Muni Update

March 23, 2020



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


Municipal Market Recap

Municipal prices started the week mixed. They then weakened daily for the rest of the week. Issuance for the trading week is projected to be just $2.3B, which is well below last week’s new-issue level. This week’s low level of projected new-issue offerings of $2.3B reflects the fact that new-issue municipal offerings have ground to a halt, as issuers are in limbo as to whether to sell into a volatile market, as investors retreat following the municipal market’s worst week since 1987. Last week’s market volatile in the municipal market was driven by market conditions and not credit issues at this time. The flood of demand over the past year and a half by both traditional and non-traditional buyers in the municipal market had resulted in pressure on yields and higher prices. Last week with the funds liquidating billions in paper (see section on Municipal Bond Funds) municipal paper in the secondary market exploded, resulting in a dramatic reversal in prices and yields, especially in the short to intermediate maturities. With this in mind, market participants should be looking to the growing number of secondary market offerings for opportunities, especially given the expected continued strong demand in the municipal market due to redemption.

Investors in municipal bond funds pulled cash out of funds for the third week in a row, as weekly reporting funds experienced outflows of $12.214B after experiencing outflows of $1.760B the week prior. The four-week moving average turned a negative $2.989B, after being in the green at $505.886MM the week prior. Investors still facing low or negative rates overseas continue to find positive yielding U.S. assets attractive.

Last week the yield on the two-year maturity on the MMD Triple-A Scale rose 50 basis points (bps) from Thursday to Friday and it ended the week at 2.52%. Meanwhile the yield on the 10-year maturity rose 45 bps and the yield on the 30-year maturity rose 40 bps on the MMD Triple-A Scale from Thursday to Friday and they ended the week at 2.79% and 3.37%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond rose 140 bps, while the yield on the 10-year GO bond rose 114 bps and the yield on the 30-year GO bond rose 105 bps.

Last week the yields on the two- and 10-year maturities on the MMA Triple-A Scale each rose 51 bps from Thursday to Friday and they ended the week at 2.61 and 2.97%, respectively. Meanwhile the yield on the 30-year maturity on the MMA Triple-A Scale rose 43 bps from Thursday to Friday and it ended the week at 3.51%. Overall, week-over-week the yield on the two-year GO bond rose 124 bps, while the yield on the 10-year GO bond rose 123 bps and the yield on the 30-year GO bond rose 111 bps.


New-Issue Volume is Forecasted to be $2.3B for the Week

Total new issuance for the trading week per IHS Markit Ipreo is estimated to be $2.3B, which is below last week’s revised level of issuance. This week’s projected issuance is comprised of $1.3B in negotiated deals and $1.0B in competitive sales. This exceptional low level of issuance is being driven by issuers pulling deals to the sidelines in this volatile market.


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

Investors in municipal bond funds pulled cash out of funds for the third week in a row, as tax-exempt weekly reporting funds experienced outflows of $12.214B in the latest week, after experiencing inflows of $1.760B the week prior. The four-week moving average turned a negative $2.989B after being in the green at $505.886MM the prior week.

Long-term municipal bond funds had outflows of $9.241B in the latest week after experiencing outflows of $1.657B the week prior. Intermediate-term funds had outflows of $1.134B after outflows of $155.616MM the week prior. National funds had outflows of $10.827B after experiencing outflows of $1.623B the week prior. High-yield municipal funds reported outflows of $5.332B in the latest week, after outflows of $1.729B the week prior. Exchange traded funds reported outflows of $669.315MM after outflows of $11.302MM the week prior.


Demand in the Bank Qualified (BQ) Market Remains Strong

The low level of expected new-issue paper this week should have BQ market participants looking to secondary market offerings for 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. 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 five-year maturity, 27 bps.


Daily Overview of the General Market for the Week Ending March 20th

Last Monday, the day after the Federal Reserve cut its benchmark rate by a full percentage point to near zero and said it would boost its bond holdings by $700.0B to cushion the U.S. economy from the virus, prices on municipals were mixed. A few new-issue offerings did hit the market, as the first of the week’s projected $5.0B in new-issue long-term debt was offered. On the day, the yield on the two-year GO bond rose 11 bps, while the yield on the 10-year GO bond fell four bps and the yield year 30-year GO bonds was unchanged, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys strengthened, as U.S. stocks fell sharply on the opening and continued to drop throughout the day. The Dow recorded its worst one-day point drop in history and its worst performance on a percentage basis since October 19, 1987, also known as Black Monday. The Dow was down 12.93%, while the S&P was down 11.98% and the NASDAQ was down 12.3%. On the day, the yield on the two-year maturity fell 13 bps, while the yield on the 10-year maturity fell 21 bps and the yield on the 30-year maturity fell 22 bps. The 10-year municipal-to-Treasury ratio jumped to 220.6% on Monday from last Friday’s level of 175.5%, while the 30-year municipal-to-Treasury ratio jumped to 173.1% on Monday from last Friday’s level of 148.7%.

