Muni Update

January 6, 2020


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


Municipal Market Recap

Municipal issuance was up 57% in December 2019 from a year earlier, putting 2019 total volume at $421.693B, nearly a quarter more than the market produced in 2018, which was $338.933B. December 2019 volume was $40.787B on 927 transactions, well above last year’s $25.970B on 702 deals sold the last month of 2018. The rise this year in issuance was due to the currently low rates in the market place and continued substantial demand by investors due to high redemption flows, as well as inflows into municipal bond mutual funds throughout the year. Issuance is 2020 is expected to mirror 2019 levels as there appears to be no letup in demand, especially if rates remain low.

Municipal prices started the week mixed, as bonds maturing 10 year and in were steady, while the long-end weakened. Last Tuesday, New Year’s Eve, municipal prices were steady across the curve. On Thursday and Friday prices strengthened across the curve. Issuance for the first full trading week of the New Year is forecasted to be $7.96B. This week’s projected issuance together with secondary market opportunities should provide market participants with numerous opportunities to meet demand, especially given the continued strong demand in the municipal market. As mentioned above, driving this strong demand in the municipal market is the continuing combination of high redemption flows, as well as inflows into municipal bond mutual funds, which continues to be strong at this time.

Investors in municipal bond funds put cash into funds for a 52nd week, as weekly reporting funds experienced inflows of $280.585MM after experiencing inflows of $1.694B the week prior. The four-week moving average was a positive $1.272B, after being in the green at $ $1.356B 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 investors seek 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 fell four basis points (bps) from Thursday to Friday and ended the week at 0.98%. Meanwhile, the yields on the 10- and 30- year maturities on the MMD Triple-A Scale each fell seven bps from Thursday to Friday and they ended the week at 1.35% and 1.99%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond fell six bps, while the yields on the 10- and 30-year GO bonds each fell nine bps.

Last week the yield on the two-year maturity on the MMA Triple-A Scale fell four bps from Thursday to Friday and ended the week at 1.12%. Meanwhile, the yields on the 10- and 30- year maturities on the MMA Triple-A Scale each fell six bps from Thursday to Friday and they ended the week at 1.49% and 2.10%, respectively. Overall, week-over-week the yield on the two-year GO bond fell six bps, while the yield on the 10-year GO bond fell eight bps and the yield on the 30-year GO bond fell nine bps.


New-Issue Volume is Forecasted to be $7.96B for Trading Week

Total new issuance for the trading week per IHS Markit Ipreo is estimated to be $7.96B. The calendar consists of $4.08B in negotiated deals and $3.88B of competitive sales. There are 28 scheduled deals schedule with a par issuance amount of $100.0MM or larger, with 17 of those coming in the negotiated market and 11 will be offered competitively. Nine of the $100-million-or-larger scheduled deals will either be partially or completely taxable.

Offerings scheduled this week include $569.12MM of project revenue bonds from the University of Massachusetts Building Authority on Wednesday. The tax-exempt portion is expected to have a par amount of $212.295MM, while the taxable portion should be for $356.825MM. The offerings are rated Aa2 by Moody’s Investors Service (Moody’s), AA- by Standard and Poor’s Global Ratings (S&P), and AA Fitch Ratings (Fitch).

On Thursday the New Jersey Economic Development Authority plans to offer $500.0MM of transit transportation project bonds. The deal is rated Baa1 by Moody’s, BBB+ by S&P, and A- by Fitch. Also on Thursday the Arizona Transportation Board plans to offer $466.48MM of highway revenue taxable bonds.  No ratings have been assigned as of yet for this deal.

Topping the competitive slate this week will be the New York Metropolitan Transportation Authority (NY MTA), which plans to offer $2.4B. The offering will be comprised of $940.0MM of green revenue bonds selling on Thursday and $1.5B of bond anticipation notes (BANs) selling on Monday.


Municipal Bond Funds Post Inflows for a 52nd Week

Investors in municipal bond funds put cash into funds for a 52nd week, as weekly tax-exempt weekly reporting funds experienced inflows of $280.585 in the latest week, after experiencing inflows of $1.694B the week prior. The four-week moving average was a positive $1.272B, after being in the green at $1.356B the prior week.

