Muni Update

June 17, 2019


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


Municipal Market Recap

Municipal prices started the week mixed, as the front-end was steady, while bonds maturing 10 years and longer weakened. Tuesday’s price action was a repeat of Monday’s. Municipal prices on Wednesday were steady across the curve. On Thursday municipal prices were mixed again, as the front and long-end maturities were steady, while intermediate maturities weakened. Municipal prices were mixed to close the week, as bonds maturing 10 years and in were steady, while the long-end weakened. Issuance for the week is forecasted to be $6.19B, which is below last week’s revised level of $9.9B 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 23rd week, as weekly reporting funds experienced inflows of $778.412MM, after experiencing inflows of $792.876MM the week prior. The four-week moving average was a positive $997.979MM, after being a positive $1.121B 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 yields on the two- and 10-year maturities on the MMD Triple-A Scale were unchanged from Thursday to Friday and they ended the week at 1.32% and 1.66%, respectively. Meanwhile, the yield on the 30-year maturity on the MMD Triple-A Scale rose one basis point (bp) from Thursday to Friday and ended the week at 2.36%. Overall, week-over-week the yield on the two-year General Obligation (GO) bond was unchanged, while the yield on the 10-year GO bond rose five bps and the yield on the was 30-year GO bond rose six bps.

Last week the yields on the two-, 10-, and 30-year maturities on the MMA Triple-A Scale were all unchanged from Thursday to Friday and they ended the week at 1.39%, 1.88%, and 2.52%, respectively. Overall, week-over-week the yield on the two-year GO bond rose two bps, while the yields on the 10- and 30-year GO bonds each rose four bps.


New Issue Volume is Forecasted to be $6.19B for Trading Week

Total new issuance for the trading week per IHS Markit Ipreo is estimated to be $6.19B, which is below last week’s trading volume of $9.9B in issuance, according to revised data from Refinitiv. This week’s trading calendar is comprised of $3.97B in negotiated offerings and $2.22B in competitive offerings.

The biggest deal of the week will come competitively on Thursday from the Dormitory Authority of the State of New York (DASNY), which plans to offer $1.633B of state personal income tax (PIT) general purpose revenue bonds. The offerings will consist of $419.31MM of Series 2019A Bidding Group 2 tax-exempts, $414.14MM of Series 2019A Bidding Group 4 tax-exempts, $394.34MM of Series 2019A Bidding Group 1 tax-exempts, $393.435MM of Series 2019A Bidding Group 3 tax-exempts, and $11.975MM of Series 2019B taxables.

On Wednesday, the State of Georgia is selling competitively $950.905MM of unlimited tax GO bonds in four sales. The deals consist of $351.185MM of Series 2019A Tranche 1 GOs and Series 2019C refunding GOs, $321.17MM of Series 2019A Tranche 2 GOs, $141.07MM of Series 2019B taxable GOs, and $137.48MM of Series 2019B taxable GOs. Proceeds will be used to finance capital improvements; to make grants to governmental entities for capital outlay projects and to refund certain outstanding debt.

In the short-term sector, the State of Idaho plans to sell $555.0MM of Series 2019 tax anticipation notes (TANs) on Thursday. The TANs are rated MIG-1 by Moody’s Investors Service (Moody’s) and SP1+ by Standard and Poor’s Global Ratings (S&P).

In the negotiated sector, the Pennsylvania Turnpike Commission will offer $706.335.0MM of Series 2019A turnpike subordinate revenue bonds on Wednesday. The offerings is rated A3 by Moody’s, A- by Fitch Ratings (Fitch), and A+ by Kroll Rating Agency (Kroll). On Thursday Montgomery County Higher Education and Health Authority, Pennsylvania, will offer (A2/A/NR) $415.5MM of Series 2019 revenue bonds for Thomas Jefferson University. The deal is rated A2 by Moody’s and A by S&P.


Municipal Bond Funds Post Inflows for a 23rd Week

Investors in municipal bond funds put cash into funds for a 23rd week, according to the latest data from Lipper. The weekly reporting funds saw inflows of $778.412MM in the latest week, after experiencing inflows of $792.876MM the week prior. The four-week moving average was a positive $997.979MM, after being a positive $1.121B the week prior.

