Muni Update

March 22, 2021


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


Municipal Market Recap

Municipal prices were steady on Monday and Tuesday across the curve. Also, on Tuesday the Federal Open Market Committee (FOMC) started its two-day meeting. On Wednesday municipal prices weakened across the curve, as municipal market participants focused on the FOMC meeting and the Summary of Economic projections, which suggested higher inflation in 2021, but no rate increases before 2023. On Thursday municipal prices weakened again across the curve. On Friday municipal prices were mostly steady across the curve.

The projected level of new-issue offerings for the trading week are $8.9B 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 for a second week in a row, as tax-exempt weekly reporting funds data showed that funds experienced inflows of $1.267B in the latest week, after experiencing inflows of $1.092B the week prior. The four-week moving average remained positive at $448.069MM, after being in the green at $620.074MM 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 0.21%, 1.16%, and 1.79%, respectively. Overall, week-over-week the yield on the two-year general obligation (GO) bond rose 12 basis points (bps), while the yields the 10- and 30-year GO bonds each rose 14 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 0.39%, 1.40%, and 1.96%, respectively. Overall, week-over-week the yield on the two-year GO bond rose eight bps, while the yields on the 10- and 30-year GO bonds each rose 11 bps.


New-Issue Volume is Forecasted to be Around $8.9B for the Week

Total new-issue offerings for the trading week per IHS Markit Ipreo are estimated to be $8.9B. This week’s projected bond issuance is comprised of $6.82B in negotiated deals and $2.08B in competitive sales. Leading the way this week will be the New York City Transitional Finance Authority (NYC TFA) which is set to price $1.0B of future tax secured subordinate bonds. The first series will be for $886.6MM of refunding bonds and the second will be for $114.2MM of future tax secured bonds. Both offerings are to be priced on a negotiated basis and are rated Aa1 by Moody’s Investors Service (Moody’s) and Triple-A by both Standard and Poor’s Global Ratings (S&P) and Fitch Ratings (Fitch). The NYC TFA will also sell three taxable competitive deals this Wednesday.

The State Public Works Board of the State of California is set to price $694.8MM of lease revenue refunding bonds (Department of Corrections and Rehabilitation, Kern Valley State Prison) forward delivery. The deal is rated Aa3 by Moody’s, A+ by S&P, and AA- by Fitch. The Mayo Clinic is set to price $500.0MM of taxable Series 2021 bonds on Tuesday. The deal is rated Aa2 by Moody’s and AA by S&P.

Also, in New York this week, the Triborough Bridge and Tunnel Authority is set to price $400.0MM of MTA bridges and tunnels general revenue bonds, Series 2021A. The deal is rated Aa3 by Moody’s, AA- by S&P and Fitch and AA by Kroll Bond Rating Agency (KBRA).  The City of New York is set to price $129.6MM of tax-exempt GO adjustable-rate remarketed securities. The deal is rated Aa2 by Moody’s and AA by S&P and Fitch.

The Carrollton-Farmers Branch Independent School District (Dallas and Denton Counties, Texas) is set to price $225.8MM of unlimited tax school building bonds on Thursday. The deal is rated Triple-A by Moody’s and S&P. The Arizona Board of Regents of Arizona State University is set to price on Wednesday $161.8MM of taxable series 2021A and 2021B bonds on Wednesday. In addition, the Arizona Board of Regents of Arizona State University is also set to price $118.0MM of system revenue bonds, also on Wednesday. The deals are rated Aa2 by Moody’s and AA by S&P. The City of Montgomery, Alabama, is set to price $126.1MM of GO warrants, Series 2021-A, GO refunding warrants, Series 2021-B, taxable GO refunding warrants, Series 2021-C. on Tuesday. The offerings are rated AA by S&P.

In the competitive markets, the New Jersey Educational Facilities Authority is set to sell two deals. The first is a $250.0MM offering of Princeton revenue bonds, due in 2022-2051 at 10:45 a.m. on Tuesday, the other is for $182.3MM of Princeton revenue bonds, due 2022-2041, also on Tuesday at 11:15 a.m. The deals are rated AAA by S&P. On Wednesday, Palo Alto, California, is set to sell $100.0MM of certificates of participation. (COPs). Finally, the City of Knoxville, Tennessee, is set to sell a few competitive deals on Thursday for various utility purposes. The first two are for $34.0MM of water system revenue bonds and $198.9MM offering of water system revenue bonds. There will also be a $73.0MM offering of electric system revenue bonds and a $42 million of gas system revenue bonds.


