Muni Update

June 28, 2021


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


Municipal Market Recap

Municipal prices started the week steady. On Tuesday and Wednesday municipal prices were mixed, and for both days prices on bond maturing in the front-end were steady, while prices on bonds maturing 10 years and longer weakened. On Thursday and Friday municipal prices were steady across the curve.

The projected level of new-issue offerings for the trading week are $7.27B 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 continued 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 for the year.

For funds latest reporting period, investors in municipal bond funds put cash into funds for a 16th week in a row, as tax-exempt weekly reporting funds data showed that funds experienced inflows of $1.913B in the latest week, after experiencing inflows of $1.85B the week prior. The four-week moving average remained positive week-over-week.

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 they ended the week at 0.16%, 1.01%, and 1.52%, respectively. 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 basis points (bps) and the yield on the 30-year GO bond rose seven bps.

Last week the yields on the two-, 10-, and 30-year maturities on the MMA Triple-A Scale each rose one bp from Thursday to Friday and ended the week at 0.22%, 1.25%, and 1.81%, respectively. Overall, week-over-week the yield on the two-year GO bond rose two bps, while the yield on the 10-year GO bond rose five bps and the yield on the 30-year GO bond rose six bps.


New-Issue Volume is Forecasted to be $7.27B for the Trading Week

Total new-issue offerings for the trading week per IHS Markit Ipreo are estimated to be $7.27B. This week’s projected level of bond issuance is comprised of $4.97B in negotiated deals and $2.30B in competitive sales. Leading the week this week will be the New York City Municipal Water Finance Authority, which plans to offer $450.0MM of tax-exempt fixed-rate bonds. The bonds will be offered to retail investors on Tuesday and be priced for institutions on Wednesday. The deal is rated Aa1 by Moody’s Investors Service (Moody’s) and AA+ by both Standard Poor’s Global Ratings (S&P) and Fitch Ratings (Fitch).

The Harris County Cultural Education Facilities Finance Corporation (Aa2/AA/AA) is set to price $320.0MM of Texas Children’s Hospital revenue bonds in two series on Wednesday. The deal is rated Aa2 by Moody’s and AA by S&P and Fitch. The City of Philadelphia is set to price $298.28MM of Alternative Minimum Tax PAB airport revenue and refunding bonds on Tuesday. The deal is rated A2 by Moody’s and A by S&P.  Back in New York, the State of New York Mortgage Agency is set to price for retail on Tuesday and institutions on Wednesday $262.7MM of homeowner mortgage revenue social bonds in three series. The deal is rated Aa1 by Moody’s.

Other notable deals this week include but are not limited to the Texas Municipal Power Agency is set to price $201.6MM of transmission system revenue refunding bonds on Tuesday and is rated A1 by Moody’s. The State Building Authority, Michigan is set to price $199.76MM of 2021 revenue bonds Series I (Facilities Program) on Tuesday. The deal is rated Aa2 by Moody’s and AA- by Fitch. Collin County, Texas, is set to price on $103.0MM of limited tax permanent improvement and refunding bonds, Series 2021 on Tuesday and the deal is rated Triple-A by Moody’s and S&P. Finally on Tuesday, the Godley Independent School District (PSF guarantee) is set to price $94.6MM of unlimited tax school building bonds.

Other notable deals this week include the $240.0MM offering of tax and revenue anticipation notes (TRANs) by the San Diego Unified School District on Wednesday.   On Thursday, the Nebraska Investment Finance Authority is set to price $129.1MM of single-family housing refunding revenue bonds 2021 Series C (Non-AMT) social bonds. The deal is rated AA+ by S&P.

In the competitive arena, the largest deal this week will come from Portland Public School District #1J, Oregon, which will price $401.9MM taxable full faith and credit bonds on Thursday. The deal is rated Aa2 by Moody’s and AA by S&P.  On Monday Wayzata, Minnesota plans to sell $135.75MM of taxable GO school building and alternative facilities refunding bonds, Series 2021A (Minnesota School District Credit Enhancement Program) on Monday. On Tuesday, Santa Clara, California, is set to sell $337.7MM of lease revenue bond. The deal is rated AA+ by S&P and AA by Fitch. Also on Tuesday, Hillsborough County, Florida, is set to sell $152.0MM of utility revenue bonds and $17.7MM of utility revenue refunding bonds. The offerings are rated Aaa by Moody’s and Fitch and AA+ by S&P. Also, this week, Clark County School District, Nevada, is set to sell $200.0MM of GO bonds, rated A1 by Moody’s, and A+ by S&P.  Finally, the City of Seattle, Washington will sell $261.6MM of municipal light and power improvement and refunding revenue bonds. The deal is rated Aa2 by Moody’s and AA by S&P.


