Muni Update

July 20, 2020



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


Municipal Market Recap

Municipal prices were steady across the curve on Monday, Wednesday, and Friday. On Tuesday and Thursday municipal prices strengthened across the curve. This week’s projected level of new issue offerings is $8.8B. This level of new issue supply should provide market participants with various opportunities to meet demand, especially given the continued strong demand in the municipal market during the summer redemption season. July is the third-heaviest month of redemptions for the summer, behind June which saw $43.5B in redemptions and August which will see $42.3B.

Investors in municipal bond funds put cash into funds for a tenth week in a row, as tax-exempt weekly reporting funds experienced inflows of $857.321MM in the latest week, after experiencing inflows of $1.024B the week prior. The four-week moving average was a positive $1.317B, after being in the green at $1.318B the week prior. Investors still facing low or negative rates overseas continue to find positive-yielding U.S. assets attractive despite the recent outflows.

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 0.17%, 0.75%, and 1.47%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond fell seven basis points (bps), while the yields on the 10- and 30-year GO bonds each fell six 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 ended the week at 0.31%, 1.13%, and 1.74%, respectively. Overall, week-over-week the yield on the two-year GO bond fell four bps, while the yield on the 10-year GO bond fell seven bps and the yield on the 30-year GO bond fell eight bps.


New-Issue Volume is Forecasted to be $8.8B for the Week

Total new issue offerings for the trading week per IHS Markit Ipreo is estimated to be almost $8.8B. This week’s projected issuance is comprised of $6.5B in negotiated deals and $2.3B in competitive sales. The largest deal of the week will come from the State of Maryland on Wednesday. The State plans to offer four competitive sales totaling over $1.0B and they will consist of the following state and local facilities loan offerings of 2020: $345.76MM of taxable GO refunding bonds Second Series C; $290.08MM of tax-exempt Bidding Group 1 Second Series A GOs; $249.92MM of exempt Bidding Group 2 Second Series A GOs; and $117.34MM of exempt Second Series B refunding GOs.

Other deals scheduled for Wednesday include a $300.0MM taxable general fee revenue bonds offering from Auburn University. The West Covina Public Financing Authority, California plans to offer $204.1MM of taxable lease revenue bonds. The Andrew W. Mellon Foundation plans to offer $300.0MM of taxable social bonds. The deal is rated Triple-A by both Moody’s Investors Service (Moody’s) and Standard and Poor’s Global Ratings (S&P). The Doris Duke Charitable Foundation Incorporated plans to offer $100.0MM of taxable social bonds. This deal is rated Aaa by Moody’s. Finally, on Wednesday the New York State Housing Finance Agency plans to offer $164.0MM of affordable housing revenue climate bond certified sustainability bonds. The deal is rated Aa2 by Moody’s.

Other notable deals this week include a $569.0MM offering of taxable GO refunding bonds from the State of Mississippi set to price on Thursday. A $78.5MM offering of 15 Hudson Yards housing revenue green bonds with Fannie Mae Direct Pay credit enhancement, from the New York State Housing Finance Agency. The deal is rated Aaa by Moody’s. Finally, a $27.69MM GO sewerage system refunding climate bond certified green bonds from the Milwaukee Metropolitan Sewerage District, Wisconsin is scheduled for this week. The deal is rated Aa1 by Moody’s, AA+ by S&P, and AAA by Fitch Ratings (Fitch).

In the competitive arena, King County, Washington plans to sell $366.0MM of bonds on Tuesday. The offering will consist of $186.605MM of taxable sewer refunding revenue bonds and $179.02MM of sewer improvement and refunding revenue bonds. The deals are rated Aa1 by Moody’s and AA+ by S&P.


Municipal Bond Funds Posted Inflows for a Tenth Week in a Row

Investors in municipal bond funds put cash into funds for a tenth week in a row, as tax-exempt weekly reporting funds experienced inflows of $857.321MM in the latest week, after experiencing inflows of $1.024B the week prior. The four-week moving average was a positive $1.317B, after being in the green at $1.318B the week prior.

Long-term municipal bond funds had inflows of $401.693MM in the latest week after experiencing inflows of $617.441MM the week prior. Intermediate-term funds had inflows of $166.924MM after outflows of $73.818MM the week prior. National funds had inflows of $822.187MM after experiencing inflows of $951.064MM the week prior. High-yield municipal funds reported inflows of $123.868MM in the latest week, after inflows of $85.577MM the week prior. Exchange traded funds reported inflows of $202.119MM, after inflows of $379.709MM the week prior.


Demand in the Bank Qualified (BQ) Market Remains Strong

BQ participants will be focused on the new-issue paper this week, as buyers continues to outpace sellers resulting is very little secondary offerings to fill their needs. BQ participants continue to have significant demand for municipal paper due in large part to having to replace rolloffs due to redemptions over the next few months, which started on June 1st. 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.

