Muni Update

June 7, 2021


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


Municipal Market Recap

Municipal prices were steady on Tuesday to start the week. On Wednesday municipal prices were mixed, as prices on bonds in the front end were steady, while prices on bonds maturing 10 years and longer strengthened. On Thursday municipal prices were mostly steady across the curve.  On Friday municipal prices were mixed and a repeat of Wednesday’s price action, as prices on the front end were steady, while prices on bonds maturing 10 years and longer strengthened.

The projected level of new issue offerings for the trading week are $10.15B 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 U.S. municipal market’s already-strong 2021 is about to get another boost from a months-long flood of cash that is expected to outstrip sales of new issue securities. In June, July, and August, municipals typically get an infusion of in what is known as reinvestment money and paired with a traditionally lighter stretch of issuance by local governments typically contributes to demand outpacing supply. This year, about $123.0B will flow to investors from maturing bonds in that period, according to Bloomberg. Add in money from calls and interest payments, and bondholders may receive more than $165.0B in total, or roughly $45.0B more than expected new issuance, per CreditSights.

For funds latest reporting period, investors in municipal bond funds put cash into funds for a thirteenth week in a row, as tax-exempt weekly reporting funds data showed that funds experienced inflows of $997.358MM in the latest week, after experiencing inflows of $1.466B the week prior. The four-week moving average remained positive at $984.400MM, after being in the green $881.288MM the week prior.

Last week the yields on the two-year maturity on the MMD Triple-A Scale was unchanged from Thursday to Friday and ended the week at 0.10%. Meanwhile, the yields on the 10- and 30-year maturities on the MMD Triple-A Scale each fell two basis points (bps) from Thursday to Friday and they ended the week at 0.96% and 1.48%, respectively. Overall, week-over-week the yield on the two-year general obligation (GO) bond was unchanged, while the yields on the 10- and 30-year GO bonds each fell three 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 0.18%. Meanwhile, the yields on the 10- and 30-year maturities on the MMA Triple-A Scale each fell two bps from Thursday to Friday and they ended the week at 1.22% and 1.77%, respectively. Overall, week-over-week the yields on the two- and 10-year GO bonds each fell two bps, while the yield on the 30-year GO bond fell three bps.


New-Issue Volume is Forecasted to be $10.15B for the Trading Week

Total new issue offerings for the trading week per IHS Markit Ipreo are estimated to be $10.15BB. This week’s projected level of bond issuance is comprised of $6.95BB in negotiated deals and $3.20B in competitive sales. Topping the list of new deals this week will be the Kaiser Permanente’s Series 2021 taxable and taxable green bonds. It is being reported that if the taxable market is favorable, then up to $2.65B will be sold as corporate CUSIP bonds with 20- and 30-year bullet maturities. If it is decided that a better deal awaits the issuer in the tax-exempt market, the deal will reduce the taxable amount by a like amount to price up to $700.0MM of Series 2022A&B tax-exempt fixed-rate put bonds, with maturities from five- to 10-years with a final 2042 due date, for the California Statewide Communities Development Authority with Kaiser Foundations Hospital as the obligor. The deals are rated AA- by Standard and poor’s Global Ratings (S&P) and Fitch Ratings (Fitch).

In the competitive arena, the State of Georgia plans to sell $1.1B of tax-exempt and taxable GO bonds on Tuesday to provide funding for state capital projects. The state will offer $412.47MM of Series 2021A Bidding Group 1 tax-exempt GOs, $366.47MM of Series 2021A Bidding Group 2 tax-exempts, $174.57MM of Series 2021B Bidding Group 1 taxable GOs, and $153.53MM of Bidding Group 2 taxable bonds. The deals are rated Triple-A by Moody’s Investors service (Moody’s), S&P and Fitch.

In the short-term sector, Los Angeles County is coming to market with a $1.0B Series 2021-2022 tax and revenue anticipation notes (TRANs) deal on Thursday.


Municipal Bond Funds Posted Inflows for a Thirteenth Week in a Row

Investors in municipal bond put cash into funds for an eleventh week in a row, as tax-exempt weekly reporting funds experienced inflows of $725.0MM in the latest week, after experiencing inflows of $750.0MM the week prior. Also, Long-term, intermediate-term, and high yield funds all saw inflows last week, with high yield inflows up 89% week-over-week.


