Muni Update

March 28, 2022


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


Municipal Market Recap

Municipal bond prices were mixed to start the week, as prices on bonds maturing 10 years and in weakened, while prices on bonds on the long end were steady. On Tuesday municipal prices weakened across the curve, resulting in their worst day since April 2020, after hawkish comments by Federal Reserve Chair Jerome Powell triggered a selloff in U.S. Treasurys. On Wednesday municipal prices were mixed again, as prices on bonds in the front end were steady, while prices on bonds maturing 10 years and longer weakened. On Thursday and Friday municipal prices weakened across the curve, especially in the short end on both days.

For the trading week, the projected level of new-issue offerings are $8.12B. 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 sixth week in a row, as tax-exempt weekly reporting funds data showed that funds experienced outflows of $1.503B in the latest week, after experiencing outflows of $2.136B the week prior. The four-week moving average rose to a negative $1.781B, from a negative $1.694B the week prior.

Last week the yield on the two-year maturity on the MMD Triple-A Scale rose 10 basis points (bps) from Thursday to Friday and ended the week at 1.72%. Meanwhile, the yield on the 10-year maturity rose five bps and the yield on the 30-year maturity rose three bps on the MMD Triple-A Scale and they finished the week at 2.18% and 2.54%, respectively. Overall, week-over-week the yield on the two-year general obligation (GO) bond rose 33 bps, while the yield on the 10-year GO bond rose 25 bps and the yield on the 30-year GO bond rose 21 bps.

Last week the yield on the two-year maturity on the MMA Triple-A Scale rose eight bps from Thursday to Friday, and it ended the week at 1.50%. Meanwhile the yields on the 10- and 30-year maturities on the MMA Triple-A Scale each rose five bps from Thursday to Friday and they ended the week at 2.38% and 2.94%, respectively. Overall, week-over-week the yield on the two-year maturity rose 25 bps, while the yield on the 10-year maturity rose 21 bps and the yield on the 30-year maturity rose 22 bps.


New-Issue Volume is Forecasted to be $8.12B for the Trading Week

Total new-issue offerings for the trading week per IHS Markit Ipreo are $8.12B. This week’s projected level of bond issuance is comprised of $6.14B in negotiated deals and $1.98B in competitive deals. The largest deal of the week will come on Tuesday, when the California Health Facilities Financing Authority will price $1.050B of federal taxable social No Place Like Home Program senior revenue bonds, series 2022. The deal is rated Aa3 by Moody’s Investors service (Moody’s) and AA- by Standard and Poor’s Global Ratings (S&P) and Fitch Ratings (Fitch).

Also, on Tuesday the San Antonio, Texas, Electric and Gas Systems, is set to price $413.805MM of taxable revenue refunding bonds, New Series 2022. The deal is rated Aa2 by Moody’s and AA- by S&P and Fitch. Finally on Tuesday, Broward County, Florida, will price $375.435MM of Convention Center Hotel first tier revenue bonds, Series 2022. The deal is rated Aa1 by Moody’s and AAA by S&P and AA+ by Fitch.

On Wednesday, a number of negotiated offerings will come to market, and they include, but are not limited to the following. The New York City Transitional Finance Authority (NYC TFA) is set to offer $950.0MM of tax-exempt future tax secured subordinate bonds, Fiscal 2022 Series F, Subseries F-1. The deal is rated Aa1 by Moody’s and Triple-A by S&P and Fitch. The Virgin Islands Matching Fund Special Purpose Securitization Corporation will price $853.025MM of Matching Fund Securitization bonds; consisting of $793.025MM of bonds, Series 2022A, and $60.0MM of taxable bonds, Series 2022B. The deal is rated BBB by Kroll Bond Rating Agency (KBRA). San Antonio Electric and Gas Systems will price $109.110MM of revenue refunding bonds, New Series 2022. The deal is rated Aa2 by Moody’s and AA- by S&P and Fitch. The Public Finance Authority, Wisconsin, is set to price $411.870MM of Grand Hyatt San Antonio Hotel Acquisition Project hotel revenue bonds; consisting of $225.340MM of Senior Lien Series 2022A, rated BBB by S&P and $186.530MM of Subordinate Lien Series 2022B. The Department of Water and Power of the City of Los Angeles is set to price $334.555MM of power system revenue bonds, 2022. The deal is rated Aa2 by Moody’s, AA- by S&P, and AA by Fitch. Finally on Wednesday, the Board of Trustees of the University of Arkansas are set to price $103.300MM of the University of Arkansas for Medical Sciences Northwest various facilities revenue bonds; consisting of $95.145MM of Series 2022A, and $8.155MM of Series 2022B. The deal is rated Aa2 by Moody’s.

In the competitive arena on Tuesday Oklahoma City, Oklahoma, is set to sell $110.0MM of GO bonds, Series 2022, at 9:30 a.m. eastern. Also on Tuesday, Danville, Virginia, is set to sell $129.0MM of GO school bonds, Series 2022, at 10:45 a.m. on Tuesday. The deal is rated Aa3 by Moody’s and AA- by S&P and Fitch.

On Wednesday, the City of Boston is set to sell $334.315MM of GO bonds, 2022 Series A, at 10:30 a.m. The deal is rated Triple-A by Moody’s and S&P. Also on Wednesday, the State of Louisiana is set to sell $201.415MM of GO bonds, Series 2022-A, at 11:00 a.m. eastern and $36.960MM of GO refunding bonds, Series 2022-B, at 11:15 a.m. eastern.

