Muni Update

March 11, 2019


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

 

Municipal Market Recap

Municipal prices were steady on Monday and Tuesday across the curve. They were mixed the rest of the week. The front-end was steady, while prices on bonds maturing 10 years and longer strengthened daily. Issuance this week is forecasted to be $5.5B, which is above last week’s revised level of $4.5B in issuance. The new issue calendar coupled with bid lists should provide market participants with opportunities to fill their needs, as municipals remain in demand. Driving this strong demand is a combination of high redemption flows and the municipal bond mutual funds.

Investors in municipal bond funds put cash into funds for an ninth week, as weekly reporting funds experienced inflows of $797.501MM after experiencing inflows of $1.705B the week prior. The four-week moving average was a positive $1.355B, after being a positive $1.444B the week prior. Investors still facing low rates overseas continue to find higher-yielding U.S. assets attractive. Municipal demand continues to remain strong and has allowed municipals to out-perform U.S. Treasuries last week. According to CreditSights, “Municipal demand has been strong and allowed municipals to out-perform U.S. Treasuries last week. Benchmark muni yields moved slightly higher last week, but by less than Treasuries did, and as a result, the municipal/Treasury yield ratios got even richer than they were before.”

Benchmark municipal yields moved slightly higher last week, but by less than Treasuries did, and as a result, the municipal/Treasury yield ratios got even richer than they were before. 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 was steady from Thursday to Friday and ended the week at 1.58%. Meanwhile the yield on the 10-year maturity fell two basis points (bps) and the yield on the 30-year maturity fell three bps on the MMD Triple-A Scale from Thursday to Friday and they ended the week at 2.06% and 2.89%, 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 fell seven bps and the yield on the 30-year GO bond fell 11 bps.

Last week the yield on the two-year maturity on the MMA Triple-A Scale was unchanged from Thursday to Friday and ended the week at 1.63%. Meanwhile, the yield on the 10-year maturity fell one bp and the yield on the 30-year maturity fell two bps on the MMA Triple-A Scale from Thursday to Friday and they ended the week at 2.31% and 3.00%, respectively. Overall, week-over-week the yield on the two-year GO bond fell two bps, while the yield on the 10-year GO bond fell six bps and the yield on the 30-year GO bond fell eight bps.

 

New Issue Volume is Forecasted to be $5.84B for the Week

Total issuance for the trading week per IHS Markit Ipreo is estimated to be $5.5B, which is above last week’s trading volume of $4.5B in issuance, according to revised data from Refinitiv. This level of issuance, like last week’s should be well received by market participants due to continued strong demand driven in large part by high redemptions. This week’s trading calendar is comprised of $4.0.B in negotiated offerings and $1.5B in competitive offerings.

Topping the calendar this week is a $654.0MM deal from the Regents of the University of California scheduled for Tuesday. The general revenue Series 2019 BB tax-exempts and Series 2019 BC & BD taxable bonds are rated Aa2 by Moody’s Investors Service (Moody’s), and AA by S&P Global Ratings (S&P) and Fitch Ratings (Fitch). Also on tap this week is a $370.0MM deal from the Lower Colorado River Authority (LCRA) in Texas. The refunding revenue bonds for the LCRA Transmission Services Corporation will price on Wednesday and are rated A by S&P and A+ by Fitch.

In the competitive market, New York State is selling $115.69MM of Series 2019A tax-exempt new-money transportation, education and environmental purposes GO bonds on Wednesday. While in the short-term market, the New York Metropolitan Transportation Authority (MTA), rated F1+ by Fitch, is competitively selling $750.0MM of Series 2019A dedicated tax fund bond anticipation notes on Tuesday.

 

Municipal Bond Funds Post Inflows for a Ninth Week

Investors in municipal bond funds put cash into funds for a ninth week, according to the latest data from Lipper. The weekly reporting funds saw inflows of $797.501MM, after experiencing inflows of $1.705B the week prior. The four-week moving average was a positive $1.335B, after being a positive $1.444B the week prior.

Long-term municipal bond funds had inflows of $372.940MM in the latest week after experiencing inflows of $1.110B the week prior. Intermediate-term funds had inflows of $350.599MM after inflows of $469.295MM the week prior. National funds had inflows of $70.193MM after experiencing inflows of $1.515B the week prior. High-yield municipal funds reported inflows of $373.681MM in the latest week, after inflows of $472.731MM the week prior. Exchange traded funds reported inflows of $84.664MM, after inflows of $144.0MM the week prior.