Municipal Bond Funds Posted Inflows for the Second Week in a Row

Investors in municipal bond put cash into funds for a second week in a row, as tax-exempt weekly reporting funds experienced inflows of $1.267B in the latest week, after experiencing inflows of $1.092B the week prior. The four-week moving average remained positive at $448.069MM, after being in the green $620.074MM the week prior.

Long-term municipal bond funds had inflows of $1.200B in the latest week after experiencing outflows of $663.006MM the week prior. Intermediate-term funds had inflows of $111.568MM after inflows of $167.189MM the week prior. National funds had inflows of $1.255B after experiencing inflows of $1.065B the week prior. High-yield municipal funds reported inflows of $650.467MM in the latest week, after inflows of $429.806MM the week prior. Exchange traded funds reported inflows of $213.324MM, after inflows of $231.736MM 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 widened across the curve, with the largest widening occurring in the two- and three-year maturities, 13 bps each.


Daily Overview of the General Market for the Week Ending March 19th 

Last Monday municipals prices were steady, as the first of the trading week’s $10.71B 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 were mixed on Monday, as U.S. Stock rose for the session. The Dow finished up 175 points, or 0.5%, while the S&P was up 0.7% and the NASDAQ was up 1.1%. On the day, the yield on the two-year maturity was unchanged, while the yield on the 10-year maturity fell two bps and the yield on the 30-year maturity fell three bps. The 10-year municipal-to-Treasury ratio rose to 63.0% on Monday from last Friday’s level of 62.2%, while the 30-year municipal-to-Treasury rose to 69.6% on Monday from Last Friday’s level of 68.8%.

Last Tuesday municipals prices were steady, as a variety of new-issue offerings came to market including the $1.25B offering of State of Illinois GO bonds and the repricing of the $453.5MM offering of State of Oregon GO bonds. 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 Tuesday, as were U.S. Stock prices for the session. The Dow was down 128 points or 0.4%, while the S&P was down 0.1% and the NASDAQ was up 0.1%. On the day, the yields on the two- and 30-year maturities each rose one bp, while the yield on the 10-year maturity was unchanged. The 10-year municipal-to-Treasury was unchanged on Tuesday from Monday’s level of 63.0%, while the 30-year municipal-to-Treasury slipped to 69.3% on Tuesday from Monday’s level of 69.6%.

Last Wednesday municipals prices weakened, as the FOMC ended its March meeting and voted to keep its target overnight rate range unchanged at 0.00-0.25% and released its Summary of Economic projections, which suggested higher inflation in 2021, but no rate increases before 2023. Also, on Wednesday several new-issue offerings were priced in the municipal market including the $193.2MM offering of GO bonds from Wake County, North Carolina and in the competitive arena, the Florida Department of Transportation came off the sidelines and sold $146.0MM of right-of-way acquisition and bridge construction refunding bonds. 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 were mixed on Wednesday, as U.S. stock prices rose for the session. The Dow finished up 189 points or 0.6%, while the S&P was up 0.3% and the NASDAQ was up 0.4% 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 four bps. The 10-year municipal-to-Treasury ratio rose to 65.6% on Wednesday from Tuesday’s level of 63.0%, while the 30-year municipal-to-Treasury ratio rose to 70.3% on Wednesday from Tuesday’s level of 69.3%.

Last Thursday municipals prices weakened across the curve, as municipals sold-off after lagging U.S. Treasurys for weeks, and the last of the week’s new-issue offerings came to market including the pricing of the $2.2B of tax-exempt and taxable personal income tax bonds by the Dormitory Authority of the State of New York. 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 nine bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices also weakened last Thursday, as U.S. equity prices fell for the session. The Dow was down 153 points or 0.5%, while the S&P was down 1.5% and the NASDAQ was down 3.0%. On the day, the yields on the two- and 30-year maturities each rose three bps, while the yield on the 10-year maturity rose eight bps. The 10-year municipal-to-Treasury ratio rose to 67.8% on Thursday from Wednesday’s level of 65.6%, while the 30-year municipal-to-Treasury ratio rose to 73.1% on Thursday from Wednesday’s level of 70.3%.

Last Friday municipal prices mostly steady, as market participants started looking ahead to the $8.9B 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, as were U.S. stocks prices for the session. The Dow was down 234 points, or 0.7%, while the S&P was barely down 0.06% and the NASDAQ was up 0.8%. On the day, the yields on the two- and 30-year maturities were each unchanged, while the yield on the 10-year maturity rose three bps. The 10-year municipal-to-Treasury ratio fell to 66.7% on Friday from Thursday’s level of 67.8%, while the 30-year municipal-to-Treasury was unchanged on Friday from Thursday’s level of 73.1%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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