Finally, on Thursday the NYC TFA is set to sell $162.660MM of future tax secured taxable subordinate bonds, Fiscal 2022 Subseries F-2, at 10:45 a.m. and $137.340MM of future tax secured taxable subordinate bonds, Fiscal 2022 Subseries F-3, at 11:15 a.m.


Municipal Bond Funds Posted Outflows for a Sixth 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 $1.503B in the latest week, after experiencing outflows of $2.136B the week prior. The four-week moving average rose to a negative $1.781B, after being a negative $1.694B the week prior.

Long-term municipal bond funds had outflows of $629.576MM in the latest week, after experiencing outflows of $1.420B the week prior. Intermediate-term funds had outflows of $427.171MM after outflows of $331.263MM the week prior. National funds had outflows of $1.289B after experiencing outflows of $1.770BMM the week prior. High-yield municipal funds reported inflows of $10.501MM in the latest week, after outflows of $569.430MM the week prior. Exchange traded funds reported inflows of $126.536MM, after inflows of $267.855MM 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-, three-, five-, and 15-year maturities all tightened, with the largest tightening occurring in the five-year maturity, 15 bps. Meanwhile the spreads on the 10- and 30-year maturities widened, with the largest widening occurring in the 10-year maturity, five bps.


Daily Overview of the General Market for the Week Ending March 25th

On Monday municipal prices were mixed, as the first of the trading week’s $7.65B in new-issue long-term debt was offered. On the day, the yields on the two- and 10-year GO bonds each rose two bps, while the yield on the 30-year GO bond was unchanged, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys weakened Monday, while U.S. stocks finished mixed for the session. The Dow fell 202 points or 0.6%, while the S&P was unchanged on the day and the NASDAQ was down 0.4%. On the day, the yield on the two-year maturity rose 17 bps, while the yield on the 10-year maturity rose 18 bps and the yield on the 30-year maturity rose 13 bps. The 10-year municipal-to-Treasury ratio fell to 84.1% on Monday from last Friday’s level of 90.2%, while the 30-year municipal-to-Treasury ratio fell to 91.4% on Monday from last Friday’s level of 96.3%.

On Tuesday municipal prices weakened across the curve, as a number of negotiated and competitive offerings were priced, including the one-day retail order period for the $892.495MM of tax-exempt GO bonds from New York City. On the day, the yields on the two-, 10-, and 30-year GO bonds each rose 12 bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys also weakened on Tuesday, while U.S. stocks rose for the session, as investors shrugged off hawkish remarks from Federal Reserve Chair Jerome Powell and continued to monitor the war in Ukraine. The Dow rose 254 points or 0.7%, while the S&P was up 1.1% and the NASDAQ was up 2.0%. On the day, the yield on the two-year maturity rose four bps, while the yield on the 10-year maturity rose six bps and the yield on the 30-year maturity rose five bps. The 10-year municipal-to-Treasury ratio rose to 87.0% on Tuesday from Monday’s level of 84.1%, while the 30-year municipal-to-Treasury rose to 94.2% on Tuesday from Monday’s level of 91.4%.

On Wednesday municipals prices were mixed, as a number of new-issue offerings came to market. On the day, the yield on the two-year GO bond was unchanged, while the yields on the 10- and 30-year GO bonds each rose two bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys strengthened on Wednesday, while U.S. stocks fell for the session. The Dow finished down 449 points or 1.3%, while the S&P was down 1.2% and the NASDAQ was down 1.3%. On the day, the yield on the two-year maturity fell five 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 90.1% on Wednesday from Tuesday’s level of 87.0%, while the 30-year municipal-to-Treasury rose to 98.0% on Wednesday from Tuesday’s level of 94.2%.

On Thursday, municipal prices weakened 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 rose nine bps, while the yields on the 10- and 30-year GO bonds each rose four bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were mixed on Thursday, as U.S. stocks rose for the session. The Dow was up 349 points or 1.0%, while the S&P was up 1.4% and the NASDAQ was up 1.9%. On the day, the yield on the two-year maturity was unchanged, while the yield on the 10-year maturity rose two bps and the yield on the 30-year maturity fell one bp. The 10-year municipal-to-Treasury ratio rose to 91.0% on Thursday from Wednesday’s level of 90.1%, while the 30-year municipal-to-Treasury ratio rose to 100.0% on Thursday from Wednesday’s level of 98.0%.

Last Friday municipals prices further weakened across the curve, as market participants looked ahead to the $8.12B in expected new-issue offerings for the upcoming trading week. On the day, the yield on the two-year GO bond rose 10 bps, while the yield on the 10-year GO bond rose five bps and the yield on the 30-year GO bond rose three bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices also weakened on the day, while U.S. stocks were mixed for the session. The Dow was up 154 points or 0.4%, while the S&P was up 0.5% and the NASDAQ was down 0.2%. On the day, the yield on the two-year maturity rose 17 bps, while the yield on the 10-year maturity rose 14 bps and the yield on the 30-year maturity rose 19 bps. The 10-year municipal-to-Treasury ratio fell to 87.9% on Friday from Thursday’s level 91.0%, while the 30-year municipal-to-Treasury fell to 97.7% on Friday from Thursday’s level of 100.0%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks

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