Muni Update

July 29, 2019


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 municipal prices were once again stronger across the curve. On Thursday municipal prices were mixed, as the front end strengthened, while bonds maturing 10 years and longer were steady. Friday’s municipal price action was a repeat of Thursday’s. Issuance for the week is forecasted to be $4.9B and this lower level of issuance is expected given the Federal Reserve’s monetary policy meeting and subsequent announcement on interest rates this week. 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.

Per Bloomberg, the pace of municipal bond sales is poised to accelerate, with the volume of state and local debt offerings scheduled for the next 30 days rising to the most in nine months. Governments are set to sell about $14.9B of bonds over the next 30 days, the highest visible supply since October 16, 2018. This only includes the sum of deals already placed on the municipal bond calendar for the next 30 days, it may only represent a fraction of what will actually be issued because many sales are scheduled with less than a month’s notice.

Investors in municipal bond funds put cash into funds for a 29th week, as weekly reporting funds experienced inflows of $1.957B, after experiencing inflows of $1.666B the week prior. The four-week moving average was a positive $1.463B, after being a positive $1.396B 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 yield on the two- year maturity fell one basis point (bp) on the MMD Triple-A Scale from Thursday to Friday and ended the week at 1.09%. Meanwhile the yields on the 10- and 30-year maturities on the MMD Triple-A Scale were unchanged from Thursday to Friday and they ended the week at 1.54% and 2.25%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond fell four bps, while the yields on the 10- and 30-year GO bonds each fell two bps.

Last week the yield on the two-year maturity on the MMA Triple-A Scale fell two bps from Thursday to Friday and ended the week at 1.22%. Meanwhile, the yield on the 10-year maturity was unchanged and the yield on the 30-year maturity fell one bp on the MMA Triple-A Scale from Thursday to Friday and they ended the week at 1.74% and 2.41%, 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 two bps.


New Issue Volume is Forecasted to Be Just Over $4.9B for Trading Week

Total new issuance for the trading week per IHS Markit Ipreo is estimated to be $4.9B, which is below the last few week’s levels of issuance, this slightly lower level is expected given the Federal Reserve’s monetary policy meeting and subsequent announcement on interest rates this week. This week’s offerings include 14 deals scheduled for $100.0MM or larger in par.

On Tuesday the Texas Private Activity Bond Surface Transportation Corporation plans to offer $674.065MM of senior lien revenue bonds for the NTE Mobility Partners Segments 3 LLC Segment 3C Project. The deal is rated BAA3 by Moody’s Investors Service (Moody’s) and BBB- by Fitch Ratings (Fitch).  Also on Tuesday the San Francisco Bay Area Rapid Transit Authority plans to offer $510.695MM of transit district GO green bonds. There is also a $163.67MM taxable green bond portion that will be priced on Tuesday. The offerings are rated Triple-A by Moody’s and Standard and Poor’s Global Ratings (S&P).

Staying with sales on Tuesday, the Michigan Finance Authority plans to offer $360.28MM of state aid revenue notes. The San Diego Association of Governments’ plans to offer $331.3MM of capital grants receipts revenue green bonds for the mid-coast corridor transit project. The deal is rated A- by S&P.


Municipal Bond Funds Post Inflows for a 29th Week

Investors in municipal bond funds put cash into funds for a 29th week, according to the latest data from Lipper. The weekly reporting funds saw inflows of $1.957B in the latest week, after experiencing inflows of $1.666B the week prior. The four-week moving average was a positive $1.463B, after being a positive $1.396B the week prior.

Long-term municipal bond funds had inflows of $1.181B in the latest week after experiencing inflows of $1.233B the week prior. Intermediate-term funds had inflows of $317.712MM after inflows of $162.772MM the week prior. National funds had inflows of $1.724B after experiencing inflows of $1.469B the week prior. High-yield municipal funds reported inflows of $510.652MM in the latest week, after inflows of $525.472MM the week prior. Exchange traded funds reported inflows of $256.385MM, after inflows of $236.998MM 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 30-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 buyers 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 roll out the curve for more yield with little to no drop-off in credit quality. Week-over-week, bank qualified spreads tightened, with the largest tightening occurring in the 10- and 30-year maturities, eight bps.


Daily Overview of the General Market for the Week Ending July 26th

Last Monday prices on municipals strengthened, as the $938.0MM New York City negotiated tax-exempt GO bond offerings was priced for retail, with an additional day of retail pricing scheduled for Tuesday. On the day, the yields on the two-, 10-, and 30-year GO bonds each fell one bp, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed, as U.S. stocks posted minimal gains for the session. The Dow rose 0.07%, while the S&P was up 0.28% and the NASDAQ was up 0.71%. On the day, the yields on the two- and 10-year maturities were steady, while the yield on the 30-year maturity rose one bp. The 10-year municipal-to-Treasury ratio fell to 75.6% on Monday from last Friday’s level of 76.1%, while the 30-year municipal-to-Treasury ratio fell to 87.6% on Monday from last Friday’s level of 88.3%.

Last Tuesday prices on municipals were steady, as deals from Florida, California, Washington, and Texas came to market. Also New York City (NYC), due to strong demand was able to finish pricing its $938.0MM negotiated tax-exempt GO bond offering by a day, as well as move up its two competitive taxable sales that had been slated for Wednesday. 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, as U.S. stocks posted gains for the session. On the day, the yields on the two-, 10-, and 30-year maturities each rose three bps. The 10-year municipal-to-Treasury ratio fell to 74.5% on Tuesday from Monday’s level of 75.6%, while the 30-year municipal-to-Treasury ratio fell to 86.6% on Tuesday from Monday level of 87.6%.

Last Wednesday prices on municipals strengthened, as a number of deals came to market and retail investors kept up their confidence in tax-free bond funds. On the day, the yields on the two-, 10-, and 30-year GO Bonds each fell one bp, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed, as U.S. stocks posted mixed results for the session. Losses for Boeing and Caterpillar had an outsized impact on the Dow but were neutralized by strength in other sectors within the S&P 500. The Dow dropped 0.3%, while the S&P 500 and the NASDAQ set new all-time highs, rising 0.5% on gains in the financials, technology-related, and industrials sectors. On the day, the yield on the two-year maturity was steady, while the yields on the 10- and 30-year maturities each fell three bps. The 10-year municipal-to-Treasury ratio rose to 75.1% on Wednesday from Tuesday’s levels of 74.5%, while the 30-year municipal-to-Treasury rose to 87.2% on Wednesday from Tuesday’s level of 86.6%.

Last Thursday prices on municipals were mixed, as the last of the week’s new issue offerings came to market, including offerings from the State of Connecticut, and issuers in North Carolina and California. 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 weaker, as U.S. stocks posted losses for the session. On the day, the yields on the two- and 10-year maturities each rose three bps, while the yield on the 30-year maturity rose two bps. The 10-year municipal-to-Treasury ratio fell to 74.0% on Thursday from Wednesday’s level of 75.1%, while the 30-year municipal-to-Treasury ratio fell to 86.5% on Thursday from Wednesday’s level of 87.2%.

Last Friday, prices on municipals were steady, as market participants were looking ahead to the coming week’s $4.9B in new issue offerings. 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 were unchanged, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices finished the day mixed, as stocks posted gains for the session. On the day, the yields on the two- and 10-year maturities were steady, while the yield on the 30-year maturity fell one bp. The 10-year municipal-to-Treasury ratio was unchanged on Friday from Thursday’s level of 74.0%, while the 30-year municipal-to-Treasury ratio bumped up to 86.9% on Friday from Thursday’s level of 86.5%.


Taxable Market






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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