Muni Update

March 7, 2022


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


Municipal Market Recap

Municipal bond started the week mixed, as the prices on bonds maturing 10 years and in strengthened, while prices on bonds on the long end were steady. On Tuesday municipal prices strengthened across the curve. On Wednesday municipal prices were mixed again, as the prices on bonds in the front-end were steady, while prices on bonds maturing 10 years and longer weakened. On Thursday municipal prices weakened across the curve. On Friday municipal prices were steady.

Issuance data for February shows municipal bond issuance fell 28.5% year-over-year for February. This fall in issuance was led in part by drops in both in taxable and refunding issuance amid extreme market volatility and a rising-rate environment. Total issuance in February was $26.481B on 594 deals versus $37.052B on 981 issues a year earlier. Taxable issuance totaled a mere $2.825B on 73 issues, down 79.9% from $14.079B on 247 issues a year ago, while refunding volume decreased 34.3% to $5.630B from $8.570B in 2021.

This week, the projected level of new-issue offerings jumps to $10.41B for the trading week, nearly double last week’s level, and the largest level of new-issue offerings so far this year in a week. 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 third week in a row, as tax-exempt weekly reporting funds data showed that funds experienced outflows of $2.824B in the latest week, after experiencing outflows of $1.154B the week prior. The four-week moving average was a negative $1.264B, it was a negative $1.285B the week prior.

Last week the yields on the two-, 10-, and 30-year maturities on the MMD Triple-A were unchanged from Thursday to Friday and they ended the week at 1.08%, 1.61%, and 2.03%, respectively. Overall, week-over-week the yield on the two-year general obligation (GO) bond was unchanged, while the yield on the 10-year GO bond rose one basis point (bp) and the yield on the 30-year GO bond rose 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 0.99%, 1.87%, and 2.41%, respectively. Overall, week-over-week the yields on the two- and 30-year maturities were unchanged, while the yield on the 10-year maturity fell one bp.


New-Issue Volume is Forecasted to be $10.41B for the Trading Week

Total new-issue offerings for the trading week per IHS Markit Ipreo are $10.41B. This week’s projected level of bond issuance is comprised of $8.92B in negotiated deals and $1.49B in competitive deals. The largest deal of the week will come from the State of California, which plans to offer $2.209B of various purpose GO bonds and various purpose GO refunding bonds; consisting of $1.458B of Series 22NM, and $751.09MM of Series 22REF on Wednesday. The deal is rated Aa2 by Moody’s Investors Service (Moody’s), AA- by Standard and Poor’s Global Ratings (S&P), and AA by Fitch Ratings (Fitch).

Kicking off activity on Tuesday will be a number of offerings including but not limited to the following.  A $300.0MM offering of taxable corporate CUSIP bonds, Series 2022A for Howard University. The deal is rated BBB- by S&P and Fitch. Allen Independent School District, Texas, plans to offer $221.595MM of taxable unlimited tax bonds, Series 2022, guaranteed by the Permanent School Fund Guarantee Program.  Jefferson Parish Consolidated Waterworks District No. 2, Louisiana, will price $177.745MM of water revenue and refunding bonds, Series 2022, insured by Build America Mutual. Nova Southeastern University, Florida is set to price $150.0MM of taxable corporate CUSIP bonds, Series 2022. The Virginia Electric and Power Company is set to price $137.5MM of bonds; consisting of $37.5MM of Series 2008C and $100.0MM of Series 2010A. The deal is rated A2 by Moody’s and BBB+ by S&P. Finally on Tuesday, the State of Louisiana is set to price $121.25MM of gasoline and fuels tax second lien revenue refunding bonds, 2022. The deal is rated Aa3 by Moody’s and AA- by S&P. Series A. Morgan Stanley.

