Muni Update

March 8, 2021


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


Municipal Market Recap

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

The projected level of new-issue offerings for the trading week are $9.04B and coupled with bank qualified (BQ) and general market (GM) offerings in the secondary market should provide market participants with some opportunities to fill their needs, especially as strong demand continues due to redemption activity, and overall inflows into funds, both of which have been contributing to demand continuing to outpace supply the year. For the latest reporting period, investors in municipal bond funds pulled cash out of funds for a first time since November 4, 2020, as tax-exempt weekly reporting funds data showed that funds experienced outflows of $600.044MM in the latest week, after experiencing inflows of $37.683MM the week prior. The four-week moving average remained positive at $1.008B, after being in the green at $1.554B the week prior.

We note that it is expected that reinvestment demand will be slowing down over the next few months, as March redemptions will be down $2.0B from last month, and April and May totals will be lower still, per CreditSights. In addition to the $26.0B in maturing and called bond proceeds scheduled to be returned to investors in March, CreditSights estimates that $8.1B of municipal interest will be paid out (the lightest month this year). Total redemptions for this year now total over $312.0B but will likely grow, as issuers continue to refinance older bonds. Demand should accelerate in June when redemptions jump 90% from May’s expected total and issuers will be paying out the largest amount of interest this year.

Last week the yield on the two-year maturity on the MMD Triple-A Scale was unchanged from Thursday to Friday and ended the week at 0.13%. Meanwhile, the yields on the 10- and 30-year maturities each fell one basis point (bp) on the MMD Triple-A Scale from Thursday to Friday and they ended the week at 1.11% and 1.76%, respectively. Overall, week-over-week the yield on the two-year general obligation (GO) bond fell six bps, while the yield on the 10-year GO bond fell three bps and the yield on the 30-year GO bond fell four bps.

Last week the yields on the two- and 30-year maturities on the MMA Triple-A Scale each fell two bps from Thursday to Friday and they ended the week at 0.35% and 1.92%, respectively. Meanwhile, the yield on the 10-year maturity fell one bp on the MMA Triple-A Scale from Thursday to Friday and ended the week at 1.36%. Overall, week-over-week the yield on the two-year GO bond fell six bps, while the yield on the 10-year GO bond fell four bps and the yield on the 30-year GO bond fell five bps.


New-Issue Volume is Forecasted to be Around $9.04B for the Week

Total new-issue offerings for the trading week per IHS Markit Ipreo are estimated to be $9.04B. This week’s projected bond issuance is comprised of $6.64B in negotiated deals and $2.40B in competitive sales. Leading the way this week will be the State of California’s $1.8B in various purpose GO and refunding bonds. The bonds will be offered in two series and are scheduled to be priced on Thursday.

That deal will be followed by a $573.0MM offering of New York City Municipal Water Finance Authority, water and sewer system second general resolution revenue bonds to be priced Wednesday. Also, on Wednesday, the Massachusetts Port Authority plans to offer $417.0MM of serial and term revenue bonds. The deal is comprised of $359.1MM of Series 2021E bonds subject to the alternative minimum tax (AMT) with serials in 2024 to 2041 and term bonds in 2046 and 2051. The Series 2021 D non-AMT bonds will consist of $57.7MM of serials from 2024 to 2041 and terms in 2046 and 2051.

Other large deals this week include a $313.0MM offering of Wisconsin transportation revenue and taxable refunding bonds on Wednesday. A $296.0MM offering of Union County, North Carolina revenue bonds, also on Wednesday, while a $254.9MM offering of City and County of San Francisco taxable GO bonds are slated for pricing on Thursday.

Elsewhere in the negotiated market, a $246.0MM offering of Wichita Falls, Texas, Independent School District unlimited tax school building bonds, which are enhanced by the by the Texas Permanent School Fund will be priced on Tuesday. The California School Finance Authority will sell $237.0MM of state aid intercept notes in a structure that includes $79.0MM of Series A1 tax-exempt paper; $126.9MM of Series A2 and $37.2MM of Series B, both taxable notes. The deal will be priced by RBC Capital Market on Wednesday. The Jackson Laboratory will sell $203.0MM of taxable corporate CUSIP bonds in a deal being priced on Wednesday.

