Muni Update

July 12, 2021


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


Municipal Market Recap

Municipal prices were mixed on Tuesday, as prices on bonds in the front-end were steady, while prices on bonds maturing 10 years and longer strengthened.  On Wednesday and Thursday municipals prices strengthened across the curve. On Friday municipal prices were steady across the curve.

The projected level of new issue offerings for the trading week are $9.02B and coupled with bank qualified (BQ) and general market (GM) offerings in the secondary market should provide market participants with various opportunities to fill their needs, especially as demand continues to outpace supply. The continued strong demand in the municipal market is being driven by redemption activity, as well as inflows into funds, both of which continue to contribute to demand outpacing supply for the year.

For funds latest reporting period, investors in municipal bond funds put cash into funds for a 18th week in a row, as tax-exempt weekly reporting funds data showed that funds experienced inflows of $2.292B in the latest week, after experiencing inflows of $832.221MM the week prior. The four-week moving average was a positive $1.722B, after being in the green at $1.765B the week prior.

Last week the yields on the two-, 10-, and 30-year maturities on the MMD Triple-A Scale were unchanged from Thursday to Friday and they ended the week at 0.12%, 0.84%, and 1.33%, respectively. Overall, week-over-week the yield on the two-year general obligation (GO) bond fell five basis points (bps), while the yield on the 10-year GO bond fell 12 bps and the yield on the 30-year GO bonds fell 14 bps.

Last week the yields on the two-, 10-, and 30-year maturities on the MMA Triple-A Scale were unchanged from Thursday to Friday and they ended the week at 0.15%, 1.11%, and 1.64%, respectively. Overall, week-over-week the yield on the two-year GO bond fell five bps, while the yield on the 10-year GO bond fell 12 bps and the yield on the 30-year GO bonds fell 14 bps.


New-Issue Volume is Forecasted to be $9.02B for the Trading Week

Total new issue offerings for the trading week per IHS Markit Ipreo are estimated to be $9.02B. This week’s projected level of bond issuance is comprised of $6.64B in negotiated deals and $2.38B in competitive sales. Leading the week this week will be the New York City Transitional Finance Authority (NYC TFA) which is set to price $589.1MM of building aid revenue refunding bonds, Fiscal 2022 Series S-1, Subseries S-1A. The deal is rated Aa3 by Moody’s Investor Service (Moody’s), and AA by Standard and Poor’s Global Ratings (S&P) and Fitch Ratings (Fitch).

Other notable deals this week include but are not limited to the Water Works Board of the City of Birmingham, Alabama, will price $469.3MM of senior taxable water revenue refunding bonds, Series 2021 on Monday. The deal is rated Aa2 by Moody’s and AA by S&P.

The Rector and Visitors of the University of Virginia is set to price on Wednesday $300.0MM of taxable general revenue pledge refunding bonds, term 2051. Barclays Capital Inc. The Rector and Visitors of the University of Virginia is also set to price $100.0MM of general revenue pledge bonds, Series 2021A on Tuesday. The deal sis rated Triple-A by Moody’s, S&P and Fitch. The State of Ohio is set to price $270.4MM of Cleveland Clinic Health System Obligated Group hospital revenue Series 2021A bonds comprised of $69.445MM of serials 2047-2049 and $201.0MM of forward delivery hospital revenue refunding bonds, serials 2023-2039.

The Arlington Higher Education Finance Corporation, Texas, (PSF guarantee) is set to price $182.86MM of educational revenue and refunding bonds (Harmony Public Schools). The City of Clarksville, Tennessee, is set to price $180.84MM of water, sewer & gas revenue bonds, Series 2021A. The deal is rated Aa2 by Moody’s and AA by Fitch. Charlotte, North Carolina, is set to price $164.1MM of refunding certificates of participation transit projects, Series 2021A on Wednesday. The deal is rated Aa2 by Moody’s and AA+ by S&P and Fitch. The JEA, Florida, is set to price $128.765MM of water and sewer system revenue refunding bonds, serials, 2023-2041 on Tuesday. The deal is rated Aa3 by Moody’s, AA+ by S&P and AA by Fitch. Grand Rapids, Michigan, is set to price $102.0MM of taxable sanitary sewer system revenue refunding bonds, serials 2022-2035, term 2042 also on Tuesday. The deal is rated Aa2 by Moody’s and AA by S&P. Finally, San Antonio, Texas, Education Facilities Corporation is set to price $100.3MM of higher education revenue improvement and refunding bonds (University of the Incarnate Word Project), Series 2021A, serials 2038-2054. The deal is rated Baa1 by Moody’s.

In the competitive market, The State of Colorado is set to sell $370.0MM of educational loan program tax anticipation notes (TANS) on Tuesday. Broward County, Florida, is set to sell $160.0MM TANs. The deal is rated MIG1 by Moody’s. The Orange County Sanitation District, California, is set to sell $135.5MM of wastewater refunding obligation bonds on Wednesday. The deal is rated Triple-A by Moody’s, S&P and Fitch. Also on Wednesday, Santa Clara County, California, is set to sell $350.0MM of taxable GO bonds. The deal is rated AAA by S&P and AA+ by Fitch. The NYC TFA plans to offer $210.3MM of taxable building aid revenue bonds. San Jose, California plans to offer $200.0MM of GO bonds and the City of Memphis, Tennessee plans to offer $160.0MM of GO improvement refunding bonds.


