Muni Update

July 27, 2020


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


Municipal Market Recap

Municipal prices were mixed on Monday, as the front-end was steady, while prices on bonds maturing 10 years and longer strengthened. On Tuesday municipal prices were steady across the curve. On Wednesday municipal prices were mixed again, as bonds maturing 10 years and in strengthened, while prices on bonds on the long end were steady. On Thursday municipal prices were mixed again, as the front-end was steady, while prices on bonds maturing 10 years and longer strengthened. On Friday municipal prices were steady across the curve. This week’s projected level of new-issue offerings is $7.79B. 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 an 11th week in a row, as tax-exempt weekly reporting funds experienced inflows of $2.100B in the latest week, after experiencing inflows of $857.321MM the week prior. The four-week moving average was a positive $1.262B, after being in the green at $1.105B 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 0.15%, 0.71%, and 1.43%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond fell two basis points (bps), while the yields on the 10- and 30-year GO bonds each fell four 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 0.27%, 1.08%, and 1.70%, respectively. Overall, week-over-week the yields on the two-and 30-year GO bonds each fell four bps, while the yield on the 10-year GO bond fell five bps.


New-Issue Volume is Forecasted to be $7.79B for the Week

Total new-issue offerings for the trading week per IHS Markit Ipreo is estimated to be almost $7.79B. This week’s projected issuance is comprised of $6.69B in negotiated deals and $1.10B in competitive sales. The largest deal of the week will come from the Dallas Fort Worth International Airport which plans to offer $1.139B of Series 2020C Taxable Joint Revenue Refunding bonds on Thursday. The deal is scheduled to price on Thursday and is rated A1 by Moody’s Investors Service (Moody’s), A by Standard and Poor’s Global Ratings (S&P), A+ by Fitch Ratings (Fitch), and AA by Kroll Bond Rating Agency (KBRA). The California Department of Water Resources’ plans to offer $1.097B of water system revenue bonds for the Central Valley project on Wednesday. The deal is rated Aa1 by Moody’s and AAA by S&P.

In the competitive arena, State of Colorado is selling over $1.0B of tax and revenue anticipation notes (TRANs) in two offerings. The State plans to offer $600.0MM of Series 2020 general fund TRANs on Thursday and $410.0MM of Series 2020A education loan program TRANs on Tuesday.


Municipal Bond Funds Posted Inflows for a 11th Week in a Row

Investors in municipal bond funds put cash into funds for an 11th week in a row, as tax-exempt weekly reporting funds experienced inflows of $2.100B in the latest week, after experiencing inflows of $857.321MM the week prior. The four-week moving average was a positive $1.262B, after being in the green at $1.105B the week prior.

Long-term municipal bond funds had inflows of $980.538MM in the latest week after experiencing inflows of $401.693MM the week prior. Intermediate-term funds had inflows of $150.138MM after outflows of $166.924MM the week prior. National funds had inflows of $2.013B after experiencing inflows of $822.187MM the week prior. High-yield municipal funds reported inflows of $391.532MM in the latest week, after inflows of $123.868MM the week prior. Exchange traded funds reported inflows of $298.936MM, after inflows of $202.119MM 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 long end 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 15-year maturity was unchanged, while the one-, two-, three-, five-, and 10-year maturities all tightened, with the largest tightening occurring in the two-year maturity, seven bps. Meanwhile week-over-week the spread on the 30-year maturity widened four bps.


Daily Overview of the General Market for the Week Ending July 24th

Last Monday municipal prices were mixed, as a few of the smaller new issues of the week’s projected $8.8B in new issue offerings came to market. On the day, the yield on the two-year GO bond was unchanged, while the yields on the 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 were also mixed on Monday, and U.S. stocks rose for the session, as investors looked ahead to a packed week of earnings, stimulus talks and congressional testimony from COVID-19 vaccine developers. The Dow finished up 9 points or 0.03%, while the S&P finished up 0.8% and turned positive year-to-date. The NASDAQ finished the session up 2.5%. On the day, the yield on the two-year maturity rose two 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 bumped up to 117.7% on Monday from Friday’s level of 117.2%, while the 30-year municipal-to-Treasury slipped to 109.9% on Monday from Friday’s level of 110.5%.

Last Tuesday prices on municipals were steady across the curve, as market participants were focused on several new-issue offerings that priced, as well as negotiations in Washington, D.C. over a new fiscal stimulus package. 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 strengthened on Tuesday, as U.S. Stocks held mostly higher after European Union leaders agreed to a breakthrough fiscal stimulus deal to help support the virus-stricken region. The NASDAQ hit a record high before retreating for the session. The Dow finished up 159 points, or 0.6%, while the S&P finished up 0.2% and the NASDAQ finished down 0.8%. On the day, the yield on the two-year maturity fell two bps, while the yields on the 10- and 30-year maturities each fell one bp. The 10-year municipal-to-Treasury ratio rose to 119.7% on Tuesday from Monday’s level of 117.7%, while the 30-year municipal-to-Treasury ratio bumped up to 110.7% on Tuesday from Monday’s level of 109.9%.

Last Wednesday municipals prices were mixed, as a variety of new issue offerings came to market including Maryland’s four competitive offerings of GO bonds totaling over $1.0B. On the day, the yield on the two-year GO bond fell two bps, while the yield on the 10-year GO bond fell one bps 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 also mixed on Wednesday, as U.S. stocks finished the session higher, as they shook off earlier concerns due to tensions flaring up again between the US and China and a rocky start to talks over another round of coronavirus-related fiscal stimulus in Washington. The Dow ended the session up 165 points or 0.6%, while the S&P also rose 0.6% and the NASDAQ rose 0.2%. On the day, the yield on the two-year maturity was unchanged, while the yield on the 10-year maturity fell one bp and the yield on the 30-year maturity fell two bps. The 10-year municipal-to-Treasury ratio edged up to 120.0% on Wednesday from Tuesday’s level of 119.7%, while the 30-year municipal-to-Treasury ratio rose to 112.4% on Wednesday from Tuesday’s level of 110.7%.

Last Thursday municipals prices were mixed, as the last of the week’s new-issue offerings came to market including the $1.0B offering of Social Bonds from the Doris Duke Charitable Foundation. On the day, the yield on the two-year GO bond was unchanged, while the yield on the 10-year GO bond fell one bp and the yield on the 30-year GO bond fell two bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were also 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 313 points or 1.3%, while the S&P was down 1.2% and the NASDAQ was down 2.3%. On the day, the yield on the two-year maturity rose two bps, while the yield on the 10-year maturity fell one bp and the yield on the 30-year maturity fell five bps. The 10-year municipal-to-Treasury ratio bumped up to 120.3% on Thursday from Wednesday’s level of 120.0%, while the 30-year municipal-to-Treasury ratio rose to 115.3% on Thursday from Wednesday’s level of 112.4%.

Last Friday prices on municipals were steady, as market participants started looking ahead to the $7.79B 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 U.S. stocks prices fell for the session. The Dow finished down 182 points, or 0.7%, while the S&P and NASDAQ were down 0.6% and 0.9%, respectively. On the day, the yield on the two-year maturity fell two bps, while the yield on the 10-year maturity was unchanged and the yield on the 30-year maturity fell one bp. 10-year municipal-to-Treasury ratio was unchanged on Friday from Thursday’s level of 120.3%, while the 30-year municipal-to-Treasury rose to 116.3% on Friday from Thursday’s level of 115.3%.






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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