Muni Update

March 15, 2021


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


Municipal Market Recap

Municipal prices started the week steady across the curve. On Tuesday municipal prices strengthened across the curve. On Wednesday municipal prices were mixed, as prices on the front-end were steady, while prices on bonds maturing 10 years and longer strengthened. On Thursday municipal prices strengthened across the curve. On Friday municipal prices were steady across the curve, outperforming the sell-off in U. S Treasurys.

The projected level of new-issue offerings for the trading week are $11.71B and coupled with bank qualified (BQ) and general market (GM) offerings in the secondary market should provide market participants with numerous opportunities to fill their needs, especially as demand continues due to redemption activity, and overall inflows into funds, both of which have been contributing to demand continuing to outpace supply so far for the year. For the latest reporting period, investors in municipal bond funds put cash into funds, as tax-exempt weekly reporting funds data showed that funds experienced inflows of $1.092B in the latest week, after experiencing outflows of $600.044MM the week prior. The four-week moving average remained positive at $620.074MM, after being in the green at $1.008B 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 0.09%, 1.02%, and 1.65%, respectively. Overall, week-over-week the yield on the two-year general obligation (GO) bond fell four basis points (bps), while the yield on the 10-year GO bond fell nine bps and the yield on the 30-year GO bond fell 11 bps.

Last week the yields on the two- and 10-year maturities on the MMA Triple-A Scale each rose one bp from Thursday to Friday and ended the week at 0.31% and 1.29%, respectively. Meanwhile, the yield on the 30-year maturity rose two bps on the MMA Triple-A Scale from Thursday to Friday and ended the week at 1.85%. Overall, week-over-week the yield on the two-year GO bond fell four bps, while the yields on the 10- and 30-year GO bonds each fell seven bps.


New-Issue Volume is Forecasted to be Around $11.71B for the Week

Total new-issue offerings for the trading week per IHS Markit Ipreo are estimated to be $11.71B. This week’s projected bond issuance is comprised of $10.03B in negotiated deals and $1.68B in competitive sales. Leading the way this week will be the $2.2B offering of Series 2021A tax-exempt personal income tax (PIT) bonds by the Dormitory Authority of the State of New York (DASNY) on Thursday. The deal is rated AA+ by Standard and Poor’s Global Ratings (S&P) and Fitch Rating (Fitch). In addition, DASNY will offer $210.2MM of federally taxable PIT bonds on Wednesday.

The State of Illinois plans to offer $1.25B of GO notes structured in three series; $850.0MM in 2021A, $150.0MM in Series B, and $259.9MM in refunding Series C bonds. The offering will be priced on Tuesday and is Baa3 by Moody’s Investors Service (Moody’s). The Missouri Health and Educational Facilities Authority plans to offer $805.0MM of health facilities revenue bonds on behalf of BJC Health System on Thursday, also consisting of three series of bonds. The deal is rated Aa2 by Moody’s and AA by S&P.

On Tuesday, the California Housing Finance Agency is slated to sell $522.6MM of Series 2021-1 Class X certificates, which are variable-rate, partially tax-exempt, and not subject to the alternative minimum tax. The bonds, which are structured to mature as a bullet maturity in 2035, are rated BBB+ by S&P. Staying on the west coast, the State of Oregon will issue $453.5MM of GO bonds in three tax-exempt series this week. The structure consists of a $307.96MM of Series A bonds, $49.84MM of Series D bonds, and $95.78MM of Series E bonds. The bonds are rated Aa1 by Moody’s and AA+ by S&P and Fitch. Oregon will also sell $173.54MM of federally taxable GOs on Tuesday. The City of Huntington Beach, California, meanwhile, will sell $363.62MM of Series 2021 taxable pension obligation bonds. The deal is rated AA+ by S&P and Fitch.

Back in the Northeast, the University of Massachusetts Building Authority will sell $317.32.0MM of refunding revenue bonds in Senior Series 2021-1 on Wednesday. The bonds are rated Aa2 by Moody’s, AA-minus by S&P, and AA by Fitch. The New York Transportation Development Corporation will sell $269.33MM of tax-exempt facility revenue bonds, Series 2021, which are subject to the alternative minimum tax (AMT). The deal is rated BBB- by Fitch. The Louisville/Jefferson County, Kentucky, Metropolitan Government is on tap to sell $198.0MM of pollution control revenue bonds, for the Louisville Gas & Electric Company Project. The bonds are rated A1 by Moody’s and A by S&P. Trimble County, Kentucky, meanwhile, will also sell pollution control revenue bonds for the Louisville Gas and Electric Company Project in a remarketing of $128.0MM of Series 1 and $35.0MM in Series 2 and 3.


Municipal Bond Funds Posted Inflows for the Week

Investors in municipal bond put cash into funds, as tax-exempt weekly reporting funds experienced inflows of $1.092B in the latest week, after experiencing outflows of $600.044MM the week prior. The four-week moving average remained positive at $620.074MM, after being in the green $1.008B the week prior.