 

Demand in the Bank Qualified (BQ) Market Remains Strong

Last week, the BQ market had good activity, due in part to opportunities in both BQ and general market (GM) new issue and secondary market bid lists. With rolloffs expected to continue at a brisk pace, BQ participants will continue to have significant demand for BQ paper. The continued low level of projected new issue BQ paper at this time, has some market participants looking to GM opportunities in both the primary and secondary markets to provide them with additional chances to address their needs, while picking up attractive structures (4.0% coupons), especially those in the long-end of the curve (15+ years). Participants should also continue to utilize extension swaps, as the bid side for municipals continues to remain strong. Week-over-week, bank qualified spreads widened, with the largest widening occurring in the 5- and 10-maturities, 13 bps each.

 

Daily Overview of the General Market for the Week Ending March 8th

Last Monday prices on municipals were steady, as market participants were looking forward to the $5.84B in new issue offerings scheduled for the 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. Treasuries were mixed, as U.S. equities jumped at the opening after a Wall Street Journal report that the U.S. and China were “in the final stage of completing a trade deal,” boosted global stock prices overnight. However, the Dow’s first tick was its best, and the major indices pulled back throughout the morning. The Dow closed 0.8% lower, while the S&P 500 and NASDAQ finished down 0.4% and 0.2%, respectively. On the day, the yield on the two-year maturity was unchanged, while the yields on the 10- and 30-year maturities each fell four bps. The 10-year municipal-to-Treasury ratio rose to 78.3% on Monday from last Friday’s level of 77.2%, while the 30-year municipal-to-Treasury ratio rose to 97.1% on Monday from last Friday’s level of 95.9%.

Last Tuesday prices on municipals were steady again, as the first of the week’s new issues came to 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.

Prices on U.S. Treasuries were mixed, as U.S. stocks flipped between gains and losses for the session, barely budging from their opening levels once the final trades had posted. The Dow slipped 0.05% while the S&P 500 was down 0.11% and the NASDAQ ticked down by an even smaller amount. On the day, the yields on the two- and 10-year maturities were unchanged, while the yield on the 30-year maturity fell one bp. The 10-year municipal-to-Treasury ratio was unchanged on Tuesday from Monday’s level of 78.3%, while the 30-year municipal-to-Treasury ratio bumped up to 97.4% on Tuesday from Monday’s level of 97.1%.

Last Wednesday prices on municipals were mixed, as New York City and the State of California priced their deals for institutional investors. On the day, the yield on the two-year GO bond was steady, while the yield on the 10-year GO bond fell two bps and the yield on the 30-year GO bond fell three bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasuries were stronger on the day, as U.S. stocks finished the session down. The S&P 500 fell 0.7%, the Dow dipped a smaller 0.5% while the NASDAQ fell just under 1.0%. 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 bumped up to 78.4% on Wednesday from Tuesday’s levels of 78.3%, while the 30-year municipal-to-Treasury ratio slipped to 97.1% on Wednesday from Tuesday’s level of 97.4%.

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 steady, while the yield on the 10-year GO bond fell three bps and the yield on the 30-year GO bonds fell five bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices finished the day stronger, as U.S. stocks finished the session down. The Dow was down 0.78%, while the S&P was down 0.81% and the NASDAQ fell 0.85%. On the day, the yields on the two- and 10-year maturities each fell five bps, while the yield on the 30-year maturity fell three bps. The 10-year municipal-to-Treasury ratio bumped up 78.8% on Thursday from Wednesday’s levels of 78.4%, while the 30-year municipal-to-Treasury fell to 96.4% on Thursday from Wednesday’s level of 97.1%.

Last Friday, prices on municipals were mixed again, as market participants were looking ahead to the coming trading week’s $5.5B in new issue offerings. On the day, the yield on the two-year GO bond was unchanged, while the yield on the 10-year GO bond fell two bps and the yield on the 30-year GO bond fell three bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices again finished the day stronger, as each of the three major U.S. indices posted minimal losses for the session, with the NASDAQ leading the way with 0.74% decrease. 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 three bps. The 10-year municipal-to-Treasury slipped to 78.6% on Friday from Thursday’s level of 78.8%, while the 30-year municipal-to-Treasury ratio was relatively unchanged on Friday from Thursday’s level of 96.4%.

 

 

Taxable Market







Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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