Muni Update

July 26, 2021


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


Municipal Market Recap

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

The projected level of new-issue offerings for the trading week are $6.36B and coupled with bank qualified (BQ) and general market (GM) offerings in the secondary market should offer 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 and keeping municipal performance strong.

The continuing surge in refunding bond issuance has resulted in August now having the largest volume of total monthly bond redemptions for the year. Investors will be receiving $45.9B of principal and $13.7B of interest next month. In addition to the $29.8B of bonds that will mature next month, there are $16.1B that will be called or have a mandatory tender. August 1st principal payments will total $16.5B, with $5.5B from issuers in California, $2.6B from New York issuers and $1.0B from issuers in Texas. August 15th payments currently total $4.6B.

For funds latest reporting period, investors in municipal bond funds put cash into funds for a 20th week in a row, as tax-exempt weekly reporting funds data showed that funds experienced inflows of $1.727B in the latest week, after experiencing inflows of $2.238B the week prior. The four-week moving average was a positive at $1.772B, after being in the green at $1.819B 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 0.08%, 0.83%, and 1.36%, respectively. Overall, week-over-week the yield on the two-year general obligation (GO) bond fell three basis points (bps), while the yield on the 10-year GO bond fell one bp and the yield on the 30-year GO bond rose 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 0.11%, 1.08%, and 1.61%, respectively. Overall, week-over-week 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.


New-Issue Volume is Forecasted to be $6.36B for the Trading Week

Total new-issue offerings for the trading week per IHS Markit Ipreo are estimated to be $6.36B. This week’s projected level of bond issuance is comprised of $4.34B in negotiated deals and $2.02B in competitive sales. Leading the week off on Tuesday will be two sewer bond issues from Kings County Washington totaling $335.560MM and comprised of $102.585MM of Series A Revenue Bonds and $230.9575MM of Series B Limited Tax Sewer bonds.  The Series A bonds are rated Triple-A by Moody’s Investors Service (Moody’s) and Standard and Poor’s Global Ratings (S&P). The Series B Bonds are rated Aa1 by Moody’s and AA+ by S&P. Also, on Tuesday the City of Philadelphia, Pennsylvania will price $297.76MM of GO bonds and the New Mexico Finance Authority will price $234.6MM of state transportation revenue bonds. The New Mexico dela is rated Aa2 by Moody’s, AA by S&P, and AAA by Kroll Bond Rating Agency (KBRA).


Municipal Bond Funds Posted Inflows for a 20th Week in a Row

Investors in municipal bond put cash into funds for a 20th week in a row, as tax-exempt weekly reporting funds experienced inflows of $1.727B in the latest week, after experiencing inflows of $2.238B the week prior. The four-week moving average remained positive at $1.772B, after being in the green at $1.819B the week prior.

Long-term municipal bond funds had inflows of $1.098B in the latest week after experiencing inflows of $1.570B the week prior. Intermediate-term funds had inflows of $131.699MM after inflows of $263.452MM the week prior. National funds had inflows of $1.630B after experiencing inflows of $2.100B the week prior. High-yield municipal funds reported inflows of $578.932MM in the latest week, after inflows of $654.351MM the week prior. Exchange traded funds reported inflows of $281.796MM, after inflows of $484.952MM 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 continues on the 1st and 15th of these 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 along 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, the spreads on the one-, two-, three-, five, 10-, 15-, and 30-year maturities all widened, with the largest widening occurring in the five-year maturity, 15 bps.


Daily Overview of the General Market for the Week Ending July 23rd

On Monday municipals prices strengthened across the curve, despite underperformed a flight-to-safety rally in U.S. Treasurys, as the first of the trading week’s $9.03B in new-issue debt was offered. On the day, the yield on the two-year GO bond fell one bp, 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. Treasurys also strengthened on Monday, as U.S. stocks fell for the session over concerns about inflation and a resurgence of COVID-19 infections among the unvaccinated. Major benchmarks suffered their worst declines since May, even as quarterly earnings continue to reflect a strengthening economic rebound. The Dow was down 726 points or 2.1%, while the S&P was down 1.6% and the NASDAQ was down 1.1%. 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 12 bps. The 10-year municipal-to-Treasury ratio rose to 68.1% on Monday from last Friday’s level of 64.1%, while the 30-year municipal-to-Treasury ratio rose to 72.9% on Monday from last Friday’s level of 70.0%.