Long-term municipal bond funds had outflows of $663.006MM in the latest week after experiencing outflows of $667.421MM the week prior. Intermediate-term funds had inflows of $167.189MM after inflows of $69.248MM the week prior. National funds had inflows of $1.065B after experiencing outflows of $455.823MM the week prior. High-yield municipal funds reported inflows of $429.806MM in the latest week, after outflows of $721.728MM the week prior. Exchange traded funds reported inflows of $231.736MM, after outflows of $181.222MM 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.

We continue to encourage participants to utilize extension swaps, as a way to pick up more yield with little to no drop-off in credit quality. We further encourage participants to continue to review their portfolio’s and look to sell odd lots, replace distressed credits. Week-over-week, BQ spreads were mixed, as the two, three, five, 15-, and 30-year maturities all tightened, with the largest tightening occurring in the 15-year maturity, six bps.  Meanwhile the spread on the one-year maturity widened one bp and the week-over-week spread on the 10-year maturity was unchanged.


Daily Overview of the General Market for the Week Ending March 12th 

Last Monday municipals prices were steady, as the first of the trading week’s $9.04B 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 Monday, as U.S. stock prices were mixed for the session. The Dow finished up 306 points, or 1.0%, while the S&P was down 0.5% and the NASDAQ was down 2.4%. On the day, the yields on the two-, 10- and 30-year maturities each rose three bps. The 10-year municipal-to-Treasury ratio fell to 69.8% on Monday from last Friday’s level of 71.2%, while the 30-year municipal-to-Treasury fell to 76.2% on Monday from last Friday’s level of 77.2%.

Last Tuesday municipals prices strengthened, as a variety of new-issue offerings came to market including the retail pricing of $583.0MM of water and sewer system second general resolution revenue bonds for the New York City Municipal Water Finance Authority and $264.8MM of revenue bonds from the Virginia Public Building Authority. On the day, the yield on the two-year GO bond fell two bps, while the yield on the 10-year GO bond fell four bps and the yield on the 30-year GO bond fell five bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed on Tuesday, as U.S. stock prices rose for the session. The Dow was up 29 points or 0.1%, while the S&P was up 1.4% and the NASDAQ was up 3.7%. On the day, the yield on the two-year maturity was unchanged, while the yield on the 10-year maturity fell four bps and the yield on the 30-year maturity fell five bps. The 10-year municipal-to-Treasury ratio fell to 69.0% on Tuesday from Monday’s level of 69.8%, while the 30-year municipal-to-Treasury fell to 75.7% on Tuesday from Monday’s level of 76.2%.

Last Wednesday municipals prices were mixed, as several new-issue offerings were priced including the retail pricing of $1.9B of State of California GO bonds and the institutional pricing of the $583.0MM of water and sewer system second general resolution revenue bonds for the New York City Municipal Water Finance Authority. 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.

Prices on U.S. Treasurys strengthened on Wednesday, as U.S. stocks were mostly higher after new data showed still-muted inflationary pressures in consumer goods, helping assuage fears of a rapid jump in prices during the economic recovery. The Dow finished up 464 points or 1.5%, while the S&P was up 0.6% and the NASDAQ was barely down 0.04% On the day, the yield on the two-year maturity fell one bp, while the yields on the 10- and 30-year maturities each fell two bps. The 10-year municipal-to-Treasury ratio fell to 68.6% on Wednesday from Tuesday’s level of 69.0%, while the 30-year municipal-to-Treasury ratio fell to 75.0% on Wednesday from Tuesday’s level of 75.7%.

Last Thursday municipals prices strengthened across the curve, as the last of the week’s new-issue offerings came to market including the institutional pricing and repricing to lower yields of the $1.9B offering of the State of California GO bond offering. On the day, the yield on the two-year GO bond fell two bps, while the yields on the 10- and 30-year GO bonds each fell three bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were mixed on Thursday, as U.S. equity prices rose for the session. The Dow was up 189 points or 0.6%, while the S&P was up 1.0% and the NASDAQ was up 2.5%. On the day, the yield on the two-year maturity fell two bps, while the yield on the 10-year maturity rose one bp the yield on the 30-year maturity rose five bps. The 10-year municipal-to-Treasury ratio fell to 66.2% on Thursday from Wednesday’s level of 68.6%, while the 30-year municipal-to-Treasury ratio fell to 72.1% on Thursday from Wednesday’s level of 75.0%.

Last Friday municipal prices were steady, as market participants started looking ahead to the $11.71B 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 were mixed on Friday, while U.S. stocks prices rose for the session. The Dow was up 293 points, or 0.9%, while the S&P was barely up 0.01% and the NASDAQ was up 0.6%. On the day, the yield on the two-year maturity was unchanged, while the yield on the 10-year maturity rose 10 bps and the yield on the 30-year maturity rose 11 bps. The 10-year municipal-to-Treasury ratio fell to 62.2% on Friday from Thursday’s level of 66.2%, while the 30-year municipal-to-Treasury fell to 68.8% on Friday from Thursday’s level of 72.1%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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