Municipal Bond Funds Posted Inflows for a 18th Week in a Row

Investors in municipal bond put cash into funds for a 18th week in a row, as tax-exempt weekly reporting funds experienced inflows of $2.292B in the latest week, after experiencing inflows of $832.221MM the week prior. The four-week moving average remained positive at $1.722B, after being in the green at $1.765B the week prior.

Long-term municipal bond funds had inflows of $1.534B in the latest week after experiencing inflows of $338.358MM the week prior. Intermediate-term funds had inflows of $347.064MM after inflows of $39.305MM the week prior. National funds had inflows of $2.091B after experiencing inflows of $843.838MM the week prior. High-yield municipal funds reported inflows of $682.690MM in the latest week, after inflows of $313.275MM the week prior. Exchange traded funds reported inflows of $330.746MM, after inflows of $185.478MM the week prior.


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 well as secondary market offerings in both BQ and GM paper. Significant demand continues to be the story this year and is being driven in large part by investors having to replace rolloffs due to continued strong redemption activity and inflows into funds. As to redemption activity, for June, July and August, a net negative supply is expected, as over $150.0B is to either mature or be called during this time frame, which started on June 1st and continue on the 1st and 15th of the next few months.

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 review their portfolio’s and look for opportunities in the intermediate and longer end of the curve. Also, now is a good time to look to clean up portfolios, especially odd lot position in BQ or GM paper, as well as to take gains on short call paper with higher coupons due to strong retail demand and extend out the curve. Especially, as overall credit quality continues to stabilize and improve in the municipal market. Week-over-week, BQ spreads were mixed, as the spreads on the one- and 10-year maturities were unchanged, while the spread on the two-year maturity widened two bps. Meanwhile, the week-over-week BQ spreads on the three-, five-, 15-, and 30-year maturities all tightened, with the largest tightening occurring in the five-year maturity, six bps.


Daily Overview of the General Market for the Week Ending July 9th

On Tuesday municipals prices were mixed, as the first of the trading week’s $4.71B in new issue debt was 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 three bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasuries strengthened on Tuesday, as U.S. stocks ended the session mixed and the S&P and the Dow each pulled back from record levels. The Dow was down 209 points or 0.6%, while the S&P was down 0.2% and the NASDAQ was up 0.2%. On the day, the yield on the two-year maturity fell two bps, while the yield on the 10-year maturity fell seven bps and the yield on the 30-year maturity fell five bps. The 10-year municipal-to-Treasury ratio bumped up to 67.9% on Tuesday from last Friday’s level of 67.7%, while the 30-year municipal-to-Treasury ratio bumped up to 72.0% on Tuesday, from last Friday’s level of 71.7%.

Last Wednesday municipals prices strengthened, as a number of new issue deals came to market including the retail pricing of $120.0MM of tax-exempt systemwide revenue bonds for the Trustees of the California State University System and in the competitive arena a $128.0MM of Collier County, Florida, Water and Sewer District, water and sewer revenue bonds were sold. 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 five bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasuries were mixed on Wednesday, while U.S. stocks posted gains for the session, as they closed out a choppy session higher after the Federal Open Market Committee’s June meeting minutes signaled a split on the timing for rolling back crisis-era monetary policies. 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 fell to 66.2% on Wednesday from Tuesday’s level of 67.8%, while the 30-year municipal-to-Treasury ratio slipped to 71.7% on Wednesday from Tuesday’s level of 72.0%.

Last Thursday municipals prices strengthened across the curve, as the last of the week’s new issue offerings came to market and saw new-issue offering were repriced by double-digits and the robust secondary trading showed clear movements to lower yields across the credit spectrum. On the day, the yield on the two-year maturity fell two bps, while the yield on the 10-year GO bond fell four bps and the yield on the 30-year GO bond each fell six bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices strengthened on Thursday, while U.S. stocks fell for the session giving back gains after a record-setting session, with investors nervously eyed signs that the economic recovery might get derailed. The Dow was down 259 points or 0.8%, while the S&P was down 0.9% and the NASDAQ was down 0.7%. On the day, the yields on the two-, 10- and 30-year maturities each fell three bps. The 10-year municipal-to-Treasury ratio fell to 64.6% on Thursday from Wednesday’s level of 66.2%, while the 30-year municipal-to-Treasury ratio fell to 69.6% on Thursday from Wednesday’s level of 71.7%.

Last Friday municipal prices were steady, as market participants were looking ahead to $9.02B in expected new issue offerings in the upcoming holiday-shortened trading week. On the day, the yields on the two-, 10-, and 30-year maturities were unchanged, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices weakened on Friday, as U.S. stocks prices rose for the session, setting new all-time highs and shaking off the declines from a day earlier. The Dow rose 448 points or 1.3%, while the S&P was up 1.1% and the NASDAQ was up 1.0%. On the day, the yield on the two-year maturity rose four bps, while the yield on the 10-year maturity rose seven bps and yield on the 30-year maturity rose eight bps. The 10-year municipal-to-Treasury ratio fell to 61.3% on Friday from Thursday’s level of 64.6%, while the 30-year municipal-to-Treasury ratio fell to 66.8% on Friday from Thursday’s level of 69.6%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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