While currently you can buy anywhere along the curve and pick up spread over U.S. Treasurys, we continue to see bank portfolio managers purchase municipals in the steepest part of the curve from new issue offerings. Along with outright purchases of Bank Qualified municipals with a five-to-nine-year call window, bank portfolio managers have taken advantage of the yield pickup and larger block size available in General Market (100% TEFRA) municipals in this low cost of funds environment. We also encourage participants to utilize extension swaps, to pick up more yield with little to no drop-off in credit quality. Week-over-week, bank qualified spreads were mixed. The one-year maturity was unchanged, while the two-, three-, and five-year maturities all widened, with the largest widening occurring in the five-year maturity, three bps. Meanwhile week-over-week the 10-, 15-, and 30-year maturities all tightened, with the largest tightening occurring in the 15-year maturity, 12 bps.


Daily Overview of the General Market for the Week Ending July 17th

Last Monday municipal prices were steady, as a few of the smaller new issues of the week’s projected $9.84B in new issue offerings came to market. 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 rose sharply in the morning with the Dow up over 500 points at one point, before the rally lost steam in the afternoon and all three major indices turned negative. The Dow was able to climb back into positive territory just before the close. Dow finished up 11 points or 0.04%, while the S&P finished down 0.9% and the NASDAQ was down 2.3%. On the day, the yields on the two- and 30-year maturities were unchanged, while the yield on the 10-year maturity fell one bp. The 10-year municipal-to-Treasury ratio rose to 126.6% on Monday from Friday’s level of 124.6%, while the 30-year municipal-to-Treasury was unchanged on Monday from Friday’s level of 115.0%.

Last Tuesday prices on municipals strengthened, as several large new-issue offerings were priced, including Texas and New York higher-ed tax-exempt and taxable deals, as well as a Dallas Airport offering. On the day, the yields on the two-, 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. Treasurys also strengthened, while U.S. stocks posted gains for the session. The Dow was up 557 points, or 2.1%, while the S&P finished up 1.3% and the NASDAQ finished up 0.9%. On the day, the yield on the two-year maturity fell two bps, while the yield on the 10-year maturity fell one bp and the yield on the 30-year maturity fell three bps. The 10-year municipal-to-Treasury ratio fell to 123.8% on Tuesday from Monday’s level of 126.6%, while the 30-year municipal-to-Treasury ratio bumped up to 115.4% on Tuesday from Monday’s level of 115.0%.

Last Wednesday municipals prices were steady, as a variety of new issue offerings came to market including the retail pricing of the $2.2B Series 2020C tax-exempt general-purpose state personal income tax revenue bonds from the New York State Urban Development Corporation. 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 weakened on Wednesday, as U.S. stocks finished the session up, as excitement about a promising Covid-19 vaccine, tested by Moderna, and better-than-expected Goldman Sachs earnings helped boost stocks. The Dow ended the session up 228 points or 0.9%, while the S&P rose 0.9% and the NASDAQ rose 0.6%. On the day, the yield on the two-year maturity rose two bps, while the yield on the 10-year maturity rose one bp and the yield on the 30-year maturity rose three bps. The 10-year municipal-to-Treasury ratio fell to 121.9% on Wednesday from Tuesday’s level of 123.8%, while the 30-year municipal-to-Treasury ratio fell to 112.8% on Wednesday from Tuesday’s level of 115.4%.

Last Thursday municipals prices strengthened across the curve, as the last of the week’s new-issue offerings came to market including the institutional pricing of the Series 2020C tax-exempt general-purpose state personal income tax revenue bonds that were offered by the New York State Urban Development Corporation. On the day, the yield on the two-year GO bond fell four bps, 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.

U.S. Treasury prices were mixed last Thursday, and U.S. stocks fell for the session, as investors digested a deluge of earnings results and new economic data on the state of the consumer and labor market as the pandemic continues. The Dow finished down 135 points or 0.5%, 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 two bps. The 10-year municipal-to-Treasury ratio slipped to 121.0% on Thursday from Wednesday’s level of 121.9%, while the 30-year municipal-to-Treasury ratio slipped to 112.2% on Thursday from Wednesday’s level of 112.8%.

Last Friday prices on municipals were steady, as market participants started looking ahead to the $8.8B in expected new issue offerings next week. 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 Friday, as were U.S. stocks prices to end the session. The Dow finished down 62 points, or 0.2%, while the S&P and NASDA were both up 0.3%. On the day, the yield on the two-year maturity fell two bps, while the yields on the 10- and 30-year maturity each rose two bps. 10-year municipal-to-Treasury ratio fell to 117.2% on Friday from Thursday’s level of 121.0%, while the 30-year municipal-to-Treasury was fell to 110.5% on Friday from Thursday’s level of 112.2%.






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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