Muni Update

June 3, 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 strengthened. On Wednesday municipal prices strengthened across the curve. On Thursday municipal prices were mixed again, and like Tuesday the front-end was steady, while bonds maturing 10 years and longer strengthened. On Friday prices like Wednesday were stronger across the curve. Issuance for the week is forecasted to be $6.99B, which is well above last week’s revised level of $1.97B in issuance, which was expected given last week’s holiday shortened trading week. 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 current 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 21st week, as weekly reporting funds experienced inflows of $918.862MM, after experiencing inflows of $1.502B the week prior. The four-week moving average was a positive $1.298B, after being a positive $1.367B 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 yield on the two-year maturity on the MMD Triple-A Scale fell two basis point (bp) from Thursday to Friday and ended the week at 1.39%. Meanwhile, the yield on the 10-year maturity fell three bps and the yield on the 30-year maturity fell four bps on the MMD Triple-A Scale, and they ended the week at 1.65% and 2.32%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond fell four bps, while the yield on the 10-year GO bond fell seven bps and the yield on the was 30-year GO bond fell 10  bps.

Last week the yield on the two-year maturity on the MMA Triple-A Scale fell one bp from Thursday to Friday and ended the week at 1.42%. Meanwhile, the yield on the 10-year maturity fell two bps and the yield on the 30-year maturity fell three bps on the MMA Triple-A Scale, and they ended the week at 1.86% and 2.49%, respectively. Overall, week-over-week the yield on the two-year GO bond fell four bps, while the yield on the 10-year GO bond fell six bps and the yield on the was 30-year GO bond fell eight bps.


New Issue Volume is Forecasted to be $6.99B for Trading Week

Total new issuance for the trading week per IHS Markit Ipreo is estimated to be $6.99B, which is well above last week’s trading volume of $1.97B in issuance, according to revised data from Refinitiv. This week’s trading calendar is comprised of $4.36B in negotiated offerings and $2.64B in competitive offerings.

Kicking off the week will be a short-term offering from Los Angeles County. The County plans to offer $700.0MM of tax and revenue anticipation notes (TRANs), in a rare negotiated note deal, on Tuesday.  On Thursday, $410.0MM of Series 2019 taxable bonds for American University in Washington, D.C. will be priced. On Wednesday in the competitive arena, Clark County School District, Nevada, will sell $200.0MM of Series 2019A limited tax GO building bonds on Wednesday. Proceeds will be used to acquire, construct, improve, and equip the district’s school facilities. The offering is rated A+ by Standard and Poor’s Global Ratings (S&P). Also on Wednesday, the Commonwealth of Massachusetts will offer $178.245MM of GO refunding bonds.


Municipal Bond Funds Post Inflows for a 21st Week

Investors in municipal bond funds put cash into funds for a 21st week, according to the latest data from Lipper. The weekly reporting funds saw inflows of $918.862MM in the latest week, after experiencing inflows of $1.502B the week prior. The four-week moving average was a positive $1.298B, after being a positive $1.367B the week prior.

Long-term municipal bond funds had inflows of $859.320MM in the latest week after experiencing inflows of $1.008B the week prior. Intermediate-term funds had inflows of $165.568MM after inflows of $428.393MM the week prior. National funds had inflows of $636.857MM after experiencing inflows of $1.306B the week prior. High-yield municipal funds reported inflows of $173.707MM in the latest week, after inflows of $580.780MM the week prior. Exchange traded funds reported inflows of $136.912MM, after inflows of $79.125MM 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 BQ 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. 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 widened, with the largest widening occurring in the 30-year maturity, 18 bps.


Daily Overview of the General Market for the Week Ending May 31st

Last Tuesday prices on municipals were mixed, as market participants prepped for the $2.8B of new issue offerings scheduled for the trading week. 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 fell one bp, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were stronger, as U.S. stocks ended the session lower. The Dow closed down 0.93%, while the S&P 500 was down 0.84% and the NASDAQ dropped 0.39%. On the day, the yield on the two-year maturity fell four bps, while the yield on the 10-year maturity fell six bps and the yield on the 30-year maturity fell five bps. The 10-year municipal-to-Treasury ratio jumped to 75.7% Tuesday from last Friday’s level of 74.1%, while the 30-year municipal-to-Treasury ratio rose to 89.3% on Tuesday from last Friday’s level of 88.0%.

Last Wednesday prices on municipals strengthened across the curve, as the largest deals of the week came to a market and went very quickly. On the day, the yields on the two- and 10-year GO bonds each fell two bps, while 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, as U.S. stocks posted losses for the session. On the day, the yield on the two-year maturity fell three bps, while the yields on the 10- and 30-year maturities each fell one bp. The 10-year municipal-to-Treasury ratio fell to 75.1% on Wednesday from Tuesday’s levels of 75.7%, while the 30-year municipal-to-Treasury ratio fell to 88.1% on Wednesday from Tuesday’s level of 89.3%.

Last Thursday prices on municipals 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 was unchanged, while the yields on the 10- and 30-year GO bonds each fell one bp, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices also finished stronger, as U.S. Stocks recovered from a brief bout of afternoon weakness to end the session higher. On the day, the yields on the two- and 10-year maturities each fell three bps, while the yield on the 30-year maturity fell four bps. The 10-year municipal-to-Treasury rose to 75.7% on Thursday from Wednesday’s level of 75.1%, while the 30-year municipal-to-Treasury ratio rose to 89.1% on Thursday from Wednesday’s level of 88.1%.

Last Friday, prices on municipals strengthened, as market participants were looking ahead to the coming trading week’s $6.99B in new issue offerings. On the day, the yield on the two-year GO bond fell two bps, while the yield on the 10-year maturity fell three bps and the yield on the 30-year GO bond fell four bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices also finished the day stronger, as stock fell for the session due to additional tariff concerns, now with Mexico. On the day, the yield on the two-year maturity fell 11 bps, while the yield on the 10-year maturity fell eight bps and the yield on the 30-year maturity fell seven bps. The 10-year municipal-to-Treasury ratio rose to 77.1% on Friday from Thursday’s level of 75.7%, while the 30-year municipal-to-Treasury rose to 89.9% on Friday from Thursday’s level of 89.1%.


Taxable Market






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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