Muni Update

March 16, 2020


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


Municipal Market Recap

Municipal prices started the week stronger across the curve. Starting Tuesday, municipal prices weakened daily across the curve through Thursday. On Friday municipal prices were steady across the curve. Issuance for the trading week is projected to be $5.0B, which is well below last week’s new-issue level. This week’s projected level of new-issue offerings together with secondary market opportunities should provide market participants with a number of opportunities to meet demand, especially given the continued strong demand in the municipal market. Driving this strong demand in the municipal market is the continuing presence of high-redemption flows.

Investors in municipal bond funds pulled cash out of funds for the second week in a row, as weekly reporting funds experienced outflows of $1.760B after experiencing outflows of $249.657B the week prior. The four-week moving average remained positive $505.886MM, after being in the green at $1.478B the week prior. Investors still facing low or negative rates overseas continue to find positive yielding U.S. assets attractive.

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 1.12%, 1.61%, and 2.32%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond rose 59 basis points (bps), while the yield on the 10-year GO bond rose 75 bps and the yield on the 30-year GO bond rose 86 bps.

Last week the yields on the two-, 10-, and 30-year maturities on the MMA Triple-A Scale were unchanged from Thursday to Friday and they ended the week at 1.37%, 1.74%, and 2.40%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond rose 69 bps, while the yield on the 10-year GO bond rose 75 bps and the yield on the 30-year GO bond rose 81 bps.


New-Issue Volume is Forecasted to be $5.0B for the Week

Total new issuance for the trading week per IHS Markit Ipreo is estimated to be $5.0B, which is below last week’s revised level of issuance. This week’s projected issuance is comprised of $4.20B in negotiated deals and $753.0MM in competitive sales. There are a total of 22 deals scheduled that are $100.0MM or larger in par, with six of the $100.0MM or larger deals being taxable or having a taxable tranche.

In a last-minute addition, the New York State Urban Development Corporation added a $1.58B state sales tax revenue refunding bond offering to the calendar. If the deal does come to market it will result in an increase in weekly issuance. The deal is rated Aa1 by Moody’s Investors Service (Moody’s) and AA+ by both Standard and Poor’s Global Ratings (S&P) and Fitch Ratings (Fitch).

In addition to the above deal, there are a growing list of deals that are either scheduled to come this week or on the day-to-day calendar and they include: New Hope Cultural Educational Facilities Financing Corporations $668.95MM of taxable bonds; Kentucky Public Energy Authority’s $536.04MM offering; Stanford Health Care’s $524.417MM of taxable corporate CUSIP bonds; Ohio Water Development Authority’s $450.OMM offering; California County Tobacco Securitization Agency’s $337.207MM offering; City of Ontario, California’s $340.305MM of taxable bonds; State of Wisconsin’s $280.590MM offering of taxable bonds; Florida Development Finance Corporations $233.805MM of federally taxable bonds; Port of Morrow, Oregon’s $190.0MM of federally taxable bonds; San Bernardino Community College District’s $143.250MM offering; Aledo Independent School District, Texas $128.85MM offering; and the Rhode Island Housing and Mortgage Finance Corporation $119.045MM offering.

Deals set to come this week include the Lower Colorado River Authority’s offering of $304.305MM of transmission contract refunding revenue bonds on Tuesday. The deal is rated A by S&P and A+ by Fitch. On Wednesday the New York State Housing Finance Agency plans to offer $319.945MM of affordable housing revenue, refunding and sustainability bonds. Finally, the Great Lakes Water Authority (GLWA) plans to offer $706.675MM of sewage disposal system revenue refunding bonds in two parts. The GLWA intends to take indications of interest on the taxable portion of the deal, which is that make up of most of the deal on Wednesday, with the pricing set for Thursday.


Municipal Bond Funds Post Outflows for the Second Week in a Row

Investors in municipal bond funds pulled cash out of funds for the second time in a row, as tax-exempt weekly reporting funds experienced outflows of $1.760B in the latest week, after experiencing inflows of $249.657MM the week prior. The four-week moving average remained positive at $505.886MM, after being in the green at $1.948B the prior week.

Long-term municipal bond funds had outflows of $1.657B in the latest week after experiencing outflows of $377.862B the week prior. Intermediate-term funds had outflows of $155.616MM after outflows of $6.813MM the week prior. National funds had outflows of $1.623B after experiencing outflows of $204.484MM the week prior. High-yield municipal funds reported outflows of $1.729B in the latest week, after outflows of $128.523MM the week prior. Exchange traded funds reported outflows of $11.302MM after outflows of $156.744MM the week prior.


Demand in the Bank Qualified (BQ) Market Remains Strong

The expected level of new-issue paper this week coupled with secondary market opportunities should provide BQ market participants with opportunities to fill their needs. BQ participants continue to have significant demand for municipal paper due in large part to having to replace rolloffs due to redemptions. Larger 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 at this time. Other market participants continue to find opportunities in both primary offerings and secondary market BQ opportunities, to address their needs. 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. Week-over-week, bank qualified spreads were wider, with the largest widening occurring in the three- and five-year maturities, 70 bps each.


