Muni Update

January 28, 2019


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

 

Municipal Market Recap

Municipal prices were mixed daily through Thursday. On Tuesday bonds maturing 10 years and in were steady, while the long-end weakened. On Wednesday the front-end strengthened, while prices on bonds maturing ten years and longer weakened. On Thursday the front-end was steady, while prices on bonds maturing 10 years and longer strengthened. On Friday prices were steady across the curve. Issuance this week is forecasted to be $3.8B, which is above last week’s revised issuance of $2.9B. This lower level of issuance is in part expected given that the Federal Open Market Committee (FOMC) is holding its two-day monetary policy meeting in Washington this week. The FOMC is not expected to take any action on interest rates this week, however, observers will pay close attention to any discussion of balance sheet reduction for hints of flexibility. This 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 third week, as weekly reporting funds experienced inflows of $834.371MM, after experiencing inflows of $945.911MM the week prior. The four-week moving average remained positive at $683.673MM, after being a positive $707.936MM 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 yields on the two-, 10- and 30-year maturities on the MMD Triple-A Scale were all unchanged from Thursday to Friday and they ended the week at 1.69%, 2.23% and 3.10%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond fell one basis point (bp), while the yield on the 10-year GO bond rose two bps and the yield on the 30-year GO rose four bps.

Last week the yield on the two-year maturity on the MMA Triple-A Scale was unchanged from Thursday to Friday and ended the week at 1.75%. Meanwhile the yields on the 10- and 30-year maturities on the MMA Triple-A Scale each rose one bp from Thursday to Friday and they ended the week at 2.48% and 3.17%, respectively. Overall, week-over-week the yield on the two-year GO bond was unchanged, while the yields on the 10- and 30-year GO bonds each rose two bps.

 

New Issue Volume is Forecasted to be $3.8B for the Week

Total issuance for the trading week is estimated to be $3.8B, which is above last week’s trading volume of $2.9B in issuance, according to revised data from Thomson Reuters. This lower level of issuance is in part expected given the FOMC is holding its two-day monetary policy meeting in Washington this week. This week’s trading calendar is comprised of $2.5B in negotiated offerings and $1.3B in competitive offerings.

Topping the slate are two sales coming from the New York Metropolitan Transportation Authority (NY MTA) totaling over $1.0 billion. The offerings are to be sold on Thursday and will consist of $462.8MM of Series 2019A transportation revenue climate bond certified green bonds and $750.0MM of Series 2019A transportation revenue bond anticipation notes (BANs). Moody’s Investors Service (Moody’s) rates the bonds A1 and assigns a MIG1 rating to the BANs.

On Monday, the Wauwatosa School District, Wisconsin plans to offer $124.9MM GO school building and improvement bonds in two series. The two series will be comprised of $63.0MM of Series 2019A GOs and $61.9MM of Series 2019B GO bonds. Proceeds will be used to finance various school improvements.  The deals are rated Aa1 by Moody’s.

On Tuesday, Fairfax County, Virginia plans to offer $270.3MM of public improvement bonds and refunding bonds, also in two series. The first will be $225.395MM of Series 2019A bonds and the other will be $44.88MM of Series 2019 taxable refunding bonds. Proceeds will be used to finance various public and school improvements and to refund some outstanding debt. The deal is rated triple-A by Moody’s, S&P Global Ratings (S&P) and Fitch Ratings (Fitch).

Also this week Shelby County, Tennessee will be selling two series of bonds totaling $243.325MM of GO public improvement and school bonds. The first series will consist of $170.865MM of Series 2019A GOs and the other will be $72.46MM of Series 2019B GO refunding bonds. Proceeds will be used to finance various capital and school improvements and to redeem some outstanding debt. The deal is rated AA+ by S&P and Fitch.

Broward County School District, Florida plans to offer $175.845MM of Series 2019 GO school bonds. Proceeds will be used for the acquisition, construction, renovation, and equipping of educational facilities within the School District, including safety enhancements and instructional technology upgrades. The deal is rated AA- by Fitch.

