Series 2020A in two offerings, consisting of $774.3MM of Series 1 and $150.0MM of Series 2. The deal is rated Aaa by Moody’s Investors Service (Moody’s).

Other notable deals this week starting with Tuesday include the $749.155MM offering of second series revenue bonds; consisting of $308.73MM of alternative minimum tax bonds (AMT), Series 2022A, $239.23MM of non-alternative minimum tax bonds, Series 2022B, and $201.195MM of federally taxable bonds, Series 2022C by the Airport Commission of the City and County of San Francisco at the San Francisco International Airport. The deal is rated A1 by Moody’s and A+ by Fitch Ratings (Fitch). Also on Tuesday, the Connecticut Health and Educational Facilities Authority is set to price $400.0MM of Yale University Issue revenue bonds; consisting of $125.0MM of Series U-1, $125.0MM of Series U-2, and $150MM of Series A-4. The deal is rated Triple-A by Moody’s and Standard and Poor’s Global Ratings (S&P). The Palacios Independent School District, Texas is set to price $116.5MM of unlimited tax school building bonds, Series 2022, insured by Permanent School Fund Guarantee Program. Finally on Tuesday, the Austin Independent School District, Texas is set to price $129.815MM of taxable unlimited tax refunding bonds; consisting of $50.27MM, Series 2022D, and $79.545MM Series 2022E.

On Wednesday, the Austin Independent School District, Texas, will be back in the market offering $221.985MM; consisting of $92.87MM of unlimited tax school building bonds, Series 2022A, $100.395MM of unlimited tax refunding bonds, Series 2022B, and $28.72MM of unlimited tax refunding bonds, Series 2022C. The Alvin Independent School District, Texas is set to price $117.39MM of unlimited tax schoolhouse bonds, Series 2022, insured by Permanent School Fund Guarantee Program. Finally, the Charlotte-Mecklenburg Hospital Authority, North Carolina is set to price $115.335MM of health care refunding revenue bonds, Series 2022A. The deal is rated Aa3 by Moody’s and AA- by S&P.

On Thursday the Forney Independent School District, Texas is set to price $152.585MM of unlimited tax school building bonds, Series 2022A, insured by Permanent School Fund Guarantee Program.

In the competitive arena, Worcester, Massachusetts is set to sell $208.01MM of GO municipal purpose loan of 2022 bonds on Monday at noon eastern. The deal is rated AA by Fitch. The Spartanbury County School District #5, South Carolina, is set to sell $100.0MM of GO bonds, Series 2022 on Thursday at 11 a.m. eastern. The deal is rated Aa2 by Moody’s and AA- by S&P.


Municipal Bond Funds Posted Outflows for the Week

Investors in municipal bond pulled cash out of funds for a first time in 46 weeks, as tax-exempt weekly reporting funds experienced outflows of $283.926MM in the latest week, after experiencing inflows of $231.121MM the week prior. The four-week moving average remained positive at $508.754MM after being in the green at $847.635MM the week prior.

Long-term municipal bond funds had inflows of $426.196MM in the latest week, after experiencing inflows of $118.140MM the week prior. Intermediate-term funds had outflows of $70.812MM after inflows of $275.655MM the week prior. National funds had outflows of $312.876MM after experiencing inflows of $308.661MM the week prior. High-yield municipal funds reported inflows of $182.035MM in the latest week, after outflows of $363.862MM the week prior. Exchange traded funds reported inflows of $56.463MM, after inflows of $350.607MM 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 widened across the curve, with the largest widening occurring in the five-year maturity, 25 bps.


Daily Overview of the General Market for the Week Ending January 21st

On Monday municipal prices weakened across the curve but still outperformed U.S. Treasurys, as the first of the trading week’s $7.11B in new-issue long-term debt was offered. On the day, the yield on the two-year GO bond rose two bps, while the yields on the 10- and 30-year GO bonds each rose three bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys, as noted above, weakened on Tuesday, as U.S. stocks fell for the session. The Dow was down 543 points or 1.5%, while the S&P was down 1.8% and the NASDAQ was down 2.6%. On the day, the yield on the two-year maturity rose seven bps, while the yield on the 10-year maturity rose nine bps and the yield on the 30-year maturity rose six bps. The 10-year municipal-to-Treasury ratio fell to 64.7% on Tuesday from last Friday’s level of 66.3%, while the 30-year municipal-to-Treasury ratio fell to 76.6% on Tuesday from last Friday’s level of 77.4%.

On Wednesday municipals prices weakened, as a number of negotiated and competitive new-issue offerings came to market. On the day, the yield on the two- and 10-year GO bonds each rose four bps, while 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. Treasurys strengthened on Wednesday, while U.S. stocks ended another volatile session lower, as investors nervously eyed soaring bond yields and mixed earnings results from some major index components. The Dow finished down 340 points or 1.0%, while the S&P was also down 1.0% and the NASDAQ was down 1.2%. 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 four bps. The 10-year municipal-to-Treasury ratio rose to 68.3% on Wednesday from Tuesday’s level of 64.7%, while the 30-year municipal-to-Treasury ratio rose to 79.4% on Wednesday from Tuesday’s level of 76.6%.

Last Thursday municipals prices weakened across the curve, as the last of the week’s new-issue offerings came to market including the largest deal of the week, the New York City Transitional Finance Authority’s offering of $950.0MM of tax-exempt future tax secured subordinate bonds in two series. On the day, the yield on the two-year GO bond rose four bps, while the yield on the 10-year GO bond rose three bps 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 mixed on Thursday, and U.S. stocks were in the green until the last hour of trading when they reversed course and fell until the session closed. The Dow finished down 313 points or 0.9%, while the S&P was down 1.1% and the NASDAQ was down 1.3%. On the day, the yield on the two-year maturity rose dour bps, while the yields on the 10- and 30-year maturities were unchanged. The 10-year municipal-to-Treasury ratio rose to 70.0% on Thursday from Wednesday’s level of 68.3%, while the 30-year municipal-to-Treasury ratio rose to 80.4% on Thursday from Wednesday’s level of 79.4%.

Last Friday municipals prices were mixed, as market participants looked ahead to the $4.95B in expected new-issue offerings in the upcoming trading week and the Federal Open Market Committee (FOMC) meets this week with a Fed policy decision expected Wednesday. On the day, the yield on the two-year GO bond rose two bps, while the yields on the 10- and 30-year GO bonds were unchanged, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices strengthened on Friday, while U.S. stocks fell for the session. The Dow was down 450 points or 1.3%, while the S&P was down 1.9% and the NASDAQ was down 2.7%. On the day, the yields on the two- and 30-year maturities each fell seven bps, while the yield on the 10-year maturity fell eight bps. The 10-year municipal-to-Treasury ratio rose to 73.1% on Friday from Thursday’s level of 70.0%, while the 30-year municipal-to-Treasury rose to 83.1% on Friday from Thursday’s level of 80.4%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks

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