January 4, 2021
In this week’s Municipal Market Update, we highlight the following:
- Municipal prices were steady daily for the week, as reflected by weekly data for the Municipal Market Data (MMD) Triple-A Scale; also shown are the yields for the Municipal Market Advisors (MMA) Triple-A Scale;
- New-issue offerings for the trading week will be $2.4B;
- Demand in the Bank Qualified (BQ) market remains strong;
- Day-by-day recap of activity in the General Market.
Municipal Market Recap
Municipal prices started the last trading week of the year steady across the curve and were steady daily, for the rest of the week. The projected level of new-issue offerings for the first full week of trading for the new year is just $2.4B, which will have market participates looking to the secondary market for additional investment opportunities to fill their needs, as demand continues to outpace supply. The continued strong demand is due in part to strong redemption activity and overall solid inflows into funds.
For 2020, the municipal market saw $474.05B in issuance on 12,940 deals compared to $426.35B in issuance on 11,596 transactions in 2019, according to Refinitiv. It bested the previous record of $448.61B in issuance in 2017. Taxable municipal offerings have been mostly responsible for the issuance surge this in 2020, with a large portion of such issuance being for refundings deals. Total taxable issuance for 2020 was $144.3B and is only surpassed by 2010’s level of $151.87B, which was due to the issuance of direct-pay Build America Bonds (BABs). The issuance of BABs was only authorized for 2009 and 2010, as part of the American Recovery and Reinvestment Act of 2009.
Last week the yields on two-, 10-, and 30-year maturities on the MMD Triple-A Scale were unchanged from Thursday to Friday and they ended the week at 0.14%, 0.71%, and 1.39%, respectively. Overall, week-over-week the yields on the two-, 10-, and 30-year General Obligation (GO) bonds bond were unchanged.
Last week the yields on two-, 10-, and 30-year maturities on the MMA Triple-A Scale were unchanged from Thursday to Friday and they ended the week at 0.27%, 1.09%, and 1.63%, respectively. Overall, week-over-week the yields on the two-, 10-, and 30-year GO bonds were unchanged.
New-Issue Volume is Forecasted to be Around $2.4B for the Week
Total new-issue offerings for first week of trading in the new year per IHS Markit Ipreo are estimated to be $2.4B. This week’s projected bond issuance is comprised of $1.6B in negotiated deals and $768.0MM in competitive sales. The largest deal of the week will be the $450 million offering of GO refunding bonds from the City and County of Denver School District No. 1, Colorado. The deal is rated Aa1 by Moody’s Investors Service (Moody’s), and AA+ by both Standard and Poor’s Global Ratings (S&P) and Fitch Ratings (Fitch). The deal is set to price on Thursday and is also enhanced by the Colorado State Intercept Program.
Also, on Thursday the New Jersey Economic Development Authority plans to offer $350.0MM of Series 2021 QQQ school facilities construction social bonds also on Thursday. The deal is rated Baa1 by Moody’s, BBB by S&P, and BBB+ by Fitch. The San Jose Unified School District, Santa Clara County, California plans to offer $146.0MM of taxable GO refunding bonds, also on Thursday. The deal is rated AA+ by S&P. Also, this week in the negotiated sector the California Infrastructure and Economic Development Bank plans to offer $271.5MM of Series 2021A, B, and C refunding revenue bonds for the Los Angeles County Museum of Art project.
In the competitive arena, Nassau County, New York, (A2/A+/A/) will be selling $370.0MM of notes in four offerings on Tuesday. The sales consist of $110.0MM of Series 2021A revenue anticipation notes (RANs), $110.0MM of Series 2021A tax anticipation notes (TANs), $110.0MM of Series 2021B TANs, and $40 million of Series 2021B RANs. On Wednesday, Westchester County, N.Y., will sell $200.0MM of TANs in two sales consisting of $150.0MM of Series 2021B TANs and $50.0MM of Series 2021A TANs.
Demand in the Bank Qualified (BQ) Market Remains Strong
BQ participants will be focused on secondary market offerings this trading week for opportunities to fill their needs, as buyers continue to outpace sellers. BQ participants continue to have significant demand for municipal paper due in large part to having to replace rolloffs due to redemptions (January is another month of large redemptions). 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 review their portfolio’s and look to replace weaker credits when possible. Week-over-week, BQ spreads were mixed, as the spreads on the one and two-maturities widened, with the largest widening occurring in the one- and two-year maturities by one basis point (bp) each. Meanwhile, the spreads on the three- and five-year maturities were unchanged, while the spreads on the 10-, 15-, and 30-year maturities all widened, with the largest widening occurring in the 30-year maturity by two bps.
Daily Overview of the General Market for the Week Ending January 1st
Last Monday municipals prices were steady, as the markets resumed trading after the Christmas Holiday. 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. stock rose for the session, after President Trump signed a virus relief package on Sunday evening. The Dow finished up 204 points, or 0.7%, while the S&P was up 0.9% and the NASDAQ was also up 0.7%. On the day, the yields on the two- and 10-year maturities were unchanged, while the yield on the 30-year maturity rose one bp. The 10-year municipal-to-Treasury ratio was unchanged on Monday from last Friday’s levels of 75.5%, while the 30-year municipal-to-Treasury ratio fell to 83.2% on Monday from Friday’s level of 83.7%.
Last Tuesday municipals prices were steady, as the last of the years few small deals were priced. 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 prices fell for the session. The Dow finished down 68 points, or 0.2%, and the S&P was also down 0.2% and the NASDAQ was down 0.4%. 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 Tuesday from Monday’s levels of 75.5% and 83.2%, respectively.
Last Wednesday municipals prices were steady once again, as $142.43MM of remarketing bonds were priced for Republic Services, Incorporated. 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. stocks were up for the session. The Dow finished up 74 points or 0.2%, while the S&P and NASDAQ were slightly 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 one bp. The 10-year municipal-to-Treasury ratio rose to 76.3% on Wednesday from Tuesday’s level of 75.5%, while the 30-year municipal-to-Treasury ratio bumped up to 83.7% on Wednesday from Tuesday’s level of 83.2%.
Last Thursday municipals prices were steady across the curve to finish the year, as market participants started looking ahead to the $2.4B in expected new-issue offerings in the first full trading week of the new year. 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 mixed on Thursday, as U.S. stocks rose for the session. The Dow finished up 197 points or 0.7%, while the S&P was up 0.6% and the NASDAQ was up 0.1%. On the day, the yield on the two-year maturity rose one bp, while the yield on the 10-year maturity was unchanged and the yield on the 30-year maturity fell one bp. The 10-year municipal-to-Treasury was unchanged on Thursday from Wednesday’s level of 76.3%, while the 30-year municipal-to-Treasury ratio rose to 84.2% on Thursday from Wednesday’s level of 83.7%.
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP