Muni Update

July 22, 2019


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


Municipal Market Recap

Municipal prices were steady on Monday. On Tuesday municipal prices were mixed, as bonds maturing ten years and in were steady, while the long-end weakened. On Wednesday municipal prices were stronger across the curve. On Thursday municipal prices were mixed again, as the front-end strengthened, while bonds maturing 10 years and longer were steady. On Friday municipal prices were steady across the curve. Issuance for the week is forecasted to be $6.7B. 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 the continuing combination of high redemption flows and 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 28th week, as weekly reporting funds experienced inflows of $1.666B, after experiencing inflows of $1.009B the week prior. The four-week moving average was a positive $1.396B, after being a positive $1.193B 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 yields on the two-, 10-, and 30-year maturities on the MMD Triple-A Scale were all unchanged from Thursday to Friday and they ended the week at 1.13%, 1.56%, and 2.27%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond fell three basis points (bps), while the yields on the 10- and 30-year GO bonds each fell 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 1.26%, 1.76%, and 2.43%, respectively. Overall, week-over-week the yields on the two-, 10-, and 30-year GO bonds each fell two bps.


New Issue Volume is Forecasted to Be Just Over $6.7B for Trading Week

Total new issuance for the trading week per IHS Markit Ipreo is estimated to be $6.7B. This week’s trading calendar is comprised of $5.09B in negotiated offerings and $1.60B in competitive offerings. This week’s offerings include 16 deals scheduled for $100.0MM or larger in par.

New York City (NYC) is set to sell a total of $1.54B of GO bonds. The offerings will consist of $940.0MM in a negotiated deal and two taxable competitive deals equaling $600.0MM. The negotiated bonds will be offered on Wednesday and all NYC offerings are rated Aa1 by Moody’s Investors Service (Moody’s) and AA by both Standard and Poor’s Global Ratings (S&P) and Fitch Ratings (Fitch).

On Tuesday the California Health Facilities Financing Authority plans to offer $329.425MM of revenue bonds. The deal is rated A by Moody’s and A+ by S&P. Also on Tuesday the San Antonio Independent School District plans to offer $281.385MM of unlimited tax school building and refunding bonds. The deal is rated triple A by Moody’s and S&P due to the enhancement provided by the Texas Permanent School Fund (PSF).

On the competitive front the State of Connecticut plans to offer $244.3MM of GO refunding bonds. The deal is rated A1 by Moody’s, A by S&P, and A+ by Fitch.


Municipal Bond Funds Post Inflows for a 28th Week

Investors in municipal bond funds put cash into funds for a 28th week, according to the latest data from Lipper. The weekly reporting funds saw inflows of $1.666B in the latest week, after experiencing inflows of $1.009B the week prior. The four-week moving average was a positive $1.396B, after being a positive $1.193B the week prior.

Long-term municipal bond funds had inflows of $1.233B in the latest week after experiencing inflows of $801.608MM the week prior. Intermediate-term funds had inflows of $162.772MM after inflows of $146.174MM the week prior. National funds had inflows of $1.469B after experiencing inflows of $922.178B the week prior. High-yield municipal funds reported inflows of $525.472MM in the latest week, after inflows of $345.109MM the week prior. Exchange traded funds reported inflows of $236.998MM, after inflows of $124.122MM 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 to 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 were mixed, as the five-, 15-, and 30-year maturities were unchanged week-over-week. Meanwhile, the one-, two-, three-, and 10-year maturities tightened, with the largest tightening occurring in the one-year maturity, 10 bps.


Daily Overview of the General Market for the Week Ending July 19th

Last Monday prices on municipals were unchanged, as market participants saw the first of the week’s $7.0B plus in new issue offerings scheduled for the trading week hit the market. 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 stronger, as U.S. stocks posted minimal gains for the session. The Dow rose 0.10%, while the S&P was up 0.02% and the NASDAQ was up 0.17%. On the day, the yield on the two-year maturity fell one bp, while the yields on the 10-, and 30-year maturities each fell three bps. The 10-year municipal-to-Treasury ratio rose to 75.6% on Monday from last Friday’s level of 74.5%, while the 30-year municipal-to-Treasury ratio rose to 87.4% on Monday from last Friday’s level of 86.4%.

Last Tuesday prices on municipals were mixed, as a variety of new issues came to market including deals from Texas, Wisconsin, and Michigan. 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 weakened, as U.S. stocks were flat to slightly weaker on Tuesday, remaining close to the all-time closing highs recorded at the start of the week. On the day, the yields on the two- and 10-year maturities each rose four bps, while the yield on the 30-year maturity rose two bps. The 10-year municipal-to-Treasury ratio fell to 74.2% on Tuesday from Monday’s level of 75.6%, while the 30-year municipal-to-Treasury ratio slipped to 87.1% on Tuesday from Monday level of 87.4%.

Last Wednesday prices on municipals strengthened, as a big note and bond deals came to market, led by issuers in Georgia and Colorado. On the day, the yields on the two-, 10-, and 30-year GO Bonds each fell two bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys also strengthened, as U.S. stocks posted losses for the second consecutive session. The Dow closed down 0.4%, while the S&P was down 0.7% and the NASDAQ was down 0.5%. It was the worst one-day drop for the S&P in more than three weeks, according to Refinitiv. On the day, the yield on the two-year maturity fell four bps, while the yields on the 10- and 30-year maturities each fell six bps. The 10-year municipal-to-Treasury ratio rose to 75.7% on Wednesday from Tuesday’s levels of 74.2%, while the 30-year municipal-to-Treasury rose to 88.3% on Wednesday from Tuesday’s level of 87.1%.

Last Thursday prices on municipals were mixed, as the last of the week’s new issue offerings came to market, including offerings from issuers in Colorado, Virginia, and Washington State. Leading the way was the offering of $484.0MM Series 2019A and Series 2019B Colorado Health Facilities Authority hospital revenue bonds for the AdventHealth Obligated Group. On the day, the yield on the two-year maturity fell one bp, while the yields on the 10- and 30-year maturities were unchanged, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices finished stronger, as U.S. stocks posted minimal gains for the session. On the day, the yield on the two-year maturity fell six bps, while the yield on the 10-year maturity fell two bps and the yield on the 30-year maturity fell one bp. The 10-year municipal-to-Treasury ratio rose to 76.5% on Thursday from Wednesday’s level of 75.7%, while the 30-year municipal-to-Treasury ratio bumped up 88.7% on Thursday from Wednesday’s level of 88.3%.

Last Friday, prices on municipals were steady, as market participants were looking ahead to the coming week’s $6.7B in new issue offerings. 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 finished the day weaker, as stocks posted losses for the session. 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 one bp. The 10-year municipal-to-Treasury ratio fell to 76.1% on Friday from Thursday’s level of 76.5%, while the 30-year municipal-to-Treasury ratio fell to 88.3% on Friday from Thursday’s level of 88.7%.


Taxable Market






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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