Muni Update

July 15, 2019


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


Municipal Market Recap

Municipal prices were mostly steady on Monday. On Tuesday municipal prices strengthened across the curve. On Wednesday municipal prices were mixed, as bonds maturing 10 years and in strengthened, while the long-end was steady. On Thursday municipal prices were mixed again, as front- and long-end maturities were steady, while intermediate maturities strengthened. On Friday municipal prices were mixed again, as the front-end maturities strengthened, while bonds maturing 10 years and longer were steady. Issuance for the week is forecasted to be just over $7.0B. This week’s level of projected new issue offerings, together with secondary market opportunities should provide market participants with a number of opportunities, especially given the continued strong demand in the municipal market. Driving this strong demand in the municipal market is a combination of high redemption flows and inflows into municipal bond mutual funds, which continues to be strong at this time.

This strong demand has been fueled by heavy redemptions and robust flows of money into mutual funds and has helped the ICE BofAML Municipal Bond Index turn in eight consecutive months of positive total returns. Prices have also been aided by the lack of supply, which is up 6.0% YTD (year-to-date) over last year, but is behind the pace of the last five years. This year’s total first-half issuance is 9.0% lower than the average first half total for the last five years.

Investors in municipal bond funds put cash into funds for a 27th week, as weekly reporting funds experienced inflows of $1.009B, after experiencing inflows of $1.220B the week prior. The four-week moving average was a positive $1.193B, after being a positive $1.136B the week prior. Investors still facing low rates overseas continue to find higher-yielding U.S. assets attractive, especially since municipal bonds are off to their best start in five years. Municipal securities have been bolstered by low supply and strong demand. All 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 yield on the two-year maturity on the MMD Triple-A Scale fell two basis points (bps) from Thursday to Friday and ended the week at 1.16%. Meanwhile the yields on the 10- and 30-year maturities on the MMD Triple-A Scale were steady from Thursday to Friday and ended the week at 1.58% and 2.28%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond each six bps, while the yield on the 10-year GO bond fell four bps and the yield on the 30-year GO bond fell one bp.

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 1.28%, 1.78%, and 2.45%, 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 three bps and the yield on the 30-year GO bond fell one bp.


New Issue Volume is Forecasted to be just over $7.0B for Trading Week

Total new issuance for the trading week per IHS Markit Ipreo is estimated to be just over $7.0B. This week’s trading includes 16 deals scheduled for $100.0MM or larger in par. This week’s calendar will be led by a $915.0MM offering from Children’s Healthcare of Atlanta and a $679.0MM North Texas Tollway Authority (NTTA) refunding deal.

The NTTA offering of $678.905 million of system revenue bonds will be on Tuesday and is rated A1 by Moody’s Investors Service (Moody’s) and A+ by Standard and Poor’s Global Ratings (S&P).

Also on tap next week is a $478.3 million offering from Colorado Health Facilities Authority (Aa2/AA/AA), which is scheduled to be priced on Thursday. The deal is rated Aa2 by Moody’s and AA by S&P and Fitch Ratings (Fitch). The Sacramento Municipal Utility District plans to offer $400.0MM of electric revenue bonds in three series.

On the competitive side the Monahans-Wickett-Pyote ISD, Texas plans to offer $140.0MM of School Bonds on Monday. The deal is rated Triple-A by SYP due to the enhancement provided by the Texas Permanent School Fund (PSF). On Tuesday the State of Wisconsin plans to offer $223.447MM of GO bonds.


Municipal Bond Funds Post Inflows for a 27th Week

Investors in municipal bond funds put cash into funds for a 27th week, according to the latest data from Lipper. The weekly reporting funds saw inflows of $1.009.220B in the latest week, after experiencing inflows of $1.220B the week prior. The four-week moving average was a positive $1.193B, after being a positive $1.136B the week prior.

Long-term municipal bond funds had inflows of $801.608MM in the latest week after experiencing inflows of $781.308B the week prior. Intermediate-term funds had inflows of $146.174MM after inflows of $293.122MM the week prior. National funds had inflows of $922.178MM after experiencing inflows of $1.051B the week prior. High-yield municipal funds reported inflows of $345.109MM in the latest week, after inflows of $317.217MM the week prior. Exchange traded funds reported inflows of $ $124.122MM, after outflows of $103.292MM the week prior.


