Muni Update

June 21, 2021


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


Municipal Market Recap

Municipal prices started the week steady as market participants awaited the larger issues of the week and began to position themselves ahead of the start of the Federal Open Market Committee (FOMC). On Tuesday municipal prices were mixed, as prices on bond maturing 10 years and in were steady, while prices on the long end weakened. On Wednesday municipal prices were steady, as the FOMC voted unanimously to keep its policy rate range at 0.00-0.25% and indicated it would continue to purchase $80.0B in U.S. Treasurys and $40.0B in Mortgage-Backed Securities (MBS) per month until “substantial further progress” has been made. As a technical matter, the Fed raised its interest rate on excess reserves from 0.10% to 0.15%, as overnight rates have recently drifted downward from the mid-point of the target range. Also, their projections now expect two rate hikes in 2023. On Thursday municipal prices weakened across the curve. On Friday municipal prices were mixed, as the front-end saw prices weaken, while prices on bonds maturing ten years and longer were steady.

The projected level of new-issue offerings for the trading week are $10.19B 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. The volume of state and local government debt sales looks likely to climb as requests for trading tickers for newly issued municipal securities climbed 5% in May from the previous month, according to a report by CUSIP Global Services. It was the fourth straight monthly increase in CUSIP requests, and they are up 7.9% YoY.

For funds latest reporting period, investors in municipal bond funds put cash into funds for a 15th week in a row, as tax-exempt weekly reporting funds data showed that funds experienced inflows of $1.85B in the latest week, after experiencing inflows of $2.462B the week prior. The four-week moving average remained positive week-over-week.

Last week the yield on the two-year maturity on the MMD Triple-A Scale rose three basis points (bps) from Thursday to Friday and ended the week at 0.16%. 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 0.96% and 1.45%, respectively. Overall, week-over-week the yield on the two-year general obligation (GO) bond rose eight bps, while the yield on the 10-year GO bond rose seven bps and the yield on the 30-year GO bonds rose six bps.

Last week the yield on the two-year maturity on the MMA Triple-A Scale rose two bps from Thursday to Friday and ended the week at 0.20%. Meanwhile, the yields on the 10- and 30-year maturities on the MMA Triple-A Scale were unchanged from Thursday to Friday and they ended the week at 1.20% and 1.75%, respectively. Overall, week-over-week the yield on the two-year GO bond rose seven bps, while the yields on the 10- and 30-year GO bonds each rose six bps.


New-Issue Volume is Forecasted to be $10.19B for the Trading Week

Total new-issue offerings for the trading week per IHS Markit Ipreo are estimated to be $10.19B. This week’s projected level of bond issuance is comprised of $8.22B in negotiated deals and $1.97B in competitive sales. Leading the week this week will be the $1.858B offering of tax and revenue anticipation notes (TRANs) on Tuesday, by the City of Los Angeles, California. Also on Tuesday, the Michigan Strategic Fund is set to price $604.0MM of taxable limited obligation revenue bonds (Flint Water Advocacy Fund Project), serials 2022-2039, term 2051. The deal is rated Aa2 by Moody’s Investors Service (Moody’s) and AA- by Fitch Ratings (Fitch).

The Gulf States Gas District is set to price $556.6MM of gas supply revenue bonds. The deal is rated A2 by Moody’s. The State of Tennessee plans to offer $492.7MM of taxable GO refunding bonds, serials 2021-2035, as well as $164.9MM of tax-exempt GO refunding bonds on Wednesday. The offerings are rated Triple-A by Moody’s, Standard and Poor’s Global Ratings (S&P), and Fitch. Other deals scheduled for Wednesday include the City of Philadelphia is set to price $359.5MM of taxable water and wastewater revenue refunding bonds, serials 2022-2036, terms 2041, 2045. The deal is rated A1 by Moody’s and A+ by S&P and Fitch. Glendale, Arizona, is set to price $252.8MM of taxable certificates of participation (COPs), serials 2024-2037. The deal is rated A+ by S&P and AA- by Fitch. Miami-Dade County, Florida, is set to price $244.5MM of subordinate water and sewer system revenue refunding bonds, serials 2027-2028, 2034-2044, terms 2046, 2048, 2051. The deal is rated A1 by Moody’s and A+ by S&P. On Thursday, the Town of West Hartford, Connecticut, is set to price $324.4MM of taxable GO bonds, serials 2022-2036, terms 2041, 2046. The deal is rated Triple-A by Moody’s and S&P.