Demand in the Bank Qualified (BQ) Market Remains Strong

Investors in municipal bond put cash into funds for a twelfth week in a row, as tax-exempt weekly reporting funds experienced inflows of $997.358MM in the latest week, after experiencing inflows of $1.466B the week prior. The four-week moving average remained positive at $984.400MM, after being in the green $881.288MM the week prior.

Long-term municipal bond funds had inflows of $565.296MM in the latest week after experiencing inflows of $1.295B the week prior. Intermediate-term funds had inflows of $94.295MM after outflows of $79.795MM the week prior. National funds had inflows of $906.119MM after experiencing inflows of $1.377B the week prior. High-yield municipal funds reported inflows of $372.003MM in the latest week, after inflows of $813.818MM the week prior. Exchange traded funds reported inflows of $132.995MM, after inflows of $180.068MM the week prior.


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 flows 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 will start today June 1 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 17+ year 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- and three-year maturity were unchanged, while the spread on the two-year maturity tightened one bp. Meanwhile week-over-week BQ spreads on the five-, 10-, 15-, and 30-year maturities all widened, with the largest widening occurring in the 10-, 15-, and 30-year maturities, 4 bps each.


Daily Overview of the General Market for the Week Ending June 4th

Tuesday municipals prices were steady, as they mostly ignored a weaker U.S. Treasury market and the first of the trading week’s $4.661B in new issue long-term 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 weakened on Tuesday, and U.S. stocks turned mixed intraday, paring earlier gains as technology stocks lost steam as the session ended. The Dow was up 47 points or 0.1%, while the S&P was down 0.05%, and the NASDAQ was down 0.1%. On the day, the yield on the two-year maturity rose two bps, while the yields on the 10- and 30-year maturities each rose four bps. The 10-year municipal-to-Treasury ratio fell to 61.1% on Tuesday from last Friday’s level of 62.7%, while the 30-year municipal-to-Treasury ratio fell to 65.7% on Tuesday from last Friday’s level of 66.8%.

Last Wednesday municipals prices were mixed, as a variety of new issue offerings came to make, including the $896.6MM Alternative Minimum Tax (AMT) airport system revenue and refunding bonds, Series 2021A, for the Metropolitan Washington Airports Authority, which was upsized and repriced to lower yields.  Other notable deals that were priced included the $122.5MM of capital grant receipts revenue bonds in two series for the Chicago Transit Authority and the $109.9MM of limited tax exempt and taxable sales tax revenue refunding bonds for the Contra Costa Transportation Authority. 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.

Prices on U.S. Treasurys strengthened on Wednesday, as U.S. stock prices seesawed in the morning only to flatten in the afternoon and struggle for direction to the close. The Dow was up just 25 points or 0.07%, while the S&P and the NASDAQ were each up 0.1%. 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 two bps. The 10-year municipal-to-Treasury ratio rose 61.6% on Wednesday from Tuesday’s level of 61.1%, while the 30-year municipal-to-Treasury ratio bumped to 65.8% on Wednesday from Tuesday’s level of 65.7%.

Last Thursday municipals prices were mostly steady, as ongoing large inflows into the municipal market sustained a firm tone, as interest rates remained on a gradual decline in spite of the volatility in the U.S. Treasury market. 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 Thursday, as U.S. Stocks fell for the session. The Dow was down 23 points or 0.07%, while the S&P was down 0.4%, and the NASDAQ was down at 1.0%. On the day, the yield on the two-year maturity rose three bps, while the yield on the 10-year maturity rose four bps and the yield on 30-year maturities rose two bps. The 10-year municipal-to-Treasury ratio fell to 60.1% on Thursday from Wednesday’s level of 61.6%, while the 30-year municipal-to-Treasury ratio fell to 65.2% on Thursday from Wednesday’s level of 65.8%.

Last Friday municipal prices were mixed, as market participants were also looking ahead to the $10.15B in expected new issue offerings in the upcoming trading week. 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 two bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices strengthened on Friday, as U.S. stocks prices posted gains for the session, as investors digested a mixed report on the state of the U.S. labor market. The Dow was up 179 points or 0.5%, while the S&P was up 0.9% and the NASDAQ was up 1.5%. On the day, the yield on the two-year maturity fell two bps, while the yield on the 10-year maturity fell seven bps and the yield on the 30-year maturity fell six bps. The 10-year municipal-to-Treasury ratio rose to 61.5% on Friday from Thursday’s level of 60.1%, while the 30-year municipal-to-Treasury ratio rose to 66.1% on Friday from Thursday’s level of 65.2%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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