Muni Update

March 21, 2022


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


Municipal Market Recap

Municipal bond prices weakened across the curve on Monday and Tuesday. Also, on Tuesday the Federal Open Market Committee (FOMC) started its two-day meeting. On Wednesday municipal prices were steady across the curve and the FOMC ended its two-day meeting and raised the fed funds rate target 25 basis points (bps) to a range on 0.25% to 0.50%. It also upped its projections for future rate hikes and inflation and cut growth estimates. On Thursday municipal prices strengthened across the curve. On Friday municipal prices were once again steady across the curve.

For the trading week, the projected level of new-issue offerings are $7.65B. 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 fifth week in a row, as tax-exempt weekly reporting funds data showed that funds experienced outflows of $2.136B in the latest week, after experiencing outflows of $661.675MM the week prior. The four-week moving average rose to a negative $1.694B, from a negative $1.483B the week prior.

Last week the yields on the two-, 10-, and 30-year maturities on the MMD Triple-A were unchanged from Thursday to Friday and they ended the week at 1.39%, 1.93%, and 2.33%, respectively. Overall, week-over-week the yield on the two-year general obligation (GO) bond rose 10 bps, while the yield on the 10-year GO bond rose nine bps and the yield on the 30-year GO bond rose seven bps.

Last week the yield on the two-year maturity on the MMA Triple-A Scale was unchanged from Thursday to Friday, and it ended the week at 1.25%. Meanwhile the yields on the 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 2.17% and 2.72%, respectively. Overall, week-over-week the yield on the two-year maturity rose nine bps, while the yield on the 10-year maturity rose 10 bps and the yield on the 30-year maturity rose eight bps.


New-Issue Volume is Forecasted to be $7.65B for the Trading Week

Total new-issue offerings for the trading week per IHS Markit Ipreo are $7.65B. This week’s projected level of bond issuance is comprised of $5.66B in negotiated deals and $1.99B in competitive deals. The largest deal of the week will come from New York City on Wednesday, when $890.910MM of tax-exempt GO bonds; consisting of $640.905MM of Fiscal 2022 Series B, Subseries B-1, and $250.005MM of Fiscal 2022 Series C bonds, are priced. The deal is rated Aa2 by Moody’s Investors Service (Moody’s), AA by Standard and Poor’s Global Ratings (S&P), AA- by Fitch Ratings (Fitch), and AA+ by Kroll Bond Rating Agency (KBRA).

Meanwhile on Tuesday the Illinois Finance Authority is set to price $594.555MM of Northshore Edward Elmhurst Health revenue bonds, Series 2022A. The deal is rated Aa3 by Moody’s and AA- by S&P.  Also, on Tuesday the School District 27J, Colorado, is set to price $264.505MM of GO bonds, Series 2022. The deal is enhanced by the Colorado State Intercept Program. Finally on Tuesday, the Brevard County Health Facilities Authority, Florida is set to price $445.250MM of hospital revenue bonds, Series 2022A and forward delivery hospital revenue bonds, Series 2023A. The deal is rated A2 by Moody’s and A by S&P.

On Wednesday, Hoag Memorial Hospital Presbyterian, California is set to price $538.700MM of corporate CUSIP taxable revenue bonds, Series 2022. The deal is rated AA b S&P and Fitch. Also on Wednesday, the Chicago Transit Authority is set to price $349.925MM of second lien sales tax receipts revenue bonds, Series 2022A. The deal is rated A+ by S&P and AA- by KBRA.

Finally, on Thursday, the New York City Housing Development Corporation is set to price $400.395MM of taxable sustainable development capital fund grant program revenue bonds, Series 2022A. Also, on Thursday the Lamar Consolidated Independent School District, Texas is set to price $393.035MM of unlimited tax schoolhouse bonds, Series 2022. The deal is guaranteed by the Texas Permanent School Fund Guarantee Program.

In the competitive arena on Tuesday the Palo Alto Unified School District, California is price two deals. The first is an offering of $38.0MM of GO bonds (Election of 2008), Series 2022, at noon eastern. The other is $240.0MM offering of GO bonds (Election of 2018), Series 2022, at 1 p.m. Both deals are rated triple-A by Moody’s and S&P.

Wednesday will be a busy day in the competitive market and starts off with an offering in two series from Anne Arundel County, Maryland. The offerings consist of $194.690MM of GO bonds; consisting of $137.145MM of consolidated general improvement bonds, 2022 Series and $57.545MM of consolidated water and sewer bonds, 2022 Series, at 10:15 a.m. Wednesday. The deal is rated Tiple-A by Moody’s and S&P. Also on Wednesday, the Virginia Transportation Board is set to sell $115.320MM of transportation revenue bonds, Series 2022 at 10:30 a.m. eastern. The deal is rated Aa1 by Moody’s, and AA+ by S&P and Fitch. Finally on Wednesday, the Beverly Hills Unified School District, California, is set to sell two deals. The first is for $110.0MM of taxable Election of 2018 GO bonds, Taxable Series B-1, at noon eastern and the other is for $115.0MM of Election of 2018 GO bonds, Taxable Series B, at 1 p.m. eastern. The deals are rated Aa1 by Moody’s and AA+ by S&P.

On Thursday, Albuquerque, New Mexico is set to sell $104.315MM of GO bonds, consisting of; $76.395MM of GO purpose bonds, Series 2022A, $4.305MM of storm sewer bonds, Series 2022B, and $23.615MM of refunding bonds, Series 2022D, at 11 a.m. eastern.