There are a number of offerings this week from issuers from the State of Texas and they include the following deals. The City of San Antonio, Texas, is set to price $257.7MM of water system junior lien revenue and refunding bonds, serials 2022-2041, terms 2046, 2051. The Fort Worth Independent School District, Texas, (PSF guarantee) is set to price $242.5MM of unlimited tax school building bonds. The Northwest Independent School District, Texas, (PSF guarantee) is set to price $181.5MM of unlimited tax school building bonds, serials 2022-2046. The Liberty Hill Independent School District, Texas, (PSF guarantee) is set to price $180.0MM of unlimited tax school building bonds, serials 2022-2041, terms 2046, 2056. The Richardson Independent School District, Texas, (PSF guarantee) is set to price $179.1MM of unlimited tax school building bonds, serials 2022-2041, term 2046. Citigroup Global Markets Inc. is head underwriter. Finally, the Lone Star College System, Texas, is set to price on Wednesday $176.5MM comprised of $161.5MM of limited tax GO bonds, Series 2021A, and $15.0MM of limited tax GO refunding bonds, Series 2021B. The deal is rated AAA by S&P.

In the competitive market on Tuesday, Idaho plans to sell $300.0MM of tax anticipation notes (TANs), due 6/30/2022) at 11 a.m. eastern. The notes are rated MIG1 by Moody’s, and SP-1+ by S&P. Also on Tuesday, the Denton, Texas, is set to sell $97.5MM of certificates of obligation (CIOP) at 10:30 a.m. and $44.1MM of GO bonds at 11 a.m. The offerings are rated Triple-A by S&P and Fitch. On Wednesday, the Georgia Road and Tollway Authority is set to sell $210.5MM of managed lane system guaranteed revenue bonds at 10:15 a.m., $115.3MM of managed lane system guaranteed revenue bonds at 10:45 a.m. and $36.6MM of managed lane system guaranteed taxable revenue bonds at 11:15 a.m. The offerings are rated Triple-A by Moody’s and S&P.


Municipal Bond Funds Posted Inflows for a 15th Week in a Row

Investors in municipal bond put cash into funds for a 15th week in a row, as tax-exempt weekly reporting funds experienced inflows of $1.85BB in the latest week, after experiencing inflows of $2.462B the week prior. The four-week moving average remained positive week-over-week. Also, long term, intermediate maturities, and high yield funds all saw inflows.


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 portfolios, 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 five-year maturities tightened, with the largest tightening occurring in the five-year maturity, 20 bps.  Meanwhile, the week-over-week BQ spreads on the three-, 10-, 15-, and 30-year maturities all widened, with the largest widening occurring in the 30-year maturities, 19 bps. Finally, the week-over-week spread on the two-year BQ maturity was unchanged.


Daily Overview of the General Market for the Week Ending June 18th

On Monday municipals prices were steady, as the first of the trading week’s $11.0B in new-issue debt was offered, as market participants looked to position themselves ahead of the FOMC meeting which started on Tuesday. 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 were U.S. stocks prices for the session, as traders awaited a key monetary policy decision from the FOMC on Wednesday. The Dow was down 86 points or 0.3%, while the S&P was up 0.2% (new record high), and the NASDAQ was up 0.7%. On the day, the yield on the two-year maturity was unchanged, while the yields on the 10- and 30-year maturities each rose four bps. The 10-year municipal-to-Treasury ratio fell to 58.9% on Monday from last Friday’s level of 60.5%, while the 30-year municipal-to-Treasury ratio fell to 63.5% on Monday from last Friday’s level of 64.7%.

