Muni Update

March 30, 2020



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


Municipal Market Recap

Municipal prices started the week steady across the curve. For the rest of the week municipal prices strengthened daily across the curve. Issuance for the trading week is projected to be $12.9B, which is well above last week’s new-issue level. This week’s projected level of new-issue offerings together with secondary market opportunities should provide market participants with several opportunities to meet demand, especially given the continued strong demand in the municipal market. Driving this strong demand in the municipal market is the continuing presence of high redemption flows.

Investors in municipal bond funds pulled cash out of funds for the fourth week in a row, as weekly reporting funds experienced outflows of $13.678B after experiencing outflows of $12.214B the week prior. The four-week moving average was a negative $6.975B, after being a negative $2.989B the week prior. Investors still facing low or negative rates overseas continue to find positive yielding U.S. assets attractive.

In other municipal market areas, the coronavirus has exposed municipal issuers to interest rate and liquidity risks related to outstanding short-term and variable rate debt. The disruption comes as many issuers may need to raise cash to address sharp revenue declines and wide budget imbalances. In response, the Federal Reserve has added municipal securities with a maturity of up to 12 months, including variable rate demand bonds (VRDBs), to its Money Market Mutual Fund Liquidity Facility (MMLF) to help support the flow of credit to the economy.

Last week the yield on the two-year maturity on the MMD Triple-A Scale fell six basis points (bps) from Thursday to Friday and it ended the week at 1.06%. Meanwhile, the yields on the 10- and 30 maturity fell eight bps on the MMD Triple-A Scale from Thursday to Friday and they ended the week at 1.43% and 1.84%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond fell 146 bps, while the yield on the 10-year GO bond fell 136 bps and the yield on the 30-year GO bond fell 153 bps.

Last week the yield on the two-year maturity on the MMA Triple-A Scale fell eight bps from Thursday to Friday and ended the week at 1.22%. Meanwhile the yields on the 10- and 30-year maturities on the MMA Triple-A Scale fell nine bps and seven bps from Thursday to Friday and they ended the week at 1.54% and 2.08%, respectively. Overall, week-over-week the yield on the two-year GO bond fell 139 bps, while the yields on the 10- and 30-year GO bonds each fell 143 bps.


New-Issue Volume is Forecasted to be Just $12.9B for the Week

Total new issuance for the trading week per IHS Markit Ipreo is estimated to be $12.9B, which is well above last week’s extremely-low level of new-issue offerings. Some of the larger negotiated deals this week include the $175.0MM offering by the New York State Environmental Facilities Corporation on Tuesday. On Wednesday a $330.0MM offering from the New York Transportation Development Corporation is scheduled, as is a $298.0MM offering from Nashville Davidson Counties.

In the competitive arena an offering of $441.3MM by the Multnomah County School District No. J1, Portland, Oregon is scheduled for Thursday, as is a $160.MM offering from the City of Milwaukee, Wisconsin.


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

Investors in municipal bond funds pulled cash out of funds for the fourth week in a row, as tax-exempt weekly reporting funds experienced outflows of $13.678B in the latest week, after experiencing outflows of $12.214B the week prior. The four-week moving average grow to a negative $6.975B, after being a negative $2.989B the week prior.

Long-term municipal bond funds had outflows of $9.422B in the latest week after experiencing outflows of $9.341B the week prior. Intermediate-term funds had outflows of $1.687B after outflows of $1.134B the week prior. National funds had outflows of $12.063B after experiencing outflows of $10.827B the week prior. High-yield municipal funds reported outflows of $4.282B in the latest week, after outflows of $5.332B the week prior. Exchange traded funds reported outflows of $607.201MM after outflows of $669.315MM the week prior.


Demand in the Bank Qualified (BQ) Market Remains Strong

The expected level of new-issue paper this week coupled with secondary market opportunities should provide BQ market participants with 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 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. Week-over-week, bank qualified spreads were wider, with the largest widening occurring in the one-year maturity, 65 bps.


Daily Overview of the General Market for the Week Ending March 27th

Last Monday, municipal prices were steady, following the Fed’s move to add variable rate demand notes to its list of assets it would purchase. 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 strengthened, as U.S. stocks finished down for the session, after the U.S. Senate failed for a second time to vote through the coronavirus economic relief package. The Dow finished down 3.0%, or 583 points, while the S&P 500 was down 2.9% and the NASDAQ finished 0.3% lower. On the day, the yield on the two-year maturity fell nine bps, while the yield on the 10-year maturity fell 16 bps and the yield on the 30-year maturity fell 22 bps. The 10-year municipal-to-Treasury ratio jumped to 367.1% on Monday from last Friday’s level of 303.3%, while the 30-year municipal-to-Treasury ratio jumped to 253.4% on Monday from last Friday’s level of 217.4%.

