Muni Update

March 1, 2021


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


Municipal Market Recap

Municipal prices weakened on Monday by as much as 10 basis points (bps) on bonds maturing six years and longer on the curve, as selling pressures increased and investors demanded more yield. On Tuesday municipal prices fell for the sixth day in a row, pushing yields on the 10-year Triple-A GO maturity above 1.0%, a yield level not seen since May 2020. On Wednesday municipal prices were mixed, as the front-end was steady while prices on bonds maturing 10 years and longer weakened. On Thursday municipal prices weakened across the curve. On Friday municipal prices were steady across the curve.

Municipal new-issue volume for February fell year-over-year, and while issuance was down from 2020, it was higher than January’s and only the fifth time in 35 years that volume exceeded $30.0B in February. Total volume fell 27.5% to $30.608B in February 2021 from $42.229B in February 2020. It is down 24.2% in the first two months of 2021. February issuance was still higher than January’s $24.023B. Tax-exempt financings fell 34.8% to $19.569B in February from $29.998B a year earlier while taxable issuance fell 9.4% to $10.316B from $12.010B in 2020. In January tax-exempt financings fell 32.6% to $14.662B and taxable issuance fell 18.6% to $6.740B. Note, however, that taxable issuance rose as a percentage of issuance in February 2021, at 36% of the month’s total, it was only 28% in 2020.

The projected level of new-issue offerings for the trading week are $6.2B and coupled with bank qualified (BQ) and general market (GM) offerings in the secondary market should provide market participants with some opportunities to fill their needs, especially as strong demand continues due to redemption activity, and overall inflows into funds, both of which have been contributing to demand continuing to outpace supply the year. For the latest reporting period, investors in municipal bond funds put cash into funds for a 16th week in a row, as evidenced by the latest tax-exempt weekly reporting funds data showing that funds experienced inflows of $37.683MM in the latest week, after experiencing inflows of $1.96B the week prior. The four-week moving average remained positive at $1.553B, after being in the green at $2.242B the week prior.

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 0.19%, 1.14%, and 1.80%, respectively. Overall, week-over-week the yield on the two-year general obligation (GO) bond rose seven bps, while the yield on the 10-year GO bond rose 27 bps and the yield on the 30-year GO bond rose 28 bps.

Last week the yields on the two-and 30-year maturities on the MMA Triple-A Scale were unchanged from Thursday to Friday and ended the week at 0.41% and 1.97, respectively. Meanwhile, the yield on the 10-year maturity rose one bp on the MMD Triple-A Scale from Thursday to Friday and ended the week at 1.40%. Overall, week-over-week the yield on the two-year GO bond rose 12 bps, while the yield on the 10-year GO bond rose 22 bps and the yield on the 30-year GO bond rose 25 bps.


New-Issue Volume is Forecasted to be Around $6.2B for the Week

Total new-issue offerings for the trading week per IHS Markit Ipreo are estimated to be $6.2B. This week’s projected bond issuance is comprised of $4.3B in negotiated deals and $1.9B in competitive sales. Leading the way this week will be the $1.25B offering of New York City GO bonds in three series. The largest series will consist of $900.0MM of Fiscal 2021 Series F and Subseries F-1; to be followed by the $240.0MM Fiscal 2021 Series 1 reoffering; and $109.1MM Fiscal 2008 Series L Subseries L-5 reoffering. The bonds are rated Aa2 by Moody’s Investors Service (Moody’s), AA by Standard and Poor’s Global Ratings (S&P), and AA- by Fitch Ratings (Fitch).

Other notable deals this week include but are not limited to the following offerings. The University of Chicago is set to offer $609.6MM of taxable corporate CUSIP fixed-rate bonds. The deal is rated Aa2 by Moody’s, AA- by S&P, and AA+ by Fitch. The State of Ohio plans to offer $564.2MM of GOs in both new money offerings and refunding offerings. The new-money series will include $226.4MM of Series SCH-A bonds and $107.8MM of Series SCH-B bonds. The refunding series will consist of $204.9MM Series HE-A and a $25.0MM of taxable bonds. The San Francisco Bay Area Toll Authority (Authority) plans to come to market with two deals this week. The first offering is a $372.3MM deal consisting of three series. A term rate Series A that includes $124.0MM of term rate bonds; the Series B includes $156.8MM of index rate bonds; and Series F-1 includes $91.5MM of fixed rate bonds. The authority’s other deal is $354.3MM offering consisting of federally taxable fixed-rate bonds in a single 2021 Series F-2. The offerings are rated Aa3 by Moody’s and AA by S&P and Fitch. Finally, the Texas Public Finance Authority will issue $326.0MM of lease revenue bonds for the Texas Department of Transportation-Austin Campus Consolidation Project. The taxable series 2021 bonds are structured to mature from 2022 to 2041.

In the competitive market, Baltimore County, Maryland, is set to sell three deals this week on Wednesday. The first is set for 9:45 a.m. and will consist of $145.0MM of tax-exempt unlimited tax GO bonds maturing form 2022-2041. The second will be at 11 a.m. and will consist of $219.6MM of taxable GOs maturing form 2021-2032 and the last will be at 11:15 a.m. and will consist of $88.0MM of taxable bonds maturing from 2022-2041. Also, on Wednesday, the New York City plans to sell $107.0MM of taxable GOs and the City of Cambridge, Massachusetts, plans to sell $106.0MM of GOs.


