Muni Update

June 10, 2019



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


Municipal Market Recap

Municipal prices started the week stronger across the curve. On Tuesday, Wednesday, and Thursday municipal prices were mixed. On Tuesday the front-end was steady, while bonds maturing 10 years and longer weakened. On Wednesday the front-end strengthened, while bonds maturing 10 years and longer were steady. On Thursday bonds maturing 10 years and in strengthened, while the long-end was steady. On Friday prices strengthened across the curve. Issuance for the week is forecasted to be $9.9B, which is well above last week’s revised level of $6.4B in issuance. This week’s projected level of issuance combined with secondary market offerings should provide market participants with a number of opportunities for the trading week, especially given the continued strong demand in the municipal market. Driving this strong demand in the municipal market is a 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 22nd week, as weekly reporting funds experienced inflows of $792.876MM, after experiencing inflows of $918.862MM the week prior. The four-week moving average was a positive $1.121B, after being a positive $1.298B 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.

According to the Federal Reserve, the total amount of municipal securities contracted slightly in 1Q19 to $3.816T from $3.818T. As a result of the decline in yields in Q1 (the ICE BofAML Municipal Bond Index returned 2.95% in the quarter), the total value of the municipal market rose 1.8%. The value of direct Household ownership grew, but only at the same rate as the overall market at 1.8%. Investments in mutual funds and ETFs grew at a rate higher than the market at large. Ownership by U.S. banks, broker/dealers, and non-U.S. investors declined.

Last week the yields on the two- and 10-year maturities on the MMD Triple-A Scale each fell two basis points (bps) from Thursday to Friday and they ended the week at 1.32% and 1.61%, respectively. Meanwhile, the yield on the 30-year maturity on the MMD Triple-A Scale fell three bps from Thursday to Friday and ended the week at 2.30%. Overall, week-over-week the yield on the two-year General Obligation (GO) bond fell seven bps, while the yield on the 10-year GO bond fell four bps and the yield on the was 30-year GO bond fell two bps.

Last week the yields on the two- and 10-year maturities on the MMA Triple-A Scale each fell two bps from Thursday to Friday and they ended the week at 1.37% and 1.84%, respectively. Meanwhile, the yield on the 30-year maturity on the MMA Triple-A Scale fell one bp from Thursday to Friday and they ended the week at 2.48%. Overall, week-over-week the yield on the two-year GO bond fell five bps, while the yield on the 10-year GO bond fell two bps and the yield on the was 30-year GO bond fell one bp.


New Issue Volume is Forecasted to be $9.9B for Trading Week

Total new issuance for the trading week per IHS Markit Ipreo is estimated to be $9.9B, which is well above last week’s trading volume of $6.4B in issuance, according to revised data from Refinitiv. This week’s trading calendar is comprised of $6.45B in negotiated offerings and $4.45B in competitive offerings.

The biggest deal of the week is coming from the Commonwealth of Pennsylvania (Commonwealth). The Commonwealth plans to competitively offer $900.49MM of unlimited tax GO bonds, first refunding series of 2019. The deal is rated Aa3 by Moody’s Investors Service (Moody’s), A+ by Standard and Poor’s Global Ratings (S&P), and AA- Fitch Ratings (Fitch).

On Tuesday the State of Ohio plans to competitively offer $300.0MM of Series 2019A higher education unlimited tax GOs bonds. Proceeds will be used to pay the costs of capital facilities for state-supported and state-assisted institutions of higher education. The deal is rated AA+ by S&P.

In the negotiated sector on Wednesday, the Kansas City Industrial Development Authority, Missouri’s, plans to offer $851.335MM of special obligation airport bonds for the Kansas City International Airport terminal modernization project. The issue consists of Series 2019B bonds subject to the alternative minimum tax (AMT) and Series 2019C non-AMT bonds. The deals are rated A1 by Moody’s and A by S&P and Fitch.

The New York City Housing Development Corporations plans to come to market with $685.56MM of multi-family housing revenue bonds in two separate sales. The first will consist of $535.56MM of Series 2019 E-1 and E-2 sustainable neighborhood bonds on Wednesday, while the second piece will consist of $150.0MM of Series 2019F taxable sustainable neighborhood bonds, also on Wednesday. The offerings are rated Aa2 by Moody’s and AA+ by S&P.


Municipal Bond Funds Post Inflows for a 22nd Week

Investors in municipal bond funds put cash into funds for a 22nd week, according to the latest data from Lipper. The weekly reporting funds saw inflows of $792.876MM in the latest week, after experiencing inflows of $918.862MM the week prior. The four-week moving average was a positive $1.121B, after being a positive $1.298B the week prior.

