Muni Update

March 29, 2021


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


Municipal Market Recap

Municipal prices were mixed on Monday, as the front end strengthened, whole prices on bonds maturing 10 years and longer were steady. On Tuesday and Wednesday municipal prices strengthened across the curve. On Thursday and Friday municipal prices were steady across the curve.

The projected level of new-issue offerings for this holiday-shortened trading week are $3.33B and coupled with bank qualified (BQ) and general market (GM) offerings in the secondary market should provide market participants with opportunities to fill their needs, especially as demand continues to outpace supply. This strong demand is being driven by redemption activity, as well as 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 third week in a row, as tax-exempt weekly reporting funds data showed that funds experienced inflows of $592.407MM in the latest week, after experiencing inflows of $1.267B the week prior. The four-week moving average remained positive at $586.750MM, after being in the green at $448.069MM 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 0.14%, 1.11%, and 1.74%, respectively. Overall, week-over-week the yield on the two-year general obligation (GO) bond fell seven basis points (bps), while the yields the 10- and 30-year GO bonds each fell five 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 0.34%, 1.37%, and 1.93%, respectively. Overall, week-over-week the yield on the two-year GO bond fell five bps, while the yields on the 10- and 30-year GO bonds each fell three bps.


New-Issue Volume is Forecasted to be Around $3.33B for the Week

Total new-issue offerings for the holiday-shortened trading week per IHS Markit Ipreo are estimated to be $3.33B. This week’s projected low level of bond issuance is expected and is comprised of $2.39B in negotiated deals and $940.0MM in competitive sales. Leading the way this week will be the Golden State Tobacco Securitization Corporation which is set to price $995.6.0MM of taxable enhanced tobacco settlement asset-backed bonds, Series 2021A, serials: 2021-2022, 2029-2035; term: 2038. Jefferies LLC will run the books. Staying in California, the Successor Agency to the La Quinta Redevelopment Agency is set to price $158.9MM of tax allocation taxable refunding bonds, serials 2021-2034.

Other negotiated deals this week include but are not limited to the following offerings. The Washington State Convention Center is set to price $345.0MM of nonrated green junior lodging tax notes on Tuesday. The Cleveland-Cuyahoga County Port Authority is set to price $279.9MM of taxable VA Cleveland Health Care Center Project federal lease revenue bonds on Tuesday. The Pennsylvania Turnpike Commission (A1/A+/A+/AA-) is set to price $250.0MM of turnpike revenue bonds on Tuesday. The deal is rated A1 by Moody’s Investors Service (Moody’s), A+ by both Standard and Poor’s Global Ratings (S&P) and Fitch Ratings (Fitch) and AA- by Kroll Bond Rating Agency (KBRA). The Board of Trustees of the University of Arkansas is set to price $138.9MM of UAMS Campus various facilities taxable and tax-exempt revenue bonds on Wednesday. The deal is rated Aa2 by Moody’s. The Kentucky Asset/Liability Commission is set to price $114.6MM of general fund refunding project notes, 2021 Series A on Wednesday. The deal is rated A1 by Moody’s.

In the competitive markets, Palm Springs Unified School District, California is set to sell $118.0MM of GO bonds at noon eastern on Tuesday. Oklahoma City is set to sell $116.0MM of tax-exempt GOs at 9:30 a.m. eastern and $30.0MM of taxable GOs at 10 a.m. eastern on Tuesday.


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

Investors in municipal bond put cash into funds for a third week in a row, as tax-exempt weekly reporting funds experienced inflows of $592.407MM in the latest week, after experiencing inflows of $1.267B the week prior. The four-week moving average remained positive at $586.750MM, after being in the green $448.069MM the week prior.

Long-term municipal bond funds had inflows of $513.229MM in the latest week after experiencing inflows of $1.200B the week prior. Intermediate-term funds had inflows of $99.713MM after inflows of $111.568MM the week prior. National funds had inflows of $618.479MM after experiencing inflows of $1.255B the week prior. High-yield municipal funds reported inflows of $256.058MM in the latest week, after inflows of $650.467MM the week prior. Exchange traded funds reported inflows of $225.785MM, after inflows of $213.324MM 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, especially as more sectors in the municipal market are having their outlooks revised back to stable from negative, as overall credit quality stabilizes and improves. Week-over-week, BQ spreads were mixed as the five-year maturity widened by two bps and the 15-year maturity was unchanged. Meanwhile the week-over-week BQ spreads on the one-, two-, five-, 10-, and 30-year maturities all tightened, with largest tightening occurring in the one-year maturity, seven bps.


