Muni Update

July 19, 2021


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


Municipal Market Recap

Municipal prices were steady on Monday and Tuesday across the curve. On Wednesday municipal prices were mixed, as prices on bonds in the front-end strengthened, while prices on intermediate maturities were steady and prices on the long end weakened. On Thursday and Friday municipal prices were once again steady across the curve.

The projected level of new-issue offerings for the trading week are $9.03B 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 19th week in a row, as tax-exempt weekly reporting funds data showed that funds experienced inflows of $2.238B in the latest week, after experiencing inflows of $2.292B the week prior. The four-week moving average was a positive at $1.818B, after being in the green at $1.722B 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 0.11%, 0.84%, and 1.35%, 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 was unchanged and the yield on the 30-year GO bond rose two 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 yields on the two-, 10-, and 30-year GO bonds were unchanged.


New-Issue Volume is Forecasted to be $9.03B for the Trading Week

Total new-issue offerings for the trading week per IHS Markit Ipreo are estimated to be $9.03B. This week’s projected level of bond issuance is comprised of $5.61B in negotiated deals and $3.42B in competitive sales. Leading the week this week will be the $660.4MM offering by the Oregon Education District of its full faith and credit pension obligations. The deal is rated Aa2 by Moody’s Investors Service (Moody’s) and AA by Standard and Poor’s Global Ratings (S&P). Also, this week the City and County of Honolulu, Hawaii is set to price $577.69 million of GO bonds in five series. The offerings are rated Aa1 by Moody’s and AA+ by S&P. On Wednesday, the Los Angeles County, California, Metropolitan Transportation Authority plans to offer $506.74MM of Measure R senior sales tax revenue bonds. The deal is rated Aa1 Moody’s and AAA by S&P.

Other notable negotiated offerings this week include the $275.0MM offering of improvement refunding bonds by the Harris County Flood Control District, Texas. The deal is rated Triple-A by Moody’s and S&P. The Austin Independent School District, Texas, (Permanent School Fund Guarantee) is set to price $220.375MM of unlimited tax school building and refunding bonds on Wednesday. Finally, the City of Charlotte, North Carolina, is set to price $164.18MM of transit projects refunding certificates of participation (COPs). The deal is rated Aa21 by Moody’s and AA+ by S&P and Fitch.

In the competitive market on Tuesday, the New York State Thruway Authority will sell $1.913B of tax-exempt personal income tax bonds (PIT-Bonds) and $54.275MM of taxable PIT-Bonds on Tuesday. The San Francisco City and County plans to sell $469.0MM of tax-exempt and taxable general GO Bonds. The State of North Carolina plans to sell $133.0MM of limited obligation refunding bonds. The deal is rated Aa1 by Moody’s. Finally, in the short-term market, the City of Rochester, New York, will sell $132.35MM of bond anticipation notes (BANs).


Municipal Bond Funds Posted Inflows for a 19th Week in a Row

Investors in municipal bond put cash into funds for a 19th week in a row, as tax-exempt weekly reporting funds experienced inflows of $2.238B in the latest week, after experiencing inflows of $2.292B the week prior. The four-week moving average remained positive at $1.818B, after being in the green at $1.722B the week prior.

Long-term municipal bond funds had inflows of $1.570B in the latest week after experiencing inflows of $1.534B the week prior. Intermediate-term funds had inflows of $263.452MM after inflows of $347.064MM the week prior. National funds had inflows of $2.100B after experiencing inflows of $2.091B the week prior. High-yield municipal funds reported inflows of $654.351MM in the latest week, after inflows of $682.690MM the week prior. Exchange traded funds reported inflows of $484.952MM, after inflows of $330.764MM 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 area of the curve. Also, now is a good time to look to clean up portfolio’s, 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-, three-, five-, and 10-year maturities all tightened, with the largest tightening occurring in the 10-year maturity, while the spread on the two-year maturity week-over-week was unchanged. Meanwhile, the week-over-week BQ spreads on the 15- and 30-year maturities widened, with the largest widening occurring in the 30-year maturity, seven bps.