Long-term municipal bond funds had inflows of $652.507MM in the latest week after experiencing inflows of $612.524MM the week prior. Intermediate-term funds had inflows of $189.275MM after inflows of $207.550MM the week prior. National funds had inflows of $662.490MM after experiencing inflows of $695.027MM the week prior. High-yield municipal funds reported inflows of $370.941MM in the latest week, after inflows of $250.240MM the week prior. Exchange traded funds reported outflows of $108.653MM, after inflows of $52.877MM 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, although we are seeing more BQ buyer’s 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. 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 10- and 15-year maturities were unchanged week-over-week. Meanwhile, the one- and 30-year maturities tightened, with the largest tightening occurring in the one-year maturity, four bps. Finally, the two-, three-, and five-year maturities all widened, with the largest widening occurring in the three-year maturity, three bps.


Daily Overview of the General Market for the Week Ending June 14th

Last Monday prices on municipals were mixed, as market participants prepped for the $9.9B of new issue offerings scheduled for the trading week. On the day, the yield on the two-year GO bond was steady, while the yield on the 10-year GO bonds rose two bps and the yield on the 30-year GO bond rose three bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys weakened, as posited minimal gains for the day, making it sixth session stocks have finished in positive territory. On the day, the yields on the two- and 30-year maturities each rose five bps, while the yield on the 10-year maturity rose three bps. The 10-year municipal-to-Treasury ratio slipped to 75.8% on Monday from last Friday’s level of 75.9%, while the 30-year municipal-to-Treasury ratio fell to 88.9% on Monday from last Friday’s level of 89.5%.

Last Tuesday prices on municipals were mixed, as market participants the first of the week’s new-issue offering hit the market, including offerings from issuers from Michigan, California, and Ohio. On the day, the yield on the two-year GO bond was steady, while the yields on the 10- and 30-year GO bonds each rose two bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were also mixed, as U.S. equities gapped higher at the open but quickly gave up those gains, ending the day almost on top of where they started the session. On the day, the yield on the two-year maturity rose three bps, while the yields on the 10- and 30-year maturities were each steady. The 10-year municipal-to-Treasury ratio rose to 76.7% on Tuesday from Monday’s level of 75.8%, while the 30-year municipal-to-Treasury ratio rose to 89.7% on Tuesday from Monday level of 88.9%.

Last Wednesday prices on municipals were steady, as municipal participants saw a surge of new issues hit the market, including large offerings from Pennsylvania and the Kansas City IDA issues. On the day, the yield on the two-, 10-, and 30-year GO bonds were steady, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were also mixed, as U.S. stocks posted losses for the session, marking their second down day in a row after a week-long market rally came to an end.  On the day, the yield on the two-year maturity fell five bps, while the yield on the 10-year maturity fell two bps and the yield on the 30-year maturity was steady. The 10-year municipal-to-Treasury ratio rose to 77.5% on Wednesday from Tuesday’s levels of 76.7%, while the 30-year municipal-to-Treasury was unchanged on Wednesday from Tuesday’s level of 89.7%.

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 30-year GO bonds were each steady, while the yield on the 10-year GO bond rose one bp, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices also finished mixed and as U.S. stocks posted modest 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 fell three bps and the yield on the 30-year maturity fell one bp. The 10-year municipal-to-Treasury rose to 79.1% on Thursday from Wednesday’s level of 77.5%, while the 30-year municipal-to-Treasury ratio bumped up to 90.0% on Thursday from Wednesday’s level of 89.7%.

Last Friday, prices on municipals were mixed, as market participants were looking ahead to the coming trading week’s $6.19B in new issue offerings. On the day, the yields on the two- and 10-year GO bonds were each steady, while the yield on the 30-year maturity rose one bp, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices also finished the day mixed, as stocks posted minimal losses for the session. On the day, the yield on the two-year maturity rose one bp, 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 bumped up to 75.4% on Friday from Thursday’s level of 79.1%, while the 30-year municipal-to-Treasury rose to 91.1% on Friday from Thursday’s level of 90.0%.


Taxable Market






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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