Muni Update

July 6, 2020



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


Municipal Market Recap

Municipal prices were steady daily, for the holiday-shortened trading week. This week’s projected level of new-issue offerings is $7.38B. This level of new-issue supply together with various secondary market opportunities 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. The bulk of the July redemptions happened on July 1st, when issuers returned $31.2B in principal. Another $8.0B plus is due to be redeemed on July 15th.

Issuance for the month of June was $45.29B in the municipal market, marking it the busiest month of the year and the most issuance in the month of June since 2016. The 23.3% increase year-over-year (YoY) ends a two-month streak of declines and it also keeps 2020 ahead of 2019’s pace of issuance. At the halfway point of the year, municipal volume stands at $198.05B on 5,458 issues. At this point last year, the market accounted for $173.30B spanning 5,095 transactions. New-money issuance was down 3.1% while refunding volume was up 138.8% and taxable issuance was up a whopping 696.7% from last year.

Investors in municipal bond funds put cash into funds for an eighth week in a row, as evidenced by the latest tax-exempt weekly reporting funds data showing that funds experienced inflows of $1.07B after experiencing inflows of $1.475B the week prior. No other data was available at the time of publication of this piece.

Last week the yields on the two-, 10-, and 30-year maturities on the MMD Triple-A Scale were unchanged from Wednesday to Thursday and ended the week at 0.27%, 0.90%, and 1.63%, respectively. Overall, week-over-week the yields on the two-, 10-, and 30-year General Obligation (GO) bonds were unchanged.

Last week the yields on the two-, 10-, and 30-year maturities on the MMA Triple-A Scale were all unchanged from Wednesday to Thursday and ended the week at 0.39%, 1.26%, and 1.88%, respectively. Overall, week-over-week the yields on the two-, 10-, and 30-year GO bonds were also unchanged.


New-Issue Volume is Forecasted to be $7.38B for the Week

Total new-issue offerings for the trading week per IHS Markit Ipreo is estimated to be $7.38B. This week’s projected issuance is comprised of $6.2B in negotiated deals and $1.18B in competitive sales. Leading the way this week is the Regents of the University of California which plans to offer a total of $2.32B in three deals on Thursday. One will be a for $790.45MM of tax-exempt Series BE bonds, and the other two are a $328.305MM offering of taxable Series BF bonds and $1.2B offering of taxable Series BG bonds. The deals are rated Aa2 by Moody’s Investors Service (Moody’s) and AA by both Standard and Poor’s Global Ratings (S&P) and Fitch Ratings (Fitch). Proceeds of the Series BE, and Series BF bonds will be used to finance or refinance certain projects of the university including refunding bonds; proceeds of the BG bonds will be used for the university’s working capital purposes.

The City of Los Angeles, California plans to offer $1.78B in tax and revenue anticipation notes (TRANs) on Tuesday. The offering is rated MIG1 by Moody’s and SP1+ by S&P. Proceeds will be used to provide effective cash flow management for the city’s general fund revenues and expenditures in fiscal 2020-2021 and to make the city’s annual contribution to the fire and police departments.

The Asante Health System Obligated Group plans to offer $450.0MM of revenue and refunding bonds for the Medford Hospital Facilities Authority, Oregon, on Tuesday. The deal is rated A+ by S&P and Fitch. Also, this week, the State of Oregon plans to offer two taxable deal this week totaling $353.895MM on Wednesday. The deal are rated Aa1 by Moody’s and AA+ by both S&P and Fitch.

Staying in the Northwest, the Tacoma School District Number 10, Washington plans to offer $432.0MM of taxable GO refunding bonds on Wednesday. The deal is backed by the Washington State Credit Enhancement Program and is rated Aaa by Moody’s and AA+ by S&P.


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

Investors in municipal bond funds put cash into funds for an eighth week in a row, as tax-exempt weekly reporting funds experienced inflows of $1.07B in the latest week, after experiencing inflows of $1.475B the week prior.  No other data was available at the time of publication of this piece.


