Muni Update

June 14, 2021


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


Municipal Market Recap

Municipal prices started the week steady. On Tuesday they strengthened across the curve. On Wednesday and Thursday municipal prices were mixed. On Wednesday municipal prices on bonds in the front end were steady, while prices on bonds maturing 10 years and longer strengthened. 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 steady again across the curve.

The projected level of new-issue offerings for the trading week are $11.0B and coupled with bank qualified (BQ) and general market (GM) offerings in the secondary market should provide market participants with various opportunities to fill their needs, especially as demand continues to outpace supply. The continuing 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 so far for the year.

For funds latest reporting period, investors in municipal bond funds put cash into funds for a fourteenth week in a row, as tax-exempt weekly reporting funds data showed that funds experienced inflows of $2.462B in the latest week, after experiencing inflows of $997.358MM the week prior. The four-week moving average remained positive at $1.413B, after being in the green $984.400MM the week prior.

Based on the above theme of demand outpacing supply this year, Citigroup is forecasting that the amount of cash investors can expect to receive from municipal-bond payments will outstrip the volume of new tax-exempt debt sales by about $62.3B this summer. Citigroup forecasts issuance of $100.6B of tax-exempt bond sales from June through August, while it expects about $52.4B of bonds called for refinancing’s and $69.5B to mature. Investors are expected to get another $41.0B in coupon payments. The bank expects $26.4B of taxable municipal sales compared with $18.8B flowing back to investors through maturities, calls and coupon payments.

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 ended the week at 0.08%, 0.89%, and 1.39%, respectively. Overall, week-over-week the yield on the two-year general obligation (GO) bond fell two basis points (bps), while the yield on the 10-year GO bond fell seven bps and the yield on the 30-year GO bonds fell nine 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 they ended the week at 0.13%, 1.14%, and 1.69%, respectively. Overall, week-over-week the yield on the two-year GO bond fell five bps, while the yields on the 10- and 30-year GO bonds each fell eight bps.


New-Issue Volume is Forecasted to be $11.05B for the Trading Week

Total new-issue offerings for the trading week per IHS Markit Ipreo are estimated to be $11.0B. This week’s projected level of bond issuance is comprised of $8.39B in negotiated deals and $2.61B in competitive sales. Leading the week this week will be the $1.858B offering of taxable and tax-exempt state personal income tax (PIT) general purpose revenue bonds by the Dormitory Authority of the State of New York (DASNY). The DASNY offering is comprised of $1.826B of Series 2021C taxable PIT bonds and $31.95MM of tax-exempt Series 2021D PIT bonds. The deals are scheduled to be priced by on Tuesday.

On Thursday, the Port of Seattle, Washington will price $811.0MM of refunding bonds. The deal is comprised of first lien revenue refunding bonds and intermediate lien revenue and refunding bonds and consists of a Series 2021 offering and a Series 2021 A, B, C and D offerings. The Series 2021 bonds are the first lien revenue bonds and are rated Aa2 by Moody’s Investors Service (Moody’s), AA- by Standard and Poor’s Global Ratings (S&P) and AA by Fitch Ratings (Fitch). The Series 2021 A, B, C and D bonds are the intermediate lien bonds and are rated A1 by Moody’s, A+ by S&P and AA- by Fitch. The AdventHealth Obligated Group is also planning to come to market with $710.0MM of hospital revenue refunding bonds in two offerings that will also be priced on Tuesday.

In the short-term sector, Riverside County, California plans to offer $340.0MM of tax and revenue anticipation notes (TRANs) on Tuesday. The notes are rated SP1+ by S&P and F1+ by Fitch.

In the competitive arena, the South Carolina Transportation Infrastructure Bank is planning to sell $395.09MM of revenue refunding bonds in two offerings on Tuesday. On Thursday, the State of New Mexico plans to sell $307.665MM of Series 2021A severance tax bonds.


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

Investors in municipal bond put cash into funds for a Fourteenth week in a row, as tax-exempt weekly reporting funds experienced inflows of $2.462B in the latest week, after experiencing inflows of $997.358MM the week prior. The four-week moving average remained positive at $1.413B, after being in the green $984.400MM the week prior.

Long-term municipal bond funds had inflows of $1.816B in the latest week after experiencing inflows of $565.296MM the week prior. Intermediate-term funds had inflows of $281.374MM after inflows of $94.250MM the week prior. National funds had inflows of $2.317B after experiencing inflows of $906.119MM the week prior. High-yield municipal funds reported inflows of $816.359MM in the latest week, after inflows of $372.003MM the week prior. Exchange traded funds reported inflows of $634.745MM, after inflows of $132.995MM 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 continue on the 1st and 15th of the next few 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 in the intermediate and longer end of 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, BQ spreads were mixed, as the spreads on the one- and three-year maturities each tightened one bp, while the spread on the two-year maturity was unchanged. Meanwhile, the week-over-week BQ spreads on the five-, 10-, 15-, and 30-year maturities all widened, with the largest widening occurring in the 15- year maturities, 17 bps.