Last Tuesday prices on municipals strengthened, as participants placed bets that a stimulus package from Washington was coming closer to being a reality and that the news the Federal Reserve may be given authority to buy longer-dated municipal debt made its way around the market. On the day, the yield on two-year GO bond fell 25 bps, while the yields on the 10- and 30-year GO bonds each fell 20 bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys weakened, as U.S. stocks bounced back recouping all of Monday’s losses and more, as investors grew optimistic about the government’s response to the coronavirus crisis. The Dow recorded its biggest point gain on record, as it rose 11.4%, or 2,113 points for the session. The S&P 500 was up 9.4%, its best day since 2008, and the NASDAQ was up 8.1%. On the day, the yield on the two-year maturity rose 10 bps, while the yield on the 10-year maturity rose eight bps and the yield on the 30-year maturity rose six bps. The 10-year municipal-to-Treasury ratio fell to 308.3% on Tuesday from Monday’s level of 367.1%, while the 30-year municipal-to-Treasury ratio fell to 228.1% on Tuesday from Monday’s level of 253.4%.

Last Wednesday the municipal market experienced an enormous rally as municipal prices strengthened across the curve. This movement was a swift reversal from the pronounced sell off the municipal market had experienced over the past several trading sessions because of the coronavirus. On the day, the yields on the two-, 10-, and 30-year GO bonds each fell 65 bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed, as did US stocks, as Congress agreed to a deal on the economic relief bill, which eased investors’ fears. For the session the Dow and the S&P posted their first back-to-back gains in weeks, as the Dow was up 2.4% and the S&P was up 1.2%. The NASDAQ was down 0.5% for the session. On the day, the yield on the two-year maturity fell four bps, while the yield on the 10-maturity rose four bps and the yield on the 30-maturity rose six bps. The 10-year municipal-to-Treasury ratio dropped to 220.5% on Wednesday from Tuesday’s level of 308.3%, while the 30-year municipal-to-Treasury ratio dropped to 173.8% on Wednesday from Tuesday’s level of 228.1%.

Last Thursday prices on municipals experienced another significant rally, as yields dropped another 40 to 60 bps across the curve, leaving them down 1.5% since the Federal Reserve announced its quantitative easing measures that include purchasing municipals on March 20th. In addition, the recent strengthening has resulted in several issuers that had retreated to the sideline during the sell-off, jumping back into the market with new-issue offering during the day. On the day the yield on the two-year GO bond fell 50 bps, while the yield on the ten-year GO  bond fell 43 bps and the yield on the 30-year GO bonds fell 60 bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices also strengthened, as U.S. stocks closed higher on Thursday, as the Senate approved the economic relief bill which further eased investors’ fears. The Dow was up 6.4%, while the S&P was up 6.2% and the NASDAQ was up 5.6% for the session. On the day, the yield on the two-year maturity fell four bps, while the yield on the 10-year maturity fell five bps and the yield on the 30-year maturity fell three bps. The 10-year municipal-to-Treasury ratio fell to 181.9% on Thursday from Wednesday’s level of 220.5%, while the 30-year municipal-to-Treasury ratio fell to 135.2% on Thursday from Wednesday’s level of 173.8%.

Last Friday prices on municipals continued the rally started on Tuesday, although at a much more modest pace, as yields only fell six to eight bps across the curve. In addition, market participants will be looking ahead to the expected $12.9B in new-issue long-term debt to be offered next week. On the day, the yield on the two-year GO bond fell six bps, while the yields on the 10- and 30-year GO bonds each fell eight bps, according to the final read of the MMD Triple-A Scale.

Treasury prices were mixed, as U.S. stocks ended the session lower, but this did not keep the major indexes from posting one of their best weeks. For the session the Dow closed down 915 points, or 4.1% lower, and still recorded its best week since June 1938, gaining 12.8%. The S&P 500 finished down 3.4%, for a weekly gain of 10.3%. These gains resulted in the S&P having it best week since March 2009. Finally, the NASDAQ fell 3.8%, but for the week it was up 9.1%, and just like the S&P it was the NASDAQ’s best performance since March 2009. On the day, the yield on the two-year maturity fell five bps, while the yield on the 10-year maturity fell 11 bps and the yield on the 30-year maturity fell 13 bps. The 10-year municipal-to-Treasury ratio rose to 198.6% on Friday from Thursday’s level of 181.9%, while the 30-year municipal-to-Treasury ratio rose to 142.6% on Friday from Thursday’s level of 135.2%.


Taxable Market






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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