Demand in the Bank Qualified (BQ) Market Remains Strong

The expected level of new-issue paper this week, coupled with BQ and General Market (GM) secondary market opportunities should provide BQ market participants with various opportunities 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, as the one-, two-, three-, and five -year maturities all widened by one basis point (bp). Meanwhile, week-over-week bank qualified spreads for the 10-, 15-, and 30-year maturities all tightened, with the largest tightening occurring in the 30-year maturity, six bps.


Daily Overview of the General Market for the Week Ending July 3rd

Last Monday municipal prices were steady, as several new-issue offerings came to market in the holiday-shortened trading 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.

Prices on U.S. Treasurys were mixed on Monday, as U.S. stocks finished the session with solid gains due to the Federal Aviation Administration giving Boeing the green light to begin test flights of its grounded 737 Max jets and a stronger-than-expected 44.3% jump in pending home sales for May. The Dow finished up 580 points or 2.3%, while the S&P finished up 1.5% and the NASDAQ was up 1.2%. On the day, the yield on the two-year maturity fell one bp, while the yield on the 10-year maturity was unchanged and the yield on the 30-year maturity rose two bps. The 10-year municipal-to-Treasury ratio was unchanged on Monday from last Friday’s level of 140.6%, while the 30-year municipal-to-Treasury ratio fell to 117.3% on Monday from Friday’s level of 119.0%.

Last Tuesday prices on municipals were steady, as several new-issue offerings were priced, including two offerings from the Massachusetts School Building Authority totaling $1.450B. 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, while U.S. stocks finished higher capping their strongest quarter for the S&P 500 since 1998. Since bottoming in March, equities have recovered sharply on hopes that historic fiscal support and economic reopening can successfully treat an economy infected by COVID-19, as well as measures taken to slow its spread. The Dow finished up 217 points, or 0.9%, while the S&P finished up 1.5% and the NASDAQ finished up 1.9%. On the day, the yield on the two-year maturity was unchanged, while the yields on the 10- and 30-year maturities each rose two bps. The 10-year municipal-to-Treasury ratio fell to 136.4% on Tuesday from Monday’s level of 140.6%, while the 30-year municipal-to-Treasury ratio fell to 115.6% on Tuesday from Monday’s level of 117.3%.

Last Wednesday municipals prices were steady, as a variety of new-issue offerings came to market including the $1.1B Port Authority of New York and New Jersey taxable consolidated notes offering. On the day, the yields on the two- and 30-year GO bonds were unchanged, while the yield on the 10-year GO bond rose two bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys weakened on Wednesday, as U.S. stocks began July’s first trading day and the third quarter with a mixed session. The Dow ended down 78 points or 0.3%, while the S&P rose 0.5% and the NASDAQ rose 1.0%. On the day, the yield on the two-year maturity rose one bp, while the yield on the 10-year maturity rose three bps and the yield on the 30-year maturity rose two bps. The 10-year municipal-to-Treasury ratio fell to 130.4% on Wednesday from Tuesday’s level of 136.4%, while the 30-year municipal-to-Treasury ratio fell to 114.0% on Wednesday from Tuesday’s level of 115.6%.

Last Thursday municipals prices were once again steady, as the last of the week’s new-issue offerings were priced and market participants started looking ahead to the next week’s supply slate of $7.38B in expected 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 were mixed Thursday, as U.S. stocks rose for the session. The Dow finished up 92 points or 0.4%, while the S&P and NASDAQ both rose 0.5%. On the day, the yields on the two- and 10-year maturities each fell one bp, while the yield on the 30-year maturity was unchanged. The 10-year municipal-to-Treasury ratio rose to 132.4% on Thursday from Wednesday’s level of 130.4%, while the 30-year municipal-to-Treasury ratio was unchanged on Thursday from Wednesday’s level of 114.0%.


Taxable Bonds

Of the $45.3B in volume for June, $16.0B, or 35%, represented taxable supply. The rise in new-issue taxable supply continued to taxable municipal bonds strong performance in June.






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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