Muni Update

January 27, 2020


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


Municipal Market Recap

Municipal prices started the week stronger across the curve. On Wednesday prices were steady across the curve. On Thursday prices again strengthened across the curve. On Friday municipal prices were mixed, as the front-end was steady, while bonds maturing 10 years and longer strengthened. This week’s projected issuance is $5.53B. We note, the new-issue market for solely taxable municipal bonds has almost doubled this year vs. January 2019. The Bloomberg YTDMTXBB Index shows taxable muni-bond issuance has reached $4.02B, or almost 30.0% of total municipal issuance to date in 2020. The volume of taxable municipal bonds is the most in a decade, since Build America Bond (BAB) 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 55th week, as weekly reporting funds experienced inflows of $1.999B after experiencing inflows of $2.340B the week prior. The four-week moving average was a positive $1.877B, after being in the green at $1.801B 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 yield on the two-year maturity on the MMD Triple-A Scale was unchanged from Thursday to Friday and ended the week at 0.85%. Meanwhile the yields on the 10- and 30-year maturities on the MMD Triple-A Scale each fell two basis points (bps) from Thursday to Friday and they ended the week at 1.23% and 1.88%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond fell five bps, while the yields on the 10- and 30-year GO bonds each fell six bps.

Last week the yield on the two-year maturity on the MMA Triple-A Scale fell one bp from Thursday to Friday and ended the week at 0.96%. Meanwhile the yields on the 10- and 30-year maturities on the MMA Triple-A Scale each fell two bps from Thursday to Friday and they ended the week at 1.34% and 1.95%, respectively. Overall, week-over-week the yield on the two-year GO bond fell seven bps, while the yields on the 10- and 30-year GO bonds each fell six bps.


New-Issue Volume is Forecasted to be $5.53B for Trading Week

Total new issuance for the trading week per IHS Markit Ipreo is estimated to be $5.53B. The calendar consists of $4.41B in negotiated deals and $1.12B of competitive sales. There are 17 deals scheduled with a par issuance amount of $100.0MM or larger, with only five of them coming competitively. Seven of these $100-million-or-larger scheduled deals will either be partially or completely taxable.

The Escambia County Health Facilities Authority plans to offer $589.42MM on Tuesday. The offering will be comprised of health care facilities revenue and taxable revenue bonds for Baptist Health Care Corporation Obligated Group. The tax-exempt portion is expected to be $523.91MM, while the taxable portion is seen at $65.51MM. The deal is rated Baa2 by Moody’s Investors Service (Moody’s), BBB+ by Standard and Poor’s Global Ratings (S&P), and BBB by Fitch Ratings (Fitch).   Also on Tuesday, New York University’s (NYU) Langone Hospital plans to offer $571.2MM of taxable corporate CUSIP bonds, after indications of interest on Monday. In addition, the Dormitory Authority of the State of New York (DASNY) plans to offer $473.92MM of revenue bonds for NYU Langone Hospital. Both deals are rated A3 by Moody’s and A by S&P.

On Wednesday, Ohio’s $456.77MM of turnpike revenue refunding taxable bonds will be priced. It is anticipated the deal will have two tranches: the first for $81.19MM of senior lien is expected to mature serially from 2032 through 2036, as well as have a term bond in 2048. The senior lien offering will be rated Aa2 by Moody’s, AA- by S&P, and AA by Fitch. The second tranche for $375.58MM of junior lien bonds is expected to mature serially from 2021 through 2031 as well have term bonds in 2040 and 2048 and will be rated Aa3 by Moody’s, and A+ by S&P and Fitch.

On Thursday the University of Southern California (USC) will price $320.0MM of taxable bonds. The deal is a century bond and will mature in 2120 and is rated Aa1 by Moody’s and AA by S&P.


Municipal Bond Funds Post Inflows for a 55th Week

Investors in municipal bond funds put cash into funds for a 55th week, as tax-exempt weekly reporting funds experienced inflows of $1.999B in the latest week, after experiencing inflows of $2.340B the week prior. The four-week moving average was a positive $1.877B, after being in the green at $1.801B the prior week.

Long-term municipal bond funds had inflows of $ 1.418B in the latest week after experiencing inflows of $1.824B the week prior. Intermediate-term funds had inflows of $203.819MM after inflows of $376.446MM the week prior. National funds had inflows of $1.730B after experiencing inflows of $2.119B the week prior. High-yield municipal funds reported inflows of $490.463MM in the latest week, after inflows of $685.574MM the week prior. Exchange-traded funds reported inflows of $62.224MM after inflows of $500.704MM 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, 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 (15+ years) 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 10-, 15-, and 30-year maturities widened, with the largest widening occurring in the 15-year maturity, 10 bps.  Meanwhile the one-, two-, three-, and five-year maturities all tightened, with the largest tightening occurring in the three-year maturities, 15 bps.


Daily Overview of the General Market for the Week Ending January 24th

Last Tuesday prices on municipals strengthened, as a handful of new-issue offering were priced during the session. On the day, the yield on the two-year GO bond fell three bps, while the yields on the 10- and 30-year GO bonds each fell one bp, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys also strengthened, as U.S. stocks finished down for the session, as worry around a deadly and contagious coronavirus in China drove the risk-off trend in global markets. The Dow was down 0.52%, while the S&P and NASDAQ were down, 0.26% and 0.19%, respectively. On the day, the yield on the two-year maturity fell five bps, while the yields on the 10- and 30-year maturities each fell six bps. The 10-year municipal-to-Treasury ratio rose to 71.9% on Tuesday from last Friday’s level of 70.1%, while the 30-year municipal-to-Treasury ratio rose to 86.6% on Tuesday from last Friday’s level of 84.7%.

Last Wednesday municipal prices were steady, as a number of deals came to market including the taxable $1.004B offering by Partners Healthcare System Inc., for Mass General Brigham. 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. stocks opened strong but essentially gave up all of their gains by the close as lingering worries around China’s coronavirus continued to weigh on investor’s minds. The Dow and the S&P both closed up 0.03%, while the NASDAQ was up 0.13%. On the day, the yield on the two-year maturity was steady, while the yields on the 10- and 30-year maturities each fell one bp. The 10-year municipal-to-Treasury ratio bumped up to 72.3% on Wednesday from Tuesday’s level of 71.9%, while the 30-year municipal-to-Treasury ratio bumped up to 86.9% on Wednesday from Tuesday’s level of 86.6%.

Last Thursday prices on municipals strengthened, as the last of the week’s new-issue offerings came to market and were oversubscribed and repriced. On the day, 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, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices also strengthened, as U.S. stocks see-sawed through the day on continued concerns over China’s coronavirus, and ultimately posted mixed results for the session. The Dow and S&P were both down, 0.09% and 0.11% respectively, while the NASDAQ rose 0.20%. 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 71.8% on Thursday from Wednesday’s level of 72.3%, while the 30-year municipal-to-Treasury ratio bumped up to 87.2% on Thursday from Wednesday’s level of 86.9%.

Last Friday prices on municipals were mixed, as market participants were looking ahead to the $5.53B in new-issue long-term debt to be offered. 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.

U.S. Treasury prices strengthened, as U.S. stocks continued to post losses over fears of China’s coronavirus. The Dow and S&P were both down, 0.58% and 0.90%, respectively, while the NASDAQ was down 0.93%. 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 72.4% on Friday from Thursday’s level of 71.8%, while the 30-year municipal-to-Treasury ratio rose to 87.9% on Friday from Thursday’s level of 87.2%.


Taxable Market






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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