Municipal Bond Funds Posted Inflows for a 16th Week in a Row

Investors in municipal bond put cash into funds for a 16th week in a row, as tax-exempt weekly reporting funds experienced inflows of $1.913B in the latest week, after experiencing inflows of $1.85B 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 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-, two-, three- and five-year maturities all widened, with the largest widening occurring in the one-year maturity, seven bps.  Meanwhile, the week-over-week BQ spreads on the 10-, 15-, and 30-year maturities all tightened, with the largest tightening occurring in the 30-year maturity, seven bps.


Daily Overview of the General Market for the Week Ending June 25th

On Monday municipals prices were steady, as the first of the trading week’s $10.19B 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 were mixed on Monday, as U.S. Stocks prices jumped for the session. The three major indexes recovered some of last week’s steep losses, as the initial jolt following the Federal Reserve’s updated outlook for rates, subsided. The Dow was up 587 points or 1.8% and had its best day since March. Last week, the index logged a weekly loss of more than 3% in its worst showing since October. The S&P was up 1.4% and the NASDAQ was up 0.8%. On the day, the yield on the two-year maturity rose one bp, while the yield on the 10-year maturity rose five bps and the yield on the 30-year maturity rose 10 bps. The 10-year municipal-to-Treasury ratio fell to 64.0% on Monday from last Friday’s level of 66.2%, while the 30-year municipal-to-Treasury ratio fell to 68.7% on Monday from last Friday’s level of 72.1%.

On Tuesday municipals prices were mixed, as several large new-issue offerings came to market including the $1.858B offering of tax and revenue anticipation notes (TRANs) from the City of Los Angeles, California, while in the long-term market the New York State Housing Finance Agency repriced with a mix of bumps and cuts a total of $209.6MM in four series of affordable housing bonds and the City of San Antonio, Texas, priced $272.9MM of water system junior lien revenue and 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 rose two bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys strengthened on Tuesday, as U.S. stocks extended gains for the session, with equities steadying following concerns over the path forward for monetary policy. The Dow was up 68 points or 0.2%, while the S&P was up 0.5% and the NASDAQ was up 0.8%. 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 ratio rose to 66.2% on Tuesday from last Monday’s level of 64.0%, while the 30-year municipal-to-Treasury ratio rose to 70.0% on Tuesday from last Monday’s level of 68.7%.

Last Wednesday municipals prices were mixed, as a number of deals came to market including the $300.0MM offering from the State of Connecticut Health and Educational Facilities Authority of Yale University revenue bonds and in the competitive arena, the $210.5MM offering by the Georgia Road and Tollway Authority of managed lane system guaranteed revenue bonds sold. On the day, the yield on the two-year GO bond was unchanged, while the yield on the 10-year GO bond rose three bps and the yield on the 30-year GO bond rose five bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys weakened on Wednesday, as U.S. stock prices ended mixed for the session. The Dow was down 71 points or 0.2%, while the S&P was down 0.1%, and the NASDAQ was up at 0.1%. On the day, the yields on the two-and 30-year maturities each rose one bp, while the yield on the 10-year maturity rose two bps. The 10-year municipal-to-Treasury ratio rose to 67.3% on Wednesday from Tuesday’s level of 66.2%, while the 30-year municipal-to-Treasury ratio rose to 72.0% on Wednesday from Tuesday’s level of 70.0%.

Last Thursday municipals prices were steady across the curve, as the last of the week’s new-issue offerings came to market including the Pennsylvania Turnpike Authority’s $387.9MM offering of turnpike revenue bond and the Northwest Independent School District, Texas, offering of $183.4MM unlimited tax school building bonds that were repriced with a mix of bumps and cuts from its initial offering. 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 Thursday, while U.S. stocks rose to record levels for the session, as investors digested another batch of key economic data and an announcement from President Joe Biden that he had reached a bipartisan infrastructure agreement with Senate lawmakers. The Dow was up 322 points or 1.0%, while the S&P was up 0.6% 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 fell one bp. The 10-year municipal-to-Treasury ratio rose to 67.8% on Thursday from Wednesday’s level of 67.3%, while the 30-year municipal-to-Treasury ratio rose to 72.4% on Thursday from Wednesday’s level of 72.0%.

Last Friday municipal prices were steady, as market participants were looking ahead to the $7.27B in expected new-issue offerings in the upcoming 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.

U.S. Treasury prices weakened on Friday, while U.S. Stocks prices were mixed for the session. The Dow was up 237 points or 0.7%, and the S&P was up 0.3%, while the NASDAQ was barley down 0.06%. On the day, the yield on the two-year maturity rose two bps, while the yield on the 10-year maturity rose five bps and the yield on the 30-year maturity rose six bps. The 10-year municipal-to-Treasury ratio fell to 65.6% on Friday from Thursday’s level of 67.8%, while the 30-year municipal-to-Treasury ratio fell to 70.4% on Friday from Thursday’s level of 72.4%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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