Muni Update

March 2, 2020



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


Municipal Market Recap

Municipal prices were stronger across the curve on Monday and Tuesday, as fears and concerns over the coronavirus (COVID-19) continue to drive investors’ fears resulting in a continued flight-to-quality (selling off equities and buying bonds). On Wednesday municipal prices were steady across the curve. On Thursday municipal prices strengthened again across the curve. On Friday municipal process were mixed, as bonds maturing 10 years and in strengthened, while the long-end was steady. This haven-seeking rally has pushed up municipal prices so high that yields have crossed a new milestone: Top-rated 10-year debt is paying just 0.98%. That level, the lowest since at least 2011, is less than half what it was a year ago and about half a percentage point below what it was at the start of 2020. Issuance for the trading week is projected to be $8.5B, which is below last week’s new-issue level. However, this level of new-issue offerings coupled with secondary market opportunities should provide market participants with a number of opportunities to meet their needs.

Investors in municipal bond funds put cash into funds for a 60th week, as weekly reporting funds experienced inflows of $2.266B after experiencing inflows of $1.767B the week prior. The four-week moving average was a positive $1.948B, after being in the green at $1.838B the week prior. Investors still facing low or negative rates overseas continue to find higher-yielding U.S. assets attractive. Municipal securities have been bolstered by lower supply and strong demand. All these factors, including investors plowing billions into municipal-bond mutual funds as mentioned above, as well as investors seeking to reduce their tax burden has both traditional and non-traditional market participants continuing to look for opportunities in the U.S. municipal market and driving demand.

Last week the yield on the two-year maturity on the MMD Triple-A Scale fell two basis points (bps) from Thursday to Friday and ended the week at 0.73%. Meanwhile the yield on the 10-year maturity fell one bp and the yield on the 30-year maturity was steady on the MMD Triple-A Scale from Thursday to Friday and they ended the week at 0.93% and 1.52%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond fell eight bps, while the yield on the 10-year GO bond fell 16 bps and the yield on the 30-year GO bond fell 17 bps.

Last week the yields on the two-, 10-, and 30-year maturities on the MMA Triple-A Scale each fell one bp from Thursday to Friday and they ended the week at 0.76%, 1.09%, and 1.65%, respectively. Overall, week-over-week the yield on the two-year GO bond fell 11 bps, while the yield on the 10-year GO bond fell 12 bps and the yield on the 30-year GO bond fell 15 bps.


New-Issue Volume is Forecasted to be $8.5B for the Week

Total new issuance for the trading week per IHS Markit Ipreo is estimated to be $8.5B, which is below last week’s revised level of issuance, but still a solid level of new-issue opportunities to start the month. There is a total of 29 deals scheduled to be over $100.0MM or larger in par, with eight of them competitive. Nine of the $100.0MM or larger deals are taxable or have a taxable tranche.

On Wednesday the City of New York (NYC) is expected to price $860.0MM of tax-exempt general obligation bonds, after a two-day retail order period. The deal is rated Aa1 by Moody’s Investors Service (Moody’s) and AA by Standard and Poor’s Global Ratings (S&P) and Fitch Ratings (Fitch). Also on Wednesday the New Hope Cultural Education Facilities Finance Corporation of Texas plans to offer $668.95MM of non-rated senior living revenue tax-exempt and taxable bonds.

On Thursday the California Earthquake Authority plans to offer $400.0MM of federally taxable revenue bonds. No ratings have been released on this offering as of the writing of this report.

In the competitive arena, the State of Maryland is scheduled to sell a total of $779.27 million of GO and taxable GO bonds in four separate sales this week. The deals are rated triple-A by Moody’s, S&P and Fitch.  NYC is addition to its above mentioned negotiated offering on Wednesday, will also be selling $500.0MM of taxable GO bonds in the competitive market on Wednesday.


Municipal Bond Funds Post Inflows for a 60th Week

Investors in municipal bond funds put cash into funds for a 60th week, as tax-exempt weekly reporting funds experienced inflows of $2.266B in the latest week, after experiencing inflows of $1.767B the week prior. The four-week moving average was a positive $1.948B, after being in the green at $1.838B the prior week.

Long-term municipal bond funds had inflows of $1.674B in the latest week after experiencing inflows of $1.124B the week prior. Intermediate-term funds had inflows of $359.445MM after inflows of $497.491MM the week prior. National funds had inflows of $2.040B after experiencing inflows of $1.562B the week prior. High-yield municipal funds reported inflows of $592.060MM in the latest week, after inflows of $481.181MM the week prior. Exchange traded funds reported inflows of $522.955MM after inflows of $180.347MM the week prior.


