Muni Update

March 14, 2022


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


Municipal Market Recap

Municipal bond prices weakened daily last week, and tax-exempt municipal indices fell, but outperformed U.S Treasurys and corporate bond indices. For the trading week, the projected level of new-issue offerings drops to $5.11B. This level of new-issue offerings coupled with bank qualified (BQ) and general market (GM) offerings in the secondary market should provide market participants with a number of opportunities to fill their needs, especially as demand continues to outpace supply.

For the week investors pulled cash out of funds for a fourth week in a row, as tax-exempt weekly reporting funds data showed that funds experienced outflows of $661.675MM in the latest week, after experiencing outflows of $2.824B the week prior. The four-week moving average rose to a negative $1.483B, from a negative $1.264B the week prior.

Last week the yields on the two-, 10-, and 30-year maturities on the MMD Triple-A each rose three basis points (bps) from Thursday to Friday and they ended the week at 1.29%, 1.84%, and 2.26%, respectively. Overall, week-over-week the yield on the two-year general obligation (GO) bond rose 21 bps, while the yields on the 10- and 30-year GO bonds each rose 23 bps.

Last week the yield on the two-year maturity on the MMA Triple-A Scale rose two bps from Thursday to Friday, and it ended the week at 1.16%. Meanwhile the yields on the 10- and 30-yer maturities on the MMA Triple-A Scale each rose three bps from Thursday to Friday and they ended the week at 2.07% and 2.64%, respectively. Overall, week-over-week the yield on the two-year maturity rose 17 bps, while the yield on the 10-year maturity rose 20 bps and the yield on the 30-year maturity rose 23 bps.


New-Issue Volume is Forecasted to be $5.11B for the Trading Week

Total new-issue offerings for the trading week per IHS Markit Ipreo are $5.11B. This week’s projected level of bond issuance is comprised of $4.39B in negotiated deals and $720.0MM in competitive deals. The largest deal of the week will come from the Dormitory Authority of the State of New York (DASNY), which will price $2.314B of general purpose tax-exempt state personal income tax (PIT) revenue bonds, Series 2022A on Tuesday. DASNY will also price $663.32MM of taxable PIT revenue bonds on Tuesday.

Also on Tuesday, the University of Massachusetts Building Authority is set to price $571.84MM of taxable senior bonds; consisting of $351.95MM of project revenue bonds, Series 2022-2, and $219.89MM of refunding revenue bonds, Series 2022-3. The offerings 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). Finally on Tuesday, Los Angeles, California, is set to price $370.345MM of wastewater system subordinate revenue bonds, Refunding Series 2022-C. The deal is rated AA by S&P, Fitch, and Kroll Bond Rating Agency (KBRA).

On Thursday, Francis Howell R-III School District, Missouri is set to price $146.645MM of GO bonds, Series 2022. The deal is rated AA by S&P. Also, on the day-to-day calendar this week are two offerings: $582.74MM of taxable general revenue bonds, Series 2022C from the Regents of the University of Michigan, rated Triple-A by Moody’s and S&P; and a $144.835MM offering of senior revenue and revenue refunding bonds, Series 2022 by the Arizona Sports and Tourism Authority, rated AA by S&P.

In the competitive arena Guilford County, North Carolina will sell two deals on Tuesday. One will be a $120.0MM offering of GO school bonds, Series 2022B at 11 a.m. eastern. The other will be $41.0MM offering of GO public improvement bonds, Series 2022A at 11:30 a.m. eastern Tuesday. The deals are rated Triple-A by Moody’s, S&P and Fitch.


Municipal Bond Funds Posted Outflows for a Fourth Week in a Row

Investors in municipal bond pulled cash out of funds for the week, as tax-exempt weekly reporting funds experienced outflows of $661.675MMB in the latest week, after experiencing inflows of $2.824B the week prior. The four-week moving average rose to a negative $1.483B, after being a negative $1.264B the week prior.

Long-term municipal bond funds had outflows of $949.807MM in the latest week, after experiencing outflows of $2.215B the week prior. Intermediate-term funds had outflows of $184.604MM after outflows of $465.469MM the week prior. National funds had outflows of $463.062MM after experiencing outflows of $2.528B the week prior. High-yield municipal funds reported outflows of $320.241MM in the latest week, after outflows of $818.318MM the week prior. Exchange traded funds reported outflows of $571.671MM, after inflows of $62.672MM the week prior.