Municipal Bond Funds Posted Inflows for an 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 $37.683MM in the latest week, after experiencing inflows of $1.96B the week prior. The four-week moving average was a positive $1.554B, after being in the green $2.242B the week prior.

Long-term municipal bond funds had outflows of $237.902MM in the latest week after experiencing inflows of $1.374B the week prior. Intermediate-term funds had inflows of $224.436MM after inflows of $332.887MM the week prior. National funds had inflows of $22.570MM after experiencing inflows of $1.800B the week prior. High-yield municipal funds reported outflows of $330.188MM in the latest week, after inflows of $577.723MM the week prior. Exchange traded funds reported outflows of $327.487MM, after inflows of $353.171MM 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. This significant demand is being driven in large part by investors having to replace rolloffs due to continued strong redemption activity. Larger BQ participants (in particular C-Corps), continue to find attractive opportunities, both in size and structure in general market paper maturing, due in part to the lower tax rates from tax reform, attractive spreads, and lower costs of funds currently.

While one can currently buy just about anywhere along the curve and pick up spread over U.S. Treasurys, we continue to see bank portfolio managers purchase municipals in the steepest part of the curve (20-30 years range). We further encourage participants to continue to review their portfolio’s and look to sell odd lots, replace distressed credits, and sell lower coupons (e.g., 2%), with long finals to alleviate price volatility in the portfolio. Week-over-week, BQ spreads were mixed, as the spreads on the two-, three-, five-, 10-, 15-, and 30-year maturities all widening, with largest widening occurring in the 10-year maturity, 19 bps. Meanwhile the spread on the one-year maturity tightened, two bps.


Daily Overview of the General Market for the Week Ending February 26th 

Last Monday municipals prices weakened, as the first of the trading week’s $9.97B in new-issue long-term debt was offered. On the day, the yield on the two-year GO bond rose two bps, while the yields on the 10- and 30-year GO bonds each rose 10 bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed on Monday, as were U.S. stock prices for the session, as investors remained optimist over more federal stimulus. The Dow finished up 27 points, or 0.1%, while the S&P was up 0.8% and the NASDAQ was down 2.5%. On the day, the yield on the two-year maturity was unchanged, while the yield on the 10-year maturity rose three bps and the yield on the 30-year maturity rose five bps. The 10-year municipal-to-Treasury ratio rose to 70.8% on Monday from last Friday’s level of 64.9%, while the 30-year municipal-to-Treasury rose to 74.0% on Monday from Last Friday’s level of 71.0%.

Last Tuesday municipals prices weakened, as a variety of new deals came to market. On the day, the yield on the two-year GO bond rose two bps, while the yields on the 10- and 30-year GO bonds each rose five bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed on Tuesday, as were U.S. Stock prices for the session. The Dow was rose 15 points or 0.05%, while the S&P was up 0.1% and the NASDAQ was down 0.5%. On the day, the yields on the two- and 10-year maturities were unchanged, while the yield on the 30-year maturity rose two bps. The 10-year municipal-to-Treasury ratio rose to 74.5% on Tuesday from Monday’s level of 70.8%, while the 30-year municipal-to-Treasury rose to 75.6% on Tuesday from Monday’s level of 74.0%.

Last Wednesday municipals prices were mixed, as a number of new deals were priced including several from the Regents of the University of California and three competitive offerings from the State of Maryland. 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 seven bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys weakened on Wednesday, as U.S. stocks rose for the session. The Dow finished up 424 points or 1.4%, while the S&P was up 1.1% and the NASDAQ was up 1.0%. On the day, the yields on the two-and 10-year maturities each rose one bp, while the yield on the 30-year maturity rose three bps. The 10-year municipal-to-Treasury ratio rose to 79.0% on Wednesday from Tuesday’s level of 74.5%, while the 30-year municipal-to-Treasury ratio rose to 77.7% on Wednesday from Tuesday’s level of 75.6%.

Last Thursday municipals prices weakened, resulting in municipal yields continuing their ascent, as the last of the week’s new-issue offerings came to market. On the day, the yield on the two-year GO bond rose three bps, while the yield on the 10-year GO bond rose five bps and the yield on the on the 30-year GO bond rose six bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices also weakened on Thursday, as prices on U.S. stocks fell for the session. The Dow was down 560 points or 1.8%, while the S&P was down 2.5% and the NASDAQ was down 3.6%. On the day, the yield on the two-year maturity rose five bps, while the yield on the 10-year maturity rose 16 bps and the yield on the 30-year maturity rose nine bps. The 10-year municipal-to-Treasury ratio fell to 74.0% on Thursday from Wednesday’s level of 79.0%, while the 30-year municipal-to-Treasury ratio slipped to 77.3% on Thursday from Wednesday’s level of 77.7%.

Last Friday municipal prices were mixed, as market participants started looking ahead to the $6.2B in expected new-issue offerings next 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 strengthened on Friday, while U.S. stocks prices were mixed for the session. The Dow was down 470 points, or 1.5%, while the S&P was down 0.5% and the NASDAQ was up 0.6%. On the day, the yield on the two-year maturity fell three bps, while the yield on the 10-year maturity fell 10 bps and the yield on the 30-year maturity fell 16 bps. The 10-year municipal-to-Treasury ratio rose to 79.2% on Friday from Thursday’s level of 74.0%, while the 30-year municipal-to-Treasury rose to 82.9% on Friday from Thursday’s level of 77.3%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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