Demand in the Bank Qualified (BQ) Market Remains Strong

Last week, the BQ market had good activity, due in part to the new-issue opportunities and secondary market bid lists being well received. With March 1st and 15th rolloff dates looming, BQ participants continue to have significant demand for BQ paper. 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 market participants should continue to look at the long-end (15+ years) of the curve for a chance to address their needs while picking up attractive structures.

We also continue to encourage participants to utilize extension swaps and portfolio clean up, especially given the strong bids for short paper by retail investors in high tax states, as a way roll out the curve for more yield with little to no drop-off in credit quality. Week-over-week, bank qualified spreads widened across the curve, with the largest widening occurring in the five-year maturity, 32 bps.


Daily Overview of the General Market for the Week Ending February 28th

Last Monday prices on municipals strengthened, as market participants continued their flight to quality due to fears over COVID-19, while also looking ahead to the expected $13.0B in new-issue long-term debt to be offered. On the day, the yield on the two-year GO bond fell four bps, while the yield on the 10-year GO bond fell eight bps and the yield on the 30-year GO bond fell nine bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys also strengthened, as U.S. stocks opened lower and continued to post losses throughout the session due to fears over COVID-19 spreading further. The Dow was down 3.56%, while the S&P was down 3.35% and the NASDAQ was down 3.71%. On the day, the yields on the two- and 10-year maturities each fell eight bps, while the yield on the 30-year maturity fell six bps. The 10-year municipal-to-Treasury ratio fell to 73.2% on Monday from last Friday’s level of 74.7%, while the 30-year municipal-to-Treasury ratio fell to 87.0% on Monday from last Friday’s level of 89.0%.

Last Tuesday prices on municipals strengthened, as fears about the COVID-19 virus continued to run rampant causing investors to resume selling off equities, resulting in municipal bond yields following U.S. Treasury yields down to all-time lows once again.

On the day, a number of deals came to market, as the yield on the two-year GO bond fell one bp, 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.

Prices on U.S. Treasurys also strengthened, as U.S. stocks fell for a second day due to fears over COVID-19. The Dow fell 3.14%, while the S&P fell 3.02% and the NASDAQ fell 2.77%. On the day, the yield on the two-year maturity fell six bps, while the yield on the 10-year maturity fell five bps and the yield on the 30-year maturity fell four bps. The 10-year municipal-to-Treasury ratio rose to 73.7% on Tuesday from Monday’s level of 73.2%, while the 30-year municipal-to-Treasury ratio bumped up to 87.2% on Tuesday from Monday’s level of 87.0%.

Last Wednesday municipal prices were steady, as a number of deals came to market including $650.0MM of GO bonds in three separate sales from the Commonwealth of Massachusetts. 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 were mixed, and U.S. stocks also posted mixed results for the session. The Dow and the S&P closed down 0.46% and 0.68%, respectively, while the NASDAQ closed up 0.17%. On the day, the yield on the two-year maturity fell four bps, while the yield on the 10-maturity was unchanged and the yield on the 30-maturity rose one bp. The 10-year municipal-to-Treasury ratio was unchanged on Wednesday from Tuesday’s level of 73.7%, while the 30-year municipal-to-Treasury ratio fell to 86.7% on Wednesday from Tuesday’s level of 87.2%.

Last Thursday prices on municipals strengthened, as the last of the week’s new-issue offerings came to market. On the day, the yield on the two-year GO bond fell one bp, 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.

U.S. Treasury prices also strengthened, as U.S. stocks faced another sharp selloff, as worries about coronavirus mounted, with the three main indexes dragged into correction territory and on track for their worst week since the financial crisis. The Dow and S&P were each down, 4.43%, while the NASDAQ was down 4.61%. On the day, the yield on the two-year maturity fell five bps, while the yield on the 10-year maturity fell three bps and the yield on the 30-year maturity fell two bps. The 10-year municipal-to-Treasury ratio fell to 72.3% on Thursday from Wednesday’s level of 73.7%, while the 30-year municipal-to-Treasury ratio fell to 84.9% on Thursday from Wednesday’s level of 86.7%.

Last Friday prices on municipals were mixed, as market participants continue their flight to quality while also looking ahead to the expected $8.5B in new-issue long-term debt to be offered. On the day, the yield on the two-year GO bond fell two bps, while the yield on the 10-year GO bond fell one bp and the yield on the 30-year GO was steady, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices strengthened, as U.S. Stocks fell on the open but did rally back to close mixed for the session. The Dow was down 1.39%, and the S&P was down 0.82%, while the NASDAQ closed just up 0.01%. On the day, the yield on the two-year maturity fell 25 bps, while the yield on the 10-year maturity fell 17 bps and the yield on the 30-year maturity fell 14 bps. The 10-year municipal-to-Treasury ratio jumped to 82.3% on Friday from Thursday’s level of 72.3%, while the 30-year municipal-to-Treasury ratio rose to 92.1% on Friday from Thursday’s level of 84.9%.


Taxable Market







Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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