Daily Overview of the General Market for the Week Ending March 26th 

Last Monday municipals prices were mixed, as the first of the trading week’s $8.9B in new-issue long-term debt was offered. On the day, the yield on the two-year GO bond fell two bps, while the yields on the 10- and 30-year GO bonds were unchanged, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys strengthened, as did U.S. Stock prices for the session. The Dow finished up 103 points, or 0.3% while the S&P was up 0.7% and the NASDAQ was up 1.2%. On the day, the yield on the two-year maturity fell one bp, while the yield on the 10-year maturity fell five bps and the yield on the 30-year maturity fell seven bps. The 10-year municipal-to-Treasury ratio rose to 68.6% on Monday from last Friday’s level of 66.7%, while the 30-year municipal-to-Treasury ratio rose to 75.2% on Monday from Last Friday’s level of 73.1%.

Last Tuesday municipals prices strengthened across the curve, as a variety of new-issue offerings came to market including the $250.0MM competitive offering by the New Jersey Educational Facilities Authority of Princeton University Revenue Bonds and the $510.0MM offering of senior lien revenue bonds, Series 2021B for the Central Texas Regional Mobility Authority. The deal was 20 times oversubscribed with $10.0B in orders. On the day, the yields on the two-, 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 were mixed on Tuesday, as U.S. stock prices fell for the session. The Dow was down 308 points or 0.9%, while the S&P was down 0.8% and the NASDAQ was down 1.1%. On the day, the yield on the two-year maturity was unchanged, while the yield on the 10-year maturity fell six bps and the yield on the 30-year maturity fell four bps. The 10-year municipal-to-Treasury ratio rose to 69.3% on Tuesday from Monday’s level of 68.6%, while the 30-year municipal-to-Treasury ratio was unchanged on Tuesday from Monday’s level of 75.2%.

Last Wednesday municipals prices strengthened again, as several new-issue offerings were priced in the municipal market including the New York City Transitional Finance Authority repricing of its $1.0B deal to double-digit lower yields for the day. On the day, the yields on the two-, 10-, and 30-year GO bonds each fell two bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys also strengthened on Wednesday, as U.S. stock prices fell for the session. The Dow was slightly down at 0.01%, while the S&P was down 0.6% and the NASDAQ was down 2.0%. On the day, the yields on the two- and 10-year maturities each fell one bp, while the yield on the 30-year maturity fell three bps. The 10-year municipal-to-Treasury ratio fell to 68.5% on Wednesday from Tuesday’s level of 69.3%, while the 30-year municipal-to-Treasury ratio bumped up 75.3% on Wednesday from Tuesday’s level of 75.2%.

Last Thursday municipals prices were steady across the curve, as the last of the week’s new-issue offerings came to market including but not limited to $400.0MM of general revenue bonds for the Triborough Bridge and Tunnel Authority and $213.5MM of unlimited tax school building bonds for the Carrollton-Farmers Branch Independent School District, Texas. 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 last Thursday, as U.S. equity prices rose for the session. The Dow was up 199 points or 0.6%, while the S&P was up 0.5% and the NASDAQ was barely up 0.1%. On the day, the yield on the two-year maturity was unchanged, while the yield on the 10-year maturity rose one bp and the yield on the 30-year maturity rose three bps. The 10-year municipal-to-Treasury ratio fell to 68.1% on Thursday from Wednesday’s level of 68.5%, while the 30-year municipal-to-Treasury ratio fell to 74.4% on Thursday from Wednesday’s level of 75.3%.

Last Friday municipal prices were mostly steady, as market participants started looking ahead to the $3.33B in expected new-issue offerings in the holiday-shortened 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 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 yield on the two-year maturity was unchanged, while the yield on the 10-year maturity rose four bps and the yield on the 30-year maturity rose three bps. The 10-year municipal-to-Treasury ratio fell to 66.5% on Friday from Thursday’s level of 68.1%, while the 30-year municipal-to-Treasury ratio fell to 73.4% on Friday from Thursday’s level of 74.4%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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