Daily Overview of the General Market for the Week Ending March 13th

Last Monday prices on municipals strengthened, as a number of new-issue offerings hit the market, as the first of the week’s projected $11.01B in new-issue long-term debt was offered. On the day, the yields on the two-, 10-, and 30-year GO bonds each fell eight bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were also strengthened, as U.S. stocks fell sharply on the open, mirroring overnight shifts in futures markets. With the drop on the opening U.S. stocks almost immediately triggered the first circuit breaker stop at down 7% for the day. After a 15-minute pause, equities reopened with a brief bounce that ultimately faded and left the S&P 500 with its largest single-day decline since December 2008. The Dow was down 7.79%, while the S&P was down 7.61% and the NASDAQ was down 7.49%. On the day, the yield on the two-year maturity fell 11 bps, while the yield on the 10-year maturity fell 20 bps and the yield on the 30-year maturity fell 26 bps. The 10-year municipal-to-Treasury ratio jumped to 144.4% on Monday from last Friday’s level of 116.2%, while the 30-year municipal-to-Treasury ratio jumped to 139.4% on Monday from last Friday’s level of 116.8%.

Last Tuesday prices on municipals weakened across the curve, giving back all the prices gains over the last few sessions and then some, as a number of new-issue offerings came to market. On the day the yield on two-year GO bond rose 10 bps, while the yield on the 10-year GO bond rose 13 bps and the yield on the 30-year GO bond rose 16 bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys also weakened, as U.S. stocks seesawed up and down in the morning before rising, as investors weighed the prospects of fiscal stimulus to curb slower economic growth stemming from the coronavirus outbreak. The Dow rose 4.89%, while the S&P rose 4.96% and the NASDAQ rose 4.95%. On the day, the yield on the two-year maturity rose 12 bps, while the yield on the 10-year maturity rose 22 bps and the yield on the 30-year maturity rose 29 bps. The 10-year municipal-to-Treasury ratio fell to 119.7% on Tuesday from Monday’s level of 144.4%, while the 30-year municipal-to-Treasury ratio fell to 120.3% on Tuesday from Monday’s level of 139.4%.

Last Wednesday municipal prices weakened, as the rapidly spreading COVID-19 global pandemic resulted in more than a quarter point correction in Triple-A benchmark yields. A number of new-issue offerings did price, including the $233.0MM offering of revenue refunding bonds for Cornell University by the Dormitory Authority of the State of New York. On the day, the yield on the two-year GO bond rose 22 bps, while the yields on the 10- and 30-year GO bonds each rose 28 bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed, as U.S. stocks sold off sharply, with the Dow falling into a bear market (Dow has fallen 20.0% below its most recent high). The Dow and the S&P closed down 5.86% and 4.89%, respectively, while the NASDAQ closed down 4.70%. On the day, the yield on the two-year maturity was unchanged, while the yield on the 10-maturity was rose six bps and the yield on the 30-maturity rose two bps. The 10-year municipal-to-Treasury ratio jumped to 145.1% on Wednesday from Tuesday’s level of 119.7%, while the 30-year municipal-to-Treasury ratio jumped to 140.0% on Wednesday from Tuesday’s level of 120.3%.

Last Thursday prices on municipals weakened, as the sell-off continued in the municipal market, with Triple-A benchmarks down by 35 bps to 50 bps across the maturity spectrum, as the last of the week’s new-issue offerings were priced. On the day, the yield on the two-year GO bond fell 35 bps, while the yield on the 10-year GO bond fell 42bps and the yield on the 30-year GO bond fell 50 bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were mixed again, as U.S. stocks faced another sharp selloff, as worries about coronavirus and the government’s response to the virus remain major concerns. The Dow and S&P were down, 9.99% and 9.51%, respectively, while the NASDAQ was down 9.43%. On the day, the yield on the two-year maturity was unchanged, while the yield on the 10-year maturity fell rose six bps and the yield on the 30-year maturity rose 19 bps. The 10-year municipal-to-Treasury ratio jumped to 183.0% on Thursday from Wednesday’s level of 145.1%, while the 30-year municipal-to-Treasury ratio rose 155.7% on Thursday from Wednesday’s level of 140.0%.

Last Friday prices on municipals were steady, which was especially noteworthy given that last week all markets faced a historical whirlwind from the spread of COVID-19. Market participants in the meantime were also looking ahead to the expected $5.0B in new-issue long-term debt to be 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.

U.S. Treasury prices were mixed, as U.S. stocks bounced back on the hopes of a fiscal stimulus from the U.S. government and others around the world. The Dow finished up 9.36%, while the S&P was up 9.29% and the NASDAQ closed up 9.35%. On the day, the yield on the two-year maturity fell one bp, while the yield on the 10-year maturity rose six bps and the yield on the 30-year maturity rose seven bps. The 10-year municipal-to-Treasury ratio fell to 171.3% on Friday from Thursday’s level of 183.0%, while the 30-year municipal-to-Treasury ratio fell to 148.7% on Friday from Thursday’s level of 155.7%.


Taxable Market







Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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