Daily Overview of the General Market for the Week Ending June 11th

On Monday municipals prices were steady, as the first of the trading week’s $10.15B in new-issue debt was offered. 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 on Monday, as U.S. Stocks struggled for direction in the morning only to finish the session mixed, as investors weighed the prospects of higher inflation and rates in the U.S. against Friday’s solid print on the U.S. labor market recovery. The Dow was down 127 points or 0.4%, while the S&P was down 0.08%, and the NASDAQ was up 0.5%. On the day, the yield on the two-year maturity rose two bps, while the yields on the 10-, and 30-year maturities each rose one bp. The 10-year municipal-to-Treasury ratio slipped to 61.2% on Monday from last Friday’s level of 61.5%, while the 30-year municipal-to-Treasury ratio slipped to 65.8% on Monday from last Friday’s level of 66.1%.

On Tuesday municipals prices strengthened across the curve, as a variety of new-issue offerings came to market including the competitive offering of $1.1B of tax-exempt and taxable GO bonds by the State of Georgia and the $227.3MM offering of GO bonds by the State of Wisconsin. On the day, the yield on the two-year GO bond fell one bp, while the yield on the 10-year GO bond fell two bps and the yield on the 30-year GO bond fell four bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys also strengthened on Tuesday, as U.S. stocks were little changed for the session, as traders considered a batch of new economic data, much of which pointed to ongoing labor shortages in the U.S. economy during the recovery. The Dow was down 30 points or 0.1%, while the S&P was barely up 0.02%, and the NASDAQ was up 0.3%. On the day, the yields on the two- and 10-year maturities each fell two bps, while the yield on the 30-year maturity fell four bps. The 10-year municipal-to-Treasury ratio bumped up 61.4% on Tuesday from last Monday’s level of 61.2%, while the 30-year municipal-to-Treasury ratio fell to 65.2% on Tuesday from last Monday’s level of 65.8%.

Last Wednesday municipals prices were mixed, as triple-A benchmark yields fell as much as five bps out long, but bumps were seen across the curve, moving levels on high-grades below 1% on bonds maturing inside 14 years. In the new-issue market, a variety of new offering came to make, including the $439.4MM offering of power system revenue refunding bonds for the Department of Water and Power of the City of Los Angeles and in the competitive market, the City of Fort Worth, Texas sold $157.215MM of water and sewer revenue refunding bonds. 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 five bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were also mixed on Wednesday, as U.S. stock prices fell for the session. The Dow was down 153 points or 0.4%, while the S&P was down 0.2%, and the NASDAQ was barely down at 0.1%. On the day, the yield on the two-year maturity rose 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 fell to 59.3% on Wednesday from Tuesday’s level of 61.4%, while the 30-year municipal-to-Treasury ratio fell to 64.1% on Wednesday from Tuesday’s level of 65.2%.

Last Thursday municipals prices were mixed, as the last of the week’s new-issue offerings came to market. 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 strengthened on Thursday, as did U.S. Stock prices for the session, as traders digested a key data on inflation, which showed consumer prices rose faster than expected, as demand surged during the recovery. The Dow was up 19 points or 0.06%, while the S&P was up 0.5%, and the NASDAQ was up 0.8%. On the day, the yields on the two- and 30-year maturities each fell two bps, while the yield on the 10-year maturity fell five bps. The 10-year municipal-to-Treasury ratio rose to 61.4% on Thursday from Wednesday’s level of 59.3%, while the 30-year municipal-to-Treasury ratio rose to 64.7% on Thursday from Wednesday’s level of 64.1%.

Last Friday municipal prices were steady, as market participants were also looking ahead to the $11.0B in expected new-issue offerings in the upcoming trading week, as well as the Federal Open Market Committee meeting and decision 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 US Stocks prices ended a choppy session higher, eking out a fresh record high in the S&P, as investors looked beyond a stronger-than-expected data on inflation. The Dow was up 13 points or 0.04%, while the S&P was up 0.2% and the NASDAQ was up 0.4%. On the day, the yields on the two- and 10-year maturities each rose two bps, while the yield on the 30-year maturity was unchanged. The 10-year municipal-to-Treasury ratio fell to 60.5% on Friday from Thursday’s level of 61.4%, while the 30-year municipal-to-Treasury ratio was unchanged on Friday from Thursday’s level of 64.7%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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