Muni Update

June 24, 2019


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


Municipal Market Recap

Municipal prices started the week steady. On Tuesday’s prices were mixed, as bonds maturing 10 years and in were steady, while the long-end strengthened. On Wednesday prices were steady across the curve. On Thursday municipal prices strengthened across the curve. Municipal prices were steady to close the week last Friday. Issuance for the week is forecasted to be $5.59B, which is below last week’s revised level of $7.3B 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 24th week, as weekly reporting funds experienced inflows of $856.009MM, after experiencing inflows of $778.412MM the week prior. The four-week moving average was a positive $836.540MM, after being a positive $997.979B 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.

Bloomberg reports that the shortest-dated municipal bonds gained the most in a year a day after the Federal Reserve indicated a readiness to lower interest rates for the first time since 2008, if needed to prevent a slowdown in the economy. Yields on state and local government bonds that mature in three months fell 0.05 percentage points to 1.23%, the biggest one-day drop since June 2018. Long-end yields dropped 2 basis points (bps). That came after municipal bonds were unchanged following the Fed’s meeting on Wednesday last week, even as U.S. Treasurys gained. Strong demand for municipals, as we approach of the last week of the first half of 2019, has contributed to them as an asset class continuing to see fundamentals working in their favor.

Last week the yields on the two-, 10-, and 30-year maturities on the MMD Triple-A Scale were all unchanged from Thursday to Friday and they ended the week at 1.27%, 1.62%, and 2.32%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond fell five bps, while the yields on the 10- and 30-year GO bond each fell four 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 1.35%, 1.84%, and 2.49%, respectively. Overall, week-over-week the yields on the two- and 10-year GO bonds each fell four bps, while the yield on the 30-year GO bond fell three bps.


New Issue Volume is Forecasted to be $5.59B for Trading Week

Total new issuance for the trading week per IHS Markit Ipreo is estimated to be $5.59B, which is below last week’s trading volume of $7.3B in issuance, according to revised data from Refinitiv. This week’s trading calendar is comprised of $4.39B in negotiated offerings and $1.2B in competitive offerings. There are 13 long-term bonds deals scheduled for the week that are structured to be $100.0MM or greater in par, and two short-term note deals, one of which will be greater than $1.0B in issuance coming from Los Angeles.

The New York City Municipal Water Finance Authority plans to offer $452.6MM of water and sewer system second general resolution revenue refunding bonds on Tuesday. The deal is rated Aa1 by Moody’s Investors Service (Moody’s) and AA+ by both Standard and Poor’s Global Ratings (S&P) and Fitch Ratings (Fitch).  On Wednesday the North Carolina Medical Care Commission plans to offer $306.175MM of health care facilities revenue bonds for Novant Health Obligated Group. The deal is rated Aa3 by Moody’s and AA- by both S&P and Fitch.

On the competitively, the City of Los Angeles will sell $1.66B of 2019 tax and revenue anticipation notes (TRANs) on Wednesday. The Note offering is rated MIG1 by Moody’s and SP-1+ by S&P. Also on Wednesday, the Kentucky Asset/Liability Commission’s plans to offer $400.0MM of general fund tax anticipation notes (TANs) on Wednesday. The note are rated MIG1 by Moody’s and F1+ by Fitch.


Municipal Bond Funds Post Inflows for a 24th Week

Investors in municipal bond funds put cash into funds for a 24th week, according to the latest data from Lipper. The weekly reporting funds saw inflows of $856.009MM in the latest week, after experiencing inflows of $778.412MM the week prior. The four-week moving average was a positive $836.540MM, after being a positive $997.979B the week prior.

Long-term municipal bond funds had inflows of $738.878MM in the latest week after experiencing inflows of $652.507MM the week prior. Intermediate-term funds had inflows of $41.303MM after inflows of $189.275MM the week prior. National funds had inflows of $706.719MM after experiencing inflows of $662.490MM the week prior. High-yield municipal funds reported inflows of $273.121MM in the latest week, after inflows of $370.941MM the week prior. Exchange traded funds reported inflows of $129.732MM, after outflows of $108.653MM 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 tightened, with the largest tightening occurring in the five-year maturity, 68 bps.


Daily Overview of the General Market for the Week Ending June 21st

Last Monday prices on municipals were steady, as market participants prepped for the $6.19B of new issue offerings scheduled for the 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, as U.S. stocks finished the session slightly higher and market participants were looking toward the middle of the week and the highly-anticipated Federal Reserve meeting. On the day, the yield on the two-year maturity rose two 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 ratio was unchanged on Monday from last Friday’s level of 79.4%, while the 30-year municipal-to-Treasury ratio rose to 91.5% on Monday from last Friday’s level of 91.1%.

Last Tuesday prices on municipals were mixed, as two big education sales from Southeast issuers came to market while the Federal Reserve gathered in Washington to decide the future direction of U.S. monetary policy. On the day, the yields on the two- and 10-year GO bonds were steady, while the yield on the 30-year GO bond fell two bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were also mixed, as U.S. stocks rose after President Draghi hinted that the ECB could introduce new stimulus if the outlook doesn’t improve quickly and President Trump announced he will meet with China’s Xi at the G-20. On the day, the yield on the two-year maturity was steady, while the yields on the 10- and 30-year maturities each fell three bps. The 10-year municipal-to-Treasury ratio rose to 80.6% on Tuesday from Monday’s level of 79.4%, while the 30-year municipal-to-Treasury ratio bumped up 91.8% on Tuesday from Monday level of 91.5%.

Last Wednesday prices on municipals were steady, as municipal participants saw the State of Georgia sell more than $940.0MM of unlimited tax GO bonds in four sales, while the Commonwealth of Pennsylvania offered up more turnpike securities ahead of the Federal Reserve’s decision to keep interest rates steady. On the day, the yields 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 strengthened, as U.S. stocks posted small gains for the session and the Federal Reserve Open Markets Committee (FOMC) held rates steady, but raised the prospect for two potential rates cuts later this year, as policy makers continue to weigh the right time to act amid concerns over President Donald Trump’s trade policies. On the day, the yield on the two-year maturity fell 12 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 ratio rose to 81.8% on Wednesday from Tuesday’s levels of 80.6%, while the 30-year municipal-to-Treasury rose to bumped up to 92.1% on Wednesday from Tuesday’s level of 91.8%.

Last Thursday prices on municipals strengthened, 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 five bps, while the yield on the 10-year GO bond fell four bps and the yield on the 30-year GO bond fell two bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices also finished stronger, as U.S. stocks posted gains for the session. 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 one bp. The 10-year municipal-to-Treasury fell to 80.6% on Thursday from Wednesday’s level of 81.8%, while the 30-year municipal-to-Treasury ratio slipped to 91.7% on Thursday from Wednesday’s level of 92.1%.

Last Friday, prices on municipals were steady, as market participants were looking ahead to the coming trading week’s $5.59B in 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 finished the day weaker, as stocks posted minimal losses for the session. On the day, the yield on the two-year maturity rose five bps, while the yields on the 10- and 30-year maturities each rose six bps. The 10-year municipal-to-Treasury fell to 78.3% on Friday from Thursday’s level of 80.6%, while the 30-year municipal-to-Treasury fell to 89.6% on Friday from Thursday’s level of 91.7%.


Taxable Market






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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