In the negotiated sector, the biggest offering is a $345.53MM composite deal from the Orange County Health Facilities Authority in Florida for the Orlando Health Obligated group. The issue consists of hospital revenue bonds, forward delivery hospital revenue refunding bonds and taxable corporate CUSIP hospital revenue bonds. The taxable corporate CUSIP bonds will price on Tuesday, while the tax-exempt bonds will price on Wednesday. The deal is rated A2 by Moody’s and A+ by S&P.

 

Municipal Bond Funds Post Inflows for a Third Week

Investors in municipal bond funds put cash into funds for a third week, according to the latest data from Lipper. The weekly reporting funds saw inflows of $834.371MM, after experiencing inflows of $945.911MM the week prior. The four-week moving average remained positive at $683.673MM, after being a positive $707.936MM the week prior.

Long-term municipal bond funds had inflows of $500.408MM in the latest week after experiencing inflows of $401.730MM the week prior. Intermediate-term funds had inflows of $243.066MM after inflows of $497.610MM the week prior. National funds had inflows of $701.121MM after experiencing inflows of $774.506MM the week prior. High-yield municipal funds reported inflows of $383.195MM in the latest week, after inflows of $411.038MM the week prior. Exchange traded funds reported outflows of $117.588MM, after outflows of $306.220MM 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 continue were to be well received. With February 1st being another large rolloff dates, BQ participants continue to have significant demand for BQ paper. The projected level of new issue paper this week is light, which will have participants looking to secondary opportunities to provide they with 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, as the bid side for municipals continues to remain strong. Week-over-week, bank qualified spreads were mixed, as all maturities, except the three-year maturity, widened. The largest widening occurred in numerous maturities, three bps, while the three-year maturity tightened by one bp.

 

Daily Overview of the General Market for the Week Ending January 25th

Last Tuesday prices on municipals started the session stronger across the curve, only to see prices fade on the day and finish the session mixed. On the day, the yields on the two- and 10-year GO Bonds were steady, while the yield on the 30-year GO bond rose two bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasuries strengthened on the day, as stocks posted losses for the session after a series of weak economic reports came out in the morning. On the day, the yield on the two-year maturity fell four bps, while the yield on the 10-year maturity fell five bps and the yield on the 30-year maturity fell three bps. The 10-year municipal-to-Treasury ratio rose to 80.7% on Tuesday from last Friday’s level of 79.2%, while the 30-year municipal-to-Treasury rose to 100.7% on Tuesday from last Friday’s level of 99.0%.

Last Wednesday prices on municipals were mixed again, as new deals from issuers in Hawaii, Colorado, and Virginia came to market. On the day, the yield on the two-year GO bond fell one bp, 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. Treasuries were also mixed, 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 two bps and the yield on the 30-year maturity rose one bp. The 10-year municipal-to-Treasury ratio rose to 81.2% on Wednesday from Tuesday’s levels of 80.7%, while the 30-year municipal-to-Treasury ratio rose to 101.3% on Wednesday from Tuesday’s level of 100.7%.

Last Thursday prices on municipals were mixed, as deals from issuers in Connecticut and New Jersey dominated action in the primary market. On the day, the yield on the two-year GO bond was steady, 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.

U.S. Treasury prices finished the day stronger, as market finished mixed on the day. The Dow was down slightly, while the S&P and the NASDAQ posted gains for the session. On the day, the yield on the two-year maturity fell two bps, while the yield on the 10-year maturity fell four bps and the yield on the 30-year maturity fell three bps. The 10-year municipal-to-Treasury ratio rose to 82.0% on Thursday from Wednesday’s level of 81.2%, while the 30-year municipal-to-Treasury rose to 102.0% on Thursday from Wednesday’s level of 101.3%.

Last Friday, prices on municipals were steady, as market participants were looking ahead to the coming trading week’s $3.8B in new issuance offerings. 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 were weaker across the curve, as stocks rose for the session and a deal to end the partial U.S. Government shutdown was reached. On the day, the yields on the two- and 10-year maturities each rose four bps, while the yield on the 30-year maturity rose two bps. The 10-year municipal-to-Treasury fell to 80.8% on Friday from Thursday’s level of 82.0%, while the 30-year municipal-to-Treasury ratio was fell to 101.3% on Friday from Thursday’s level of 102.0%.







Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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