On Tuesday municipals prices were mixed, as several large new-issue offerings came to market and were repriced to lower and higher yields. The New York City Housing Development Corporation bumped bonds inside 10 years and the San Mateo-Foster City Public Financing Authority saw one-to-five bp bumps, while issues from Colorado’s portion of the AdventHealth deal saw three-to-five bp cuts on its longer-dated maturities. The University of South Carolina saw its deal reprice to higher yields out long by as much as 10 bps, indicative of the broader market’s aversion to low rates. On the day, the yields on the two- and 10-year GO bonds were unchanged, while 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 also mixed on Tuesday, as U.S. stocks weakened for the session, as investors considered a spate of new economic data, including a weaker-than-expected print on consumer spending during the recovery. The Dow was down 94 points or 0.3%, while the S&P was down 0.2% and the NASDAQ was down 0.7%. On the day, the yields on the two- and 10-year maturities were unchanged, while the yield on the 30-year maturity rose one bp. The 10-year municipal-to-Treasury ratio was unchanged on Tuesday from last Monday’s level of 58.9%, while the 30-year municipal-to-Treasury ratio rose to 64.1% on Tuesday from last Monday’s level of 63.5%.

Last Wednesday municipals prices were steady, as the 10-year U.S. Treasury sold off and equities lost more ground, and investors took heed of the FOMC’s acknowledgement that it has started taper discussions, although actual tapering is a ways’ off. 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 Wednesday and as U.S. stock prices fell for the session, as investors considered a key monetary policy decision from the Federal Reserve, which reflected more policymakers forecasted interest rate hikes in the next two years. The Dow was down 266 points or 0.8%, while the S&P was down 0.5%, and the NASDAQ was down at 0.2%. On the day, the yield on the two-year maturity rose five bps, while the yield on the 10-year maturity rose six bps and the yield on the 30-year maturity was unchanged. The 10-year municipal-to-Treasury ratio fell to 56.7% on Wednesday from Tuesday’s level of 58.9%, while the 30-year municipal-to-Treasury ratio was unchanged on Wednesday from Tuesday’s level of 64.1%.

Last Thursday municipals prices weakened, as the last of the week’s new-issue offerings came to market including the Port of Seattle’s $810.8MM of refunding bonds comprised of four series of bonds (tax-exempt and taxable), the Oklahoma Municipal Power Authority’s offering of $114.1MM of tax-exempt power supply system revenue refunding bonds and the $139.2MM of Alternative Minimum Tax (AMT) airport revenue refunding bonds for Lee County, Florida to name a few. On the day, the yield on the two-year GO bond rose five bps, while the yield on the 10-year GO bond rose seven bps and the yield on the 30-year GO bond rose four bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were mixed on Thursday, and U.S. stocks also traded mixed for the session, as investors contemplated the Federal Reserve’s latest monetary policy decision and updated projections, which signaled a quicker path to higher interest rates than previously anticipated. The Dow was down 210 points or 0.6%, while the S&P was barley down at 0.04% and the NASDAQ was up 0.9%. On the day, the yields on the two-year maturity rose two bps, while the yield on the 10-year maturity fell five bps and the yield on the 30-year maturity fell nine bps. The 10-year municipal-to-Treasury ratio rose to 63.2% on Thursday from Wednesday’s level of 56.7%, while the 30-year municipal-to-Treasury ratio rose to 68.7% on Thursday from Wednesday’s level of 64.1%.

Last Friday municipal prices were mixed, as market participants continued to digest the remaining balances of the past week’s new-issue offerings and were also looking ahead to the $10.19B in expected new-issue offerings in the upcoming trading week. On the day, the yield on the two-year GO bond rose three 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.

U.S. Treasury prices were also mixed on Friday, as U.S. stocks prices fell to extend a streak of volatile trading following the Federal Reserve’s latest monetary policy decision and projections. The Dow was down 533 points or 1.6%, while the S&P was down 1.3% and the NASDAQ was down 0.9%. On the day, the yield on the two-year maturity rose three bps, while the yield on the 10-year maturity fell seven bps and the yield on the 30-year maturity fell 10 bps. The 10-year municipal-to-Treasury ratio rose to 66.2% on Friday from Thursday’s level of 63.2%, while the 30-year municipal-to-Treasury ratio rose to 72.1% on Friday from Thursday’s level of 68.7%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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