Demand in the Bank Qualified (BQ) Market Remains Strong

BQ participants continue to be focused on potential opportunities and with this week’s level of both BQ and general market (GM) new-issue paper, together with secondary market offerings, should provide BQ market participants with opportunities to fill their needs as demand remains strong. This strong demand for all types of municipal paper is being driven in large part by investors having to replace rolloffs due to continued strong redemption activity and until the past few weeks, strong demand by funds for paper. We note now that customers should be watching the current outflows from funds, because the bond funds will have to “liquidate” or sell to meet redemptions and when they do, they typically sell their high-grade credits to get the most value possible when liquidating. This may create opportunities for our bank customers.

We encourage participants to continue to review their portfolio and clean-up any odd lots (on-going monitoring of line items), as well as credit clean-up for any credits on negative credit watches or recent downgrades. Finally, extension swaps continue to present an opportunity to sell short duration municipals and extend on out the yield curve, while maintaining or improving the overall credit quality of the portfolio, especially, as overall credit quality continues to stabilize and improve in the municipal market. Tax loss swaps are also presenting opportunities, as are fixed-to-floating rate swaps, especially in the expected rising rate environment we face. Week-over-week, BQ spreads tightened across the curve, with the largest tightening occurring in the 15-year maturity, 31 bps.


Daily Overview of the General Market for the Week Ending March 11th

On Monday municipal prices weakened, as the first of the trading week’s $10.41B 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 five bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys also weakened on Monday, while U.S. stocks fell for the session. The Dow finished down 797 points or 2.4%, while the S&P was down 3.0% 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 four bps and the yield on the 30-year maturity rose three bps. The 10-year municipal-to-Treasury ratio rose to 93.3% on Monday from last Friday’s level of 92.5%, while the 30-year municipal-to-Treasury ratio rose to 95.0% on Monday from last Friday’s level of 94.0%.

On Tuesday municipal prices weakened across the curve, as a number of negotiated and competitive new-issue offerings came to market. On the day, the yield on the two-year GO bond rose four 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 also weakened on Tuesday, as U.S. stocks rose for most of the session before turning negative and falling into the red by the close of the session. The Dow finished down 184 points or 0.6%, while the S&P was down 0.7% and the NASDAQ was down 0.3%. On the day, the yields on the two- and 10-year maturities each rose eight bps, while the yield on the 30-year maturity rose five bps. The 10-year municipal-to-Treasury ratio fell to 92.0% on Tuesday from Monday’s level of 93.3%, while the 30-year municipal-to-Treasury was unchanged on Tuesday from Monday level of 95.0%.

On Wednesday municipals bond prices weakened, as a number of new-issue offerings came to market, including the largest deal of the week, the $2.229B offering by the State of California of GO bonds in two series. On the day, the yields on the two-, 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 also weakened on Wednesday, while U.S. stocks rose for the session. The Dow finished up 654 points or 2.0%, while the S&P was up 2.6% and the NASDAQ was up 3.6%. On the day, the yields on the two- and 30-year maturities each rose five bps, while the yield on the 10-year maturity rose eight bps. The 10-year municipal-to-Treasury ratio fell to 90.7% on Wednesday from Tuesday’s level of 92.0%, while the 30-year municipal-to-Treasury bumped up to 95.2% on Wednesday from Tuesday’s level of 95.0%.

On Thursday, municipal prices weakened once again across the curve, 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 seven 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.

U.S. Treasury prices were weaker on Thursday, while U.S. stocks fell for the session. The Dow finished down 113 points or 0.3%, while the S&P was down 0.4% and the NASDAQ was down 1.0%. On the day, the yields on the two- and 10-year maturities each rose four bps, while the yield on the 30-year maturity rose nine bps. The 10-year municipal-to-Treasury ratio rose to 91.4% on Thursday from Wednesday’s level of 90.7%, while the 30-year municipal-to-Treasury ratio fell to 93.7% on Thursday from Wednesday’s level of 95.2%.

Last Friday municipals prices weakened across the curve, as market participants looked ahead to the $5.11B in expected new-issue offerings in the upcoming trading week and the two-day Federal Open Market Committee (FOMC) meeting and its rate announcement on Wednesday. On the day, the yields on the two-, 10-, and 30-year GO bonds each rose three bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were mixed to close the week, as U.S. stocks fell for the session. The Dow was down 230 points or 0.7%, while the S&P was down 1.3% and the NASDAQ was down 2.2%. On the day, the yield on the two-year maturity rose three bps, while the yield on the 10-year maturity rose two bps and the yield on the 30-year maturity fell two bps. The 10-year municipal-to-Treasury ratio rose to 92.0% on Friday from Thursday’s level of 91.4%, while the 30-year municipal-to-Treasury rose to 95.8% on Friday from Thursday’s level of 93.7%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks

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