Wednesday will also see a number of negotiated offerings come to market including but not limited to the following deals. The New York City Transitional Finance Authority (NYC TFA) is set to price $844.855MM of tax-exempt future tax-secured subordinate bonds; consisting of $780.45MM of Fiscal 2022 Series D Subseries D-1, and $64.405MM of Fiscal 2022 Series E. The deal is rated Aa1 by Moody’s and AA+ by S&P. The Regents of the University of Michigan is set to price $1.5B of bonds; consisting of $1.2B of Series 2022A and $300.0MM of Series 2022B on Wednesday. The deal is rated Triple-A by Moody’s and S&P. The University of Massachusetts Building Authority is set to price $559.565MM; consisting of $351.95MM of taxable project revenue bonds, Senior Series 2022-2, and $207.615MM of taxable refunding revenue bonds, Senior Series 2022-3. The deal is rated Aa2 by Moody’s. AA- by S&P and AA by Fitch. The Dormitory Authority of the State New York is set to price $148.015MM of tax-exempt The New School Revenue Bonds, Series 2022A. The deal is rated A3 by Moody’s and BBB+ by S&P.  Finally on Wednesday, the Hospitals and Higher Education Facilities Authority of Philadelphia, is set to price $173.905MM of revenue bonds, Series 2022. The deal is rated Baa3 by Moody’s, and BBB by S&P and Fitch.

New-issue activity will continue on Thursday as the Denver Public Schools, Colorado, will price $345.0MM of GO Series 2022A bonds. The deal is rated Aa1 by Moody’s and AA by S&P and Fitch. The Northern California Power Agency’s offering of $119.72MM of Hydroelectric Project Number One revenue bonds, 2022 Refunding Series A. The deal is rated Aa3 by Moody’s and AA- by Fitch.  Finally on Thursday, the District of Columbia Water and Sewer Authority is set to price $100.0MM of public utility subordinate lien multimodal revenue bonds, Series 2022E.

On the day-to-day calendar is the $289.255MM offering of taxable unlimited tax bonds, Series 2022 bonds, guaranteed by Permanent School Fund Guarantee Program and to be issue by the Northwest Independent School District, Texas.  Also on the day-to-day calendar is the Regents of the University of Michigan’s $582.74MM offering of taxable general revenue bonds, Series 2022C. The deal is rated Triple-A by Moody’s and S&P.

In the competitive arena the Board of Trustees of the University of Alabama System, plan to sell $159.3MM of University of Alabama at Birmingham general revenue bonds, Series 2022-A, at 11 a.m. eastern on Tuesday. This issuer will also sell $9.71MM of University of Alabama at Birmingham general revenue bonds, Series 2022-B, at 11 a.m. eastern on Tuesday. The deals are rated AA by S&P. The New York City Transitional Finance Authority is set to sell $198.0MM of taxable future tax-secured taxable subordinate bonds, Fiscal 2022 Subseries D-2, at 10:45 a.m. eastern Wednesday. The deal is rated Aa1 by Moody’s and AA+ by S&P.


Municipal Bond Funds Posted Outflows for a Third 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 $2.824B in the latest week, after experiencing inflows of $1.154B the week prior. The four-week moving average was a negative $1.264B, after being a negative $1.285B the week prior.

Long-term municipal bond funds had outflows of $2.215B in the latest week, after experiencing outflows of $524.743MM the week prior. Intermediate-term funds had outflows of $465.469MM after outflows of $262.040MM the week prior. National funds had outflows of $2.528B after experiencing outflows of $909.473MM the week prior. High-yield municipal funds reported outflows of $818.318MM in the latest week, after outflows of $282.504MM the week prior. Exchange traded funds reported outflows of $62.672MM, after inflows of $288.247MM the week prior.


Demand in the Bank Qualified (BQ) Market Remains Strong

BQ participants continue to be focused on the new-issue paper and the expected level of both BQ and general market (GM) new-issue paper this trading week, together with secondary market offerings should provide BQ market participants with some opportunities to fill their needs, as demand continues to remain strong. This significant 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 demand from funds despite the recent outflows. We also note that customers should be watching the 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 widened across the curve, with the largest widening occurring in the 15-year maturity, 30-bps.