Last Tuesday prices on municipals weakened as financial and government systems around the world grappled with the growing COVID-19 pandemic. On the day the yield on two-year GO bond rose 15 bps, while the yield on the 10-year GO bond rose eight bps and the yield on the 30-year GO bond rose five bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys also weakened, as U.S. stocks bounced back, as investors weighed the prospects of fiscal stimulus to curb slower economic growth stemming from the coronavirus outbreak. The Dow rose 5.20%, while the S&P rose 6.0% and the NASDAQ rose 6.23%. On the day, the yield on the two-year maturity rose 11 bps, while the yields on the 10- and 30-year maturities each rose 29 bps. The 10-year municipal-to-Treasury ratio fell to 165.7% on Tuesday from Monday’s level of 220.6%, while the 30-year municipal-to-Treasury ratio fell to 145.4% on Tuesday from Monday’s level of 173.1%.

Last Wednesday municipal prices weakened, as COVID-19 fears and fallout continued to deepen. On the day, the yields on the two- and 10-year GO bonds each rose 15 bps, while the yield on the 30-year GO bond rose 10 bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys weakened, as US stocks erased the prior session’s gains and closed lower. The Dow closed below 20,000 total points for the first time since February 2017. It was down 6.3%, or 1,338 points, on the day. During the afternoon, the index fell so much that it erased all of the gains accumulated under the Trump administration, however, it did close slightly above that key level. The S&P also edged closer to falling below its January 2017 level. The index finished down 5.2%, while the NASDAQ finished down 4.7%. On the day, the yield on the two-year maturity rose seven bps, while the yield on the 10-maturity was rose 16 bps and the yield on the 30-maturity rose 14 bps. The 10-year municipal-to-Treasury ratio fell to 155.9% on Wednesday from Tuesday’s level of 165.7%, while the 30-year municipal-to-Treasury ratio fell to 139.6% on Wednesday from Tuesday’s level of 145.4%.

Last Thursday prices on municipals weakened, as the municipal market completely decoupled from U.S. Treasurys in a major sell off that had the one-year municipal yielding over 2.0% on Thursday. On the day the yield on the two-, 10-, and 30-year GO bonds each rose 50 bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were mixed, as U.S. stocks closed higher on Thursday, eking out steady gains in the afternoon following a morning of volatile trading. The Dow swung more than 1,200 points from its low to its high point. It finished up nearly 1.0%. The S&P 500 rose 0.5%, while the NASDAQ rose 2.3% for the session. On the day, the yield on the two-year maturity fell 10 bps, while the yield on the 10-year maturity fell six bps and the yield on the 30-year maturity rose one bp. The 10-year municipal-to-Treasury ratio jumped to 208.9% on Thursday from Wednesday’s level of 155.9%, while the 30-year municipal-to-Treasury ratio jumped to 166.9% on Thursday from Wednesday’s level of 139.6%.

Last Friday the municipal market continued its slide extending the selloff that’s driving state and local debt to its biggest loss since 1987. The drop came as markets braced for a deluge of debt by governments fighting the economic slowdown caused by the coronavirus pandemic. Market participants will be looking to secondary market opportunities next week, as the new-issue calendar only calls for $2.3B in issuance. On the day, the yield on the two-year GO bond rose 50 bps, while the yield on the 10-year GO bond rose 45 bps and the yield on the 30-year GO bond rose 40 bps, according to the final read of the MMD Triple-A Scale.

Treasury prices were mixed, as U.S. stocks ended the session lower, although the losses were more contained than they have been in previous weeks. Even so, it was the worst weekly performance for all three major stock indexes since October 2008. The Dow was down 4.6% and has now erased all of the gains it had accumulated during the Trump administration. The S&P was down 4.3% and the NASDAQ was down 3.8% for the session. On the day, the yield on the two-year maturity fell seven bps, while the yield on the 10-year maturity fell 20 bps and the yield on the 30-year maturity fell 23 bps. The 10-year municipal-to-Treasury ratio jumped to 303.3% on Friday from Thursday’s level of 208.9%, while the 30-year municipal-to-Treasury ratio jumped to 217.4% on Friday from Thursday’s level of 166.9%.


Taxable Market







Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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