Municipal Bond Funds Posted Outflows for a Fifth 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 $2.136B in the latest week, after experiencing outflows of $661.675MM the week prior. The four-week moving average rose to a negative $1.694B, after being a negative $1.483B the week prior.

Long-term municipal bond funds had outflows of $1.420B in the latest week, after experiencing outflows of $949.807MM the week prior. Intermediate-term funds had outflows of $331.263MM after outflows of $184.604MM the week prior. National funds had outflows of $1.770B after experiencing outflows of $463.062MM the week prior. High-yield municipal funds reported outflows of $569.430MM in the latest week, after outflows of $320.241MM the week prior. Exchange traded funds reported inflows of $5267.855MM, after inflows of $571.671MM 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 several 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 were mixed, as the spreads on the one-, two-, 10-, 15-, and 30-year maturities all widened, with the largest widening occurring in the 15-year maturity, 35 bps. Meanwhile the spread on the three-year maturity tightened nine bps and the spread on the five-year maturity was unchanged, week-over-week.


Daily Overview of the General Market for the Week Ending March 18th

On Monday municipal prices weakened, as the first of the trading week’s $5.11B in new-issue long-term debt was offered. On the day, the yields on the two-, 10-, and 30-year GO bonds each rose 10 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 finished mixed for the session after erasing earlier gains, as investors looked ahead to the Federal Reserve’s monetary policy decision later this week amid an ongoing war in Ukraine and soaring inflation. The Dow was unchanged, while the S&P was down 0.7% and the NASDAQ was down 2.0%. On the day, the yield on the two-year maturity rose 12 bps, while the yield on the 10-year maturity rose 14 bps and the yield on the 30-year maturity rose 11 bps. The 10-year municipal-to-Treasury ratio fell to 90.7% on Monday from last Friday’s level of 92.0%, while the 30-year municipal-to-Treasury ratio slipped to 95.6% on Monday from last Friday’s level of 95.8%.

On Tuesday municipal prices weakened across the curve, as the FOMC meeting started and a number of negotiated and competitive new-issue offerings came to market, including the $2.415B of general-purpose tax-exempt state personal income tax (PIT) revenue bonds, Series 2022A by the Dormitory Authority of the State of New York (DASNY), the largest deal of the week. DASNY also priced $667.735MM of taxable PIT revenue bonds. On the day, the yields on the two- and 30-year GO bonds each rose three bps, while the yield on the 10-year GO bond rose four bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed on Tuesday, as U.S. stocks rose alongside a pullback in oil prices for the session. The Dow rose 599 points or 1.8%, while the S&P was up 2.1% and the NASDAQ was up 2.9%. On the day, the yield on the two-year maturity fell two bps, while the yield on the 10-year maturity rose one bp and the yield on the 30-year maturity rose two bps. The 10-year municipal-to-Treasury ratio rose to 92.1% on Tuesday from Monday’s level of 90.7%, while the 30-year municipal-to-Treasury rose to 96.0% on Tuesday from Monday’s level of 95.6%.

On Wednesday municipals bond prices were steady across the curve, as a number of new-issue offerings came to market and the FOMC raised the fed funds rate target 25 bps to a range on 0.25% to 0.50%, and it upped its projections for future rate hikes and inflation and cut growth estimates. 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 on Wednesday, while U.S. stocks rose for the session, as traders considered the FOMC’s latest monetary policy decision, in which interest rates were hiked for the first time since 2018. The Dow finished up 519 points or 1.6%, while the S&P was up 2.2% and the NASDAQ was up 3.8%. On the day, the yield on the two-year maturity rose 10 bps, while the yield on the 10-year maturity rose four bps and the yield on the 30-year maturity fell three bps. The 10-year municipal-to-Treasury ratio fell to 90.4% on Wednesday from Tuesday’s level of 92.1%, while the 30-year municipal-to-Treasury rose to 97.2% on Wednesday from Tuesday’s level of 96.0%.

On Thursday, municipal prices strengthened across the curve, as the last of the trading week’s new-issue offerings came to market. On the day, the yield on the two-year GO bond fell three bps, while the yield on the 10-year GO bond fell five bps and the yield on the 30-year GO bond fell six bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were mixed again on Thursday, as U.S. stocks rose for the session. The Dow finished up 417 points or 1.2%. The S&P was also up 1.2% and the NASDAQ was up 1.3%. On the day, the yield on the two-year maturity fell one bp, while the yield on the 10-year maturity rose one bp and the yield on the 30-year maturity rose four bps. The 10-year municipal-to-Treasury ratio fell to 87.7% on Thursday from Wednesday’s level of 90.4%, while the 30-year municipal-to-Treasury ratio fell to 93.2% on Thursday from Wednesday’s level of 97.2%.

Last Friday municipals prices were steady across the curve, as market participants looked ahead to the $7.65B in expected new-issue offerings in the upcoming trading 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 to close the week, as U.S. stocks rose for the session. The Dow was up 274 points or 0.8%, while the S&P was up 1.2% and the NASDAQ was up 2.1%. On the day, the yield on the two-year maturity rose three bps, while the yield on the 10-year maturity fell six bps and the yield on the 30-year maturity fell eight bps. The 10-year municipal-to-Treasury ratio rose to 90.2% on Friday from Thursday’s level 87.7%, while the 30-year municipal-to-Treasury rose to 96.3% on Friday from Thursday’s level of 93.2%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks

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