Demand in the Bank Qualified (BQ) Market Remains Strong

The BQ market continues to see good activity, even with the lower level of new-issue supply so far this year, which has contributed to secondary market bid lists being well received. BQ participants continue to have significant demand for municipal paper due in large part to having to replace rolloffs due to redemptions. Larger BQ participants continue to find attractive opportunities, both in size and structure (15 to 25 year range) in both BQ and general market paper, due in part to the lower tax rates from tax reform and attractive yields. Other market participants continue to find opportunities in both primary offerings and secondary market BQ opportunities, to address their needs, although we are seeing more BQ buyer’s crossing over and buying GM paper for the first time.

We 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. In addition, we also see opportunities for participants to utilize portfolio clear-up swaps in an effort to upgrade the overall credit quality of an investor’s holdings. Week-over-week, bank qualified spreads tightened, with the largest tightening occurring in the 30-year maturity, 10 bps.


Daily Overview of the General Market for the Week Ending July 12th

Last Monday prices on municipals were unchanged, as market participants prepped for the $6.99B of new issue offerings scheduled for the trading week. On the day, the yields on the two-, 10-, and 30-year GO bonds were steady, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed, as U.S. stocks posted losses for the session. The Dow fell 0.43%, while the S&P was down 0.48% and the NASDAQ was down 0.78%. On the day, the yields on the two- and 10-year maturities each rose one bp, while the yield on the 30-year maturity fell one bp. The 10-year municipal-to-Treasury ratio slipped to 79.0% on Monday from last Friday’s level of 79.4%, while the 30-year municipal-to-Treasury ratio bumped up to 90.5% on Monday from last Friday’s level of 90.2%.

Last Tuesday prices on municipals were stronger, as a variety of new issues from both the East and West Coasts came to market. 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 one bp, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys weakened, as U.S. stocks posted mixed results for the session, as the DOW fell, while the S&P and NASDAQ posted gains. On the day, the yield on the two-year maturity rose four bps, 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 fell to 77.8% on Tuesday from Monday’s level of 79.0%, while the 30-year municipal-to-Treasury ratio fell to 89.8% on Tuesday from Monday level of 90.5%.

Last Wednesday prices on municipals strengthened, as dozens of new issue offerings came to market, including deals from Massachusetts and New York issuers. On the day, the yield on the two-year GO maturity fell four bps, while the yield on the 10-year GO bond fell one bp and the yield on the 30-year GO bond was unchanged, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed, as U.S. stocks posted gains for the session. On the day, the yield on the two-year maturity fell 10 bps, while the yield on the 10-year maturity was steady and the yield on the 30-year maturity rose three bps. The 10-year municipal-to-Treasury ratio fell to 77.3% on Wednesday from Tuesday’s levels of 77.8%, while the 30-year municipal-to-Treasury fell to 88.7% on Wednesday from Tuesday’s level of 89.8%.

Last Thursday prices on municipals were mixed, as the last of the week’s new issue offerings came to market and included offerings from issuers in California, Florida, and Colorado.  Leading the way was the offering of $544.0MM in system revenue bonds from the Trustees of the California State University System. On the day, the yields on the two- and 30-year GO bonds were steady, while the yield on the 10-year GO bond fell two bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices finished weaker, as U.S. stocks were mixed for the session. On the day, the yield on the two-year maturity rose three bps, while the yield on the 10-year maturity rose six bps and the yield on the 30-year maturity rose eight bps. The 10-year municipal-to-Treasury fell to 74.2% on Thursday from Wednesday’s level of 77.3%, while the 30-year municipal-to-Treasury ratio fell to 86.0% on Thursday from Wednesday’s level of 88.7%.

Last Friday, prices on municipals were mixed, as market participants were looking ahead to the coming week’s $6.7B plus in new issue offerings. 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 were steady, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices finished the day stronger, as stocks posted gains and the Dow, the S&P 500, and the NASDAQ all hit new record highs. On the day, the yields on the two-, 10-, and 30-year maturities each fell one bp. The 10-year municipal-to-Treasury bumped up to 74.5% on Friday from Thursday’s level of 74.2%, while the 30-year municipal-to-Treasury bumped up to 86.4% on Friday from Thursday’s level of 86.0%.


Taxable Market






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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