Daily Overview of the General Market for the Week Ending March 4th

On Monday municipal prices were mixed, as they underperformed the U.S Treasury flight-to-quality rally, as the first of the trading week’s $5.45B in new-issue long-term debt was offered. On the day, the yields on the two- and 10-year GO bonds each fell two bps, while the yield on the 30-year GO bond was steady, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys strengthened on Monday, while U.S. stocks, which fell on the open and into the early afternoon before and paring a good portion of earlier losses by the session close. The Dow finished down 166 points or 0.5%%, while the S&P was down 0.2% and the NASDAQ was up 0.4%. On the day, the yield on the two-year maturity fell 11 bps, while the yield on the 10-year maturity fell 14 bps and the yield on the 30-year maturity fell 12 bps. The 10-year municipal-to-Treasury ratio rose to 86.3% on Monday from last Friday’s level of 81.2%, while the 30-year municipal-to-Treasury ratio rose to 91.2% on Monday from last Friday’s level of 86.5%.

On Tuesday municipal prices strengthened across the curve, as the U.S Treasury flight-to-quality continued. On the day a number of negotiated and competitive new-issue offerings came to market, including the largest deal of the week, the $792.83MM negotiated offering of water and sewer system second general resolution revenue bonds, Fiscal 2022 Series EE bonds from the New York City Municipal Water Finance Authority. On the day, the yield on the two-year GO bond fell one bp, while the yields on the 10- and 30-year GO bonds each fell five bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were strengthened on Tuesday, as U.S. stocks fell sharply for the first session of March, as investors weighed intensifying Russian attacks on Ukraine and the impact of Western sanctions on Moscow. The Dow finished down 598 points or 1.8%, while the S&P and the NASDAQ were both down 1.6%. On the day, the yield on the two-year maturity fell 13 bps, while the yield on the 10-year maturity fell 11 bps and the yield on the 30-year maturity was fell six bps. The 10-year municipal-to-Treasury ratio rose to 89.0% on Tuesday from Monday’s level of 86.3%, while the 30-year municipal-to-Treasury ratio bumped up to 91.5% on Tuesday from Monday level of 91.2%.

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 yield on the 10- and 30-year GO bonds each rose three bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys weakened on Wednesday, while U.S. stocks rose for the session. The Dow finished up 596 points or 1.8%, while the S&P was up 1.9% and the NASDAQ was up 1.6%. On the day, the yield on the two-year maturity rose 19 bps, while the yield on the 10-year maturity rose 16 bps and the yield on the 30-year maturity rose 13 bps. The 10-year municipal-to-Treasury ratio fell to 83.9% on Wednesday from Tuesday’s level of 89.0%, while the 30-year municipal-to-Treasury fell to 88.5% on Wednesday from Tuesday’s level of 91.5%.

On Thursday, municipal prices weakened across the curve, as the last of the week’s new-issue offerings came to market. On the day, the yield on the two-year GO bond rose three bps, while the yield on the 10-year GO bond rose five bps and the yield on the 30-year GO bonds rose seven bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were mixed on Thursday, while U.S. stocks fell for the session. The Dow finished down 97 points or 0.3%, while the S&P was down 0.5% and the NASDAQ was down 1.6%. On the day, the yield on the two-year maturity rose three bps, while the yields on the 10- and 30-year maturities were unchanged. The 10-year municipal-to-Treasury ratio rose to 86.6% on Thursday from Wednesday’s level of 83.9%, while the 30-year municipal-to-Treasury ratio rose to 90.6% on Thursday from Wednesday’s level of 87.5%.

Last Friday municipals prices were mostly steady across the curve, as market participants looked ahead to the $10.41B in expected new-issue offerings in the upcoming 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 strengthened on Friday, while U.S. stocks fell for the session, as investors eyed a much stronger-than-expected report on the labor market’s recovery and continued to monitor for global economic fallout from Russia’s war in Ukraine. The Dow was down 180 points or 0.5%, while the S&P was down 0.8% and the NASDAQ was down 1.7%. On the day, the yield on the two-year maturity fell three bps, while the yield on the 10-yearmaturity fell 12 bps and the yield on the 30-year maturity fell eight bps. The 10-year municipal-to-Treasury ratio rose to 92.5% on Friday from Thursday’s level of 86.6%, while the 30-year municipal-to-Treasury rose to 94.0% on Friday from Thursday’s level of 90.6%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks

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