Muni Update

January 25, 2021


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


Municipal Market Recap

Municipal prices were steady across the curve on Tuesday and Wednesday. On Thursday and Friday municipal prices strengthened across the curve. The  projected level of new-issue offerings for the trading week are $6.01B and coupled with general market (GM) secondary market offerings should provide market participants with some 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 an 11th week in a row, as evidenced by the latest tax-exempt weekly reporting funds data showing that funds experienced inflows of $2.38B in the latest week, after experiencing inflows of $2.6B the week prior.

Last week the yields on the two-, 10-, and 30-year maturities on the MMD Triple-A Scale each fell one basis point (bp) from Thursday to Friday and they ended the week at 0.13%, 0.77%, and 1.44%, respectively. Overall, week-over-week the yields on the two- and 10-year General Obligation (GO) bonds each fell two bps, while the yield on the 30-year GO bond fell three bps.

Last week the yields on the two, 10-, and 30-year maturities on the MMA Triple-A Scale also fell one bp from Thursday to Friday and they ended the ended the week at 0.27%, 1.11%, and 1.66%, respectively. Overall, week-over-week the yield on the two-year GO bond fell two bps, while the yields on the 10- and 30-year GO bonds each fell three bps.


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 $5.25B in negotiated deals and $999.0MM in competitive sales. The largest deal of the week will be the $1.09B gas supply revenue refunding bonds for the Texas Municipal Gas Acquisition and Supply Corporation. The deal is rated A3 by Moody’s Investors Service (Moody’s) and BBB+ by Standard and Poor’s Global Ratings (S&P).

Other notable deals this week include, the Department of Airports of the City of Los Angeles which will offer a total of $664.3MM of Los Angeles International Airport revenue refunding bonds. The deal is rated Aa3 by Moody’s, A+ by S&P, and AA- by Fitch Ratings (Fitch). The Board of Education of the City of Chicago plans to offer $560.0MM unlimited tax GO new money and refunding bonds. The deal is rated BB- by S&P, BB by Fitch, and BBB- from Kroll Bond Rating Agency (KBRA). The Metropolitan Government of Nashville and Davidson County, Tennessee, plans to offer $319.0MM of taxable GO refunding bonds and $131.9MM of tax-exempt GO refunding bonds, both on Tuesday. The offerings are rated Aa2 by Moody’s and AA by S&P. Also, on Tuesday, the Metropolitan Government of Nashville and Davidson County, Tennessee, plans to price $151.9MM of electric system revenue bonds. The deal is rated AA by S&P and AA+ by Fitch.

In the competitive arena, Knoxville, Tennessee, plans to sell $104.0MM of unlimited tax GO bonds on Tuesday. The deal is rated AA+ by S&P.


Municipal Bond Funds Posted Inflows for an 11th Week in a Row

Investors in municipal bond put cash into funds for an 11th week, as tax-exempt weekly reporting funds experienced inflows of $2.38B in the latest week, after experiencing inflows of $2.6B the week prior. Long-term, intermediate-term, and high yield funds also all saw inflows for latest reported period.


Demand in the Bank Qualified (BQ) Market Remains Strong

BQ participants continue to be focused on both BQ and general market (GM) new-issue offerings to fill their needs, as secondary market BQ offerings are just about non-existent, and BQ participants continue to have significant demand for municipal paper. This significant demand is being driven in large part to investors 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 one-year maturity was unchanged and the spread on the two-year maturity widened by one bp. Meanwhile, the spreads on the three-, five-, 10-, 15-, and 30- maturities all tightened, with the largest tightening occurring in the 30-year maturity, 14 bps.


Daily Overview of the General Market for the Week Ending January 22nd

Last Tuesday municipals prices were steady, as the first of the trading week’s $6.01B 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 on Tuesday, as U.S. Stock were up for the session. The Dow finished up 116 points, or 0.4%, while the S&P was up 0.8% and the NASDAQ was up 1.5%. On the day, the yield on the two-year maturity rose on bp, while the yields on the 10- and 30-year maturities each fell one bp. The 10-year municipal-to-Treasury ratio rose to 71.8% on Tuesday from last Friday’s level of 71.2%, while the 30-year municipal-to-Treasury fell to 79.9% on Tuesday from Last Friday’s level of 79.5%.

Last Wednesday municipals prices were steady, as a handful of new deals were priced including the $274.0MM offering of unlimited tax school building bonds by the Dallas Independent School District, Texas and the $125.0MM offering of unlimited tax school building bonds for the Channelview Independent School District, Texas. 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 U.S. stock prices rose for the session. The Dow finished up 258 points or 0.8%, while the S&P was up 1.4% and the NASDAQ was up 2.0%. On the day, the yield on the two-year maturity fell one bp, while the yields on the 10- and 30-year maturities were unchanged. The 10- and 30-year municipal-to-Treasury ratios were unchanged on Wednesday from Tuesday’s levels of 71.8% and 79.9%, respectively.

Last Thursday municipals prices strengthened, as the last of the week’s new-issue offerings came to market including the institutional pricing of $913.0MM Alternative Minimum Tax (AMT) and non-AMT Consolidated Bonds from the Port Authority of New York and New Jersey. On the day, the yields on the two- and 10-year GO bonds each fell one bp, while the yield the 30-year GO bond fell two bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were mixed on Thursday, as were prices on U.S. Stocks for the session. The Dow and S&P barely finished down at 0.04% and 0.03%, respectively, while the NASDAQ was up 0.6%. 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 three bps. The 10-year municipal-to-Treasury ratio fell to 69.6% on Thursday from Wednesday’s level of 71.8%, while the 30-year municipal-to-Treasury ratio fell to 77.5% on Thursday from Wednesday’s level of 79.9%.

Last Friday municipal prices strengthened across the curve, 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 each fell one bp, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were mixed on Friday, as were U.S. stocks prices for the session. The Dow finished down 179 points, or 0.6%, while the S&P was down 0.3% and the NASDAQ was up 0.1%. On the day, the yield on the two-year maturity was unchanged, while the yields on the 10- and 30-year maturities each fell two bps. The 10-year municipal-to-Treasury ratio bumped up to 70.0% on Friday from Thursday’s level of 69.6%, while the 30-year municipal-to-Treasury bumped up to 77.8% on Friday from Thursday’s level of 77.5%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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