Long-term municipal bond funds had inflows of $612.524MM in the latest week after experiencing inflows of $859.320MM the week prior. Intermediate-term funds had inflows of $207.550MM after inflows of $165.568MM the week prior. National funds had inflows of $695.027MM after experiencing inflows of $636.857MM the week prior. High-yield municipal funds reported inflows of $250.240MM in the latest week, after inflows of $173.707MM the week prior. Exchange traded funds reported inflows of $52.877MM, after inflows of $136.912MM 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+ years) 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. 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. Finally, we recommend market participants continue to look to unsold balance of deals that have priced in the past several weeks, as a chance to possibly pick up cheaper paper compared to more recent new issue balances and offerings. Week-over-week, bank qualified spreads were mixed, as the one- and two-year maturities widened, with the largest widening occurring in the one-year maturity, 23 bps.  Meanwhile, three-, five-, 10-, 15-, and 30-year maturities all tightened, with the largest tightening occurring in the 30-year maturity, 13 bps.


Daily Overview of the General Market for the Week Ending June 7th

Last Monday prices on municipals strengthened, as market participants prepped for the $6.99B of new issue offerings scheduled for the trading week. On the day, the yields on the two- and 10-year GO bonds each fell two bps, while the yield on the 30-year GO bond fell one bp, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys also strengthened across most of the curve, as U.S. stocks moved in and out of negative territory during morning trading and ended the day mixed despite a large drag from the tech sector. The Dow inched up by a hardly-noticeable 0.02% while the S&P 500 closed 0.3% lower. The NASDAQ posted the largest decline of the three major indices, dropping 1.6%. On the day, the yield on the two-year maturity fell 13 bps, while the yield on the 10-year maturity fell seven bps and the yield on the 30-year maturity fell five bps. The 10-year municipal-to-Treasury ratio rose to 78.7% on Monday from last Friday’s level of 77.1%, while the 30-year municipal-to-Treasury ratio rose to 91.3% on Monday from last Friday’s level of 89.9%.

Last Tuesday prices on municipals were mixed, as market participants saw a variety of deals price on Tuesday, led by sales in the airport, housing, and healthcare sectors. On the day, the yield on the two-year GO bond was steady, while the yield on the 10-year GO bond rose one bp and the yield on the 30-year GO bond rose two bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were weaker, as US stocks recorded their second best day of the year, as hopes for a Federal Reserve rate cut took hold and worries about an escalating trade war took a backseat. The Dow closed up 2.06%, while the S&P 500 was up 2.14% and the NASDAQ gained 2.65%. On the day, the yield on the two-year maturity rose six bps, while the yield on the 10-year maturity rose five bps and the yield on the 30-year maturity rose seven bps. The 10-year municipal-to-Treasury ratio fell to 77.4% on Tuesday from Monday’s level of 78.7%, while the 30-year municipal-to-Treasury ratio fell to 89.6% on Tuesday from Monday level of 91.3%.

Last Wednesday prices on municipals were mixed, as municipal participants saw a deluge of deals sweep into the marketplace, led by Los Angles County’s $700.0MM negotiated note issue. 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.

Prices on U.S. Treasurys were also mixed, as U.S. stocks posted gains for the session. On the day, the yield on the two-year maturity fell five bps, while the yield on the 10-year maturity was steady and the yield on the 30-year maturity rose three bps. The 10-year municipal-to-Treasury ratio was unchanged on Wednesday from Tuesday’s levels of 77.4%, while the 30-year municipal-to-Treasury ratio fell to 88.6% on Wednesday from Tuesday’s level of 89.6%.

Last Thursday prices on municipals were mixed again, as the last of the week’s new issue offerings came to market. On the day, the yields on the two- and 10-year GO bonds each fell one bp, while the yield on the 30-year GO bond was steady, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices also finished mixed and as U.S. Stocks rallied, as markets digested mixed reports on U.S. – Mexico trade negotiations. On the day, the yield on the two-year maturity rose five bps, while the yield on the 10-year maturity was steady and the yield on the 30-year maturity fell one bp. The 10-year municipal-to-Treasury fell to 76.9% on Thursday from Wednesday’s level of 77.4%, while the 30-year municipal-to-Treasury ratio bumped up to 88.9% on Thursday from Wednesday’s level of 88.6%.

Last Friday, prices on municipals strengthened, as market participants were looking ahead to the coming trading week’s $9.9B in new issue offerings. On the day, the yields on the two- and 10-year GO bonds each fell two bps, while the yield on the 10-year maturity fell three bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices finished the day mixed, as stocks gained for a fifth session as market expectations for a rate cut by the Federal Reserve are already climbing, and investors are confidence that, if in doubt, the Fed would act to boost economic growth with a rate cut, if needed. This despite the fact that nothing has been resolved on trade, and those risks still persist. On the day, the yield on the two-year maturity fell three bps, while the yield on the 10-year maturity was unchanged and the yield on the 30-year maturity fell five bps. The 10-year municipal-to-Treasury ratio fell to 75.9% on Friday from Thursday’s level of 76.9%, while the 30-year municipal-to-Treasury rose to 89.5% on Friday from Thursday’s level of 88.9%.


Taxable Market






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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