Long-term municipal bond funds had inflows of $76.066MM in the latest week after experiencing inflows of $1.211B the week prior. Intermediate-term funds had inflows of $151.192MM after inflows of $324.204MM the week prior. National funds had inflows of $275.471MM after experiencing inflows of $1.526B the week prior. High-yield municipal funds reported inflows of $38.564MM in the latest week, after inflows of $380.898MM the week prior. Exchange traded funds reported inflows of $ 136.257MM after inflows of $132.646MM the week prior.


Demand in the Bank Qualified (BQ) Market Remains Strong

The BQ market continues to see decent two-way flows with both buying and selling from market participants. For banks, with January 1st and January 15th being large rolloff dates, BQ participants continue to have significant demand for BQ paper. The expected pick up in new-issue paper this week, together with secondary opportunities, should provide market participants the chance to address their needs while picking up attractive structures, especially those in the long-end of the curve.

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 one- and 30-year maturities tightened, with the largest tightening occurring in the one-year maturity, four bps. Meanwhile, the two-, three-, five-, 10-, and 15-year maturities all widened, with the largest widening occurring in the three-year maturity, six bps.


Daily Overview of the General Market for the Week Ending January 3rd

Last Monday prices on municipals were mixed, as one of the three competitive sales scheduled for the week was priced. 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 one bp, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were also mixed, as U.S. stock posted losses for a very light trading session. The Dow was down 0.64%, while the S&P was down 0.58% and the NASDAQ was down 0.67%. On the day, the yield on the two-year maturity fell one bp, while the yields on the 10- and 30-year maturities each rose two bps. The 10-year municipal-to-Treasury ratio fell to 75.8% on Monday from last Friday’s level of 76.6%, while the 30-year municipal-to-Treasury ratio fell to 89.3% on Monday from last Friday’s level of 89.7%.

Last Tuesday prices on municipals were steady, as the market was quiet ahead of the New Year’s 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. stocks finished up on a thinly traded session ahead of the holiday. The Dow and S&P were up 0.27% and 0.29%, while the NASDAQ was up 0.30%. 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 five bps. The 10-year municipal-to-Treasury ratio fell to 75.0% on Tuesday from Monday’s level of 75.8%, while the 30-year municipal-to-Treasury ratio fell to 87.5% on Tuesday from Monday’s level of 89.3%.

Last Thursday prices on municipals strengthened across the curve, as participants were focused on secondary market activity. On the day, the yields on the two- and 10-year GO bonds fell two bps, while the yield on the 30-year GO bond fell three bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were mixed, as U.S. stocks posted gains for the session and closed at new highs. The Dow and S&P were both up 1.16% and 0.84% respectively, while the NASDAQ rose 1.33%. On the day, the yield on the two-year maturity was unchanged, while the yield on the 10-year maturity fell four bps and the yield on the 30-year maturity fell six bps. The 10-year municipal-to-Treasury ratio rose to 75.5% on Thursday from Tuesday’s level of 75.0%, while the 30-year municipal-to-Treasury ratio rose to 88.4% on Thursday from Tuesday’s level of 87.5%.

Last Friday prices on municipals were stronger, as municipal yields followed U.S Treasury yields lower and market participants were looking ahead to the $7.96B in new-issue long-term debt forecasted to be offered. On the day, the yield on the two-year maturity fell four bps, while the yields on the 10- and 30-year GO bonds each fell seven bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices also strengthened, as U.S. stocks posted losses for the session due to an American drone strike targeting a top Iranian commander which sent shockwaves through the investment community. The Dow and S&P were both down 0.81% and 0.71%, respectively, while the NASDAQ was down 0.79%. On the day, the yield on the two-year maturity fell five bps, while the yield on the 10-year maturity fell eight bps and the yield on the 30-year maturity fell seven bps. The 10-year municipal-to-Treasury ratio fell to 75.0% on Friday from Thursday’s level of 75.5%, while the 30-year municipal-to-Treasury ratio slipped to 88.1% on Friday from Thursday’s level of 88.4%.


Taxable Market






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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