Daily Overview of the General Market for the Week Ending July 16th

On Monday municipals prices were steady, as the first of the trading week’s $9.02B in new-issue debt was offered, as market fundamentals remained strong.  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 Monday, as U.S. stocks shook off earlier losses to trade higher by the close of the session and investors awaited signs of a further rebound in corporate profits with the start of second-quarter earnings season last week. The Dow was up 130 points or 0.4%, while the S&P was up 0.3% and the NASDAQ was up 0.2%. On the day, the yield on the two-year maturity was unchanged, while the yields on the 10- and 30-year maturities each rose one bp. The 10-year municipal-to-Treasury ratio fell to 60.9% on Monday from last Friday’s level of 61.3%, while the 30-year municipal-to-Treasury ratio fell to 66.5% on Monday from last Friday’s level of 66.8%.

On Tuesday municipals prices were steady, as market participates ignored a rise in U.S. Treasury yields and a weakening stock market to focus on new-issue market offerings, which saw deals bumped three to as much as nine bps and included the $250.0MM offering of exempt and taxable New York University revenue bonds, by the Dormitory Authority of the State of New York and the $128.765MM offering of water and sewer system revenue refunding bonds by JEA to name a few. 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 weakened on Tuesday and U.S. stocks ended the session down, as investors monitored an early batch of corporate earnings results. Inflation was also back in focus and new data showed consumer prices surged by the most since 2008 in June. The Dow was down 107 points or 0.3%, while the S&P was down 0.4% and the NASDAQ was also down 0.4%. On the day, the yield on the two-year maturity rose three bps, while the yields on the 10- and 30-year maturities each rose four bps. The 10-year municipal-to-Treasury ratio fell to 59.2% on Tuesday from Monday’s level of 60.9%, while the 30-year municipal-to-Treasury ratio fell to 65.2% on Tuesday, from Monday’s level of 66.5%.

Last Wednesday municipals prices were mixed, as a number of new-issue offerings came to market including the $580.0MM of New York City Transitional Finance Authority building aid revenue refunding bonds, the $193.0MM of special transportation project revenue bonds (Baltimore/Washington International Thurgood Marshall Airport), Series 2021B (qualified airport bonds-AMT) and in the competitive arena the $350.0MM offering of taxable GO bonds by Santa Clara, California. On the day, the yield on the two-year GO bond fell one bp, while the yield on the 10-year GO bond was unchanged and 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. Treasurys strengthened on Wednesday, while U.S. stocks posted minimal gains for the session. The Dow was up 44 points or 0.1%. The S&P was also up 0.1%, while the NASDAQ was up 0.2%. On the day, the yield on the two-year maturity fell three bps, while the yield on the 10-year maturity fell five bps and the yield on the 30-year maturity fell six bps. The 10-year municipal-to-Treasury ratio rose to 61.3% on Wednesday from Tuesday’s level of 59.2%, while the 30-year municipal-to-Treasury ratio rose to 68.2% on Wednesday from Tuesday’s level of 65.2%.

Last Thursday municipals prices were steady across the curve, as the last of the week’s new-issue offerings were priced and repriced amid a stronger U.S. Treasury market. Deals that were priced on the day included the $811.0MM offering of forward delivery bonds for the Metropolitan Pier & Exposition Authority, Illinois, the $200.9MM offering of senior-lien revenue bonds by the Central Florida Expressway Authority, and the $170.0MM offering of general improvement refunding bonds by the City of Memphis, Tennessee. 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 were U.S. stocks for the session, as investors digested a host of mixed corporate earnings results and reassurances from monetary policymakers that the latest spike in inflation would likely prove temporary. The Dow was up 55 points or 0.2%, while the S&P was down 0.3% and the NASDAQ was down 0.7%. On the day, the yield on the two-year maturity was unchanged, while the yields on the 10- and 30-year maturities each fell six bps.  The 10-year municipal-to-Treasury ratio rose to 64.1% on Thursday from Wednesday’s level of 61.3%, while the 30-year municipal-to-Treasury ratio rose to 70.3% on Thursday from Wednesday’s level of 68.2%.

Last Friday municipal prices were steady, as market participants were looking ahead to $9.03B 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 were mixed on Friday, while U.S. Stocks prices fell for the session. The Dow fell 299 points or 0.9%, while the S&P was down 0.8% and the NASDAQ was also down 0.8%. On the day, the yield on the two-year maturity rose two bps, while the yield on the 10-year maturity was unchanged and the yield on the 30-year maturity rose one bp. The 10-year municipal-to-Treasury ratio was unchanged on Friday from Thursday’s level of 64.1%, while the 30-year municipal-to-Treasury ratio slipped to 70.0% on Friday from Thursday’s level of 70.3%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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