On Tuesday municipals prices were steady, as market participates turned all their attention to the $3.0B in new-issue offerings for the day. In the competitive arena, the New York State Thruway Authority sold $1.913B of tax-exempt personal income tax bonds and $54.275MM of taxable PITs bonds to strong demand. While in the negotiated arena, the San Francisco City and County sold $195.0MM of GO bonds and $179.1MM of transportation and road improvement, earthquake safety, and emergency response 2020 tax-exempt bonds. Also, the State of North Carolina sold $164.73MM of certificates of participation (COPs). 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 Tuesday, as U.S. stocks rallied and Wall Street recouped most of the previous session’s steep losses, as bargain-hunting momentarily counterbalanced rising COVID-19 infections. For the session, the Dow was up 550 points or 1.6%, while the S&P was up 1.5% and the NASDAQ was also up 1.6%. On the day, the yield on the two-year maturity fell one bp, while the yield on the 10-year maturity rose four bps and the yield on the 30-year maturity rose seven bps. The 10-year municipal-to-Treasury ratio fell to 65.9% on Tuesday from Monday’s level of 68.1%, while the 30-year municipal-to-Treasury ratio fell to 70.2% on Tuesday, from Monday’s level of 72.9%.

Last Wednesday municipals prices were mixed, as a number of new-issue offerings came to market and were repriced and included the five series of GO bonds from the City and County of Honolulu totaling $577.69 in offerings, the $506.46MM of Los Angeles County Metropolitan Transportation Authority Measure R senior sales tax revenue bonds and the $275.0MM of Harris County Flood Control District, Texas, improvement refunding bonds to name a few. On the day, the yield on the two-year GO bond was unchanged, while the yield on the 10-year GO bond rose two bps and the yield on the 30-year GO bond rose four bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys weakened on Wednesday, while U.S. stocks rallied for the session, adding gains for a second consecutive day as investors calibrated a resurgence of COVID-19 cases against a red-hot economic expansion that continues to show momentum. The Dow was up 286 points or 0.8%. The S&P was also up 0.8%, while the NASDAQ was up 0.9%. On the day, the yield on the two-year maturity rose two bps, while the yield on the 10-year maturity rose seven bps and the yield on the 30-year maturity rose six bps. The 10-year municipal-to-Treasury ratio fell to 63.9% on Wednesday from Tuesday’s level of 65.9%, while the 30-year municipal-to-Treasury ratio just slipped to 70.1% on Wednesday from Tuesday’s level of 70.2%.

Last Thursday municipals prices were mixed, as the last of the week’s new-issue offerings came to market and municipals largely charted their own course for the day. Deals that were priced on the day included the $810.76MM of Salt Lake City International Airport revenue bonds for Salt Lake City, Utah in two tranches, and the $660.4MM of full faith and credit pension obligation bonds by the Oregon Education District to name a few. 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 unchanged, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices strengthened on Thursday, as U.S. stocks notched slim gains in rangebound trading, posting a third day in a row of gains, as traders struggled to decipher the meaning behind a surprise rise in unemployment. The Dow was up 25 points or 0.1%. The S&P was also down 0.1% and the NASDAQ was down 0.4%. On the day, the yield on the two-year maturity fell two bps, while the yield on the 10-year maturity fell three bps and the yield on the 30-year maturity fell four bps. The 10-year municipal-to-Treasury ratio rose to 65.4% on Thursday from Wednesday’s level of 63.9%, while the 30-year municipal-to-Treasury ratio rose to 71.6% on Thursday from Wednesday’s level of 70.1%.

Last Friday municipal prices were steady, as market participants were looking ahead to $6.36B in expected new-issue offerings in the upcoming 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, while U.S. stocks prices rose for a fourth session, with the Dow Jones Industrial Average closing above 35,000 for the first time ever, after another batch of strong earnings which helped investors put Monday’s sudden sell-off in the rear-view mirror. The Dow rose 238 points or 07%, while the S&P and the NASDAQ both rose 1.0%. On the day, the yields on the two- and 30-year maturities each rose two bps, while the yield on the 10-year maturity rose three bps. The 10-year municipal-to-Treasury ratio fell to 63.9% on Friday from Thursday’s level of 65.4%, while the 30-year municipal-to-Treasury ratio fell to 70.8% on Friday from Thursday’s level of 71.6%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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