In the competitive market, meanwhile, among the largest deals is a two-pronged offering from the Virginia Public Building Authority consisting of $264.8MM of serial revenue bonds in a Series A-1 and $275.0 in Series A-2, both are slated for bids on Tuesday. On Wednesday, Anne Arundel County, Maryland, plans to sell $256.0MM of GO bonds consisting of $187.1MM of consolidated general improvement Series 2021 and $69.2MM consolidated water and sewer Series 2021. Anne Arundel will also sell a $158.2MM offering of GO bonds consisting of $110.0MM of consolidated general improvement refunding Series 2021 and $47.3MM of consolidated water and sewer series refunding Series 2021.


Municipal Bond Funds Posted Outflows for the Week

Investors in municipal bond pulled cash out of funds for the first time since November 4, 2020, as tax-exempt weekly reporting funds experienced outflows of $600.044MM in the latest week, after experiencing inflows of $37.683MM the week prior. The four-week moving average remained positive at $1.008B, after being in the green $1.554B the week prior.

Long-term municipal bond funds had outflows of $667.421MM in the latest week after experiencing outflows of $237.902MM the week prior. Intermediate-term funds had inflows of $69.248MM after inflows of $224.436MM the week prior. National funds had outflows of $455.823MM after experiencing inflows of $22.570MM the week prior. High-yield municipal funds reported outflows of $721.728MM in the latest week, after outflows of $330.188MM the week prior. Exchange traded funds reported inflows of $181.222MM, after outflows of $327.487MM 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, and sell lower coupons (e.g., 2%), with long finals to alleviate price volatility in the portfolio. Week-over-week, BQ spreads tightened across the curve, with largest tightening occurring in the 15-year maturity, 30 bps.


Daily Overview of the General Market for the Week Ending March 5th 

Last Monday municipals prices were mixed, as the first of the trading week’s $6.2B in new-issue long-term debt was offered. On the day, the yields on the two- and 10-year GO bonds each rose one bp, 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 were mixed on Monday, as U.S. stock prices rose the session. The Dow finished up 603 points, or 2.0%, while the S&P was up 2.4% and the NASDAQ was up 3.0%. On the day, the yield on the two-year maturity fell one bp, while the yield on the 10-year maturity rose one bp and the yield on the 30-year maturity rose six bps. The 10-year municipal-to-Treasury ratio bumped up to 79.3% on Monday from last Friday’s level of 79.2%, while the 30-year municipal-to-Treasury fell to 80.7% on Monday from last Friday’s level of 82.9%.

Last Tuesday municipals prices were steady, as a variety of new-issue offerings came to market including the second day of retail pricing for the New York City offering of $1.25B of GO bond. 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 were mixed on Tuesday, as U.S. stock prices fell for the session. The Dow was down 144 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 was unchanged, while the yield on the 10-year maturity fell three bps and the yield on the 30-year maturity fell two bps. The 10-year municipal-to-Treasury ratio rose to 81.0% on Tuesday from Monday’s level of 79.3%, while the 30-year municipal-to-Treasury rose to 81.5% on Tuesday from Monday’s level of 80.7%.

Last Wednesday municipals prices were mixed, as several new-issue offerings were priced including the institutional pricing of the $1.25B offering of New York City GO bonds and the competitive pricing of the State of Maryland’s $145.0MM tax-exempt unlimited tax GO bonds and the $205.0MM offering of tax-exempt limited tax GO bonds. 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 weakened on Wednesday, as U.S. stocks fell for the session. The Dow finished down 121 points or 0.4%, while the S&P was down 1.3% and the NASDAQ was down 2.7%. On the day, the yield on the two-year maturity rose one bp, while the yield on the 10-year maturity rose five bps and the yield on the 30-year maturity rose four bps. The 10-year municipal-to-Treasury ratio fell to 78.2% on Wednesday from Tuesday’s level of 81.0%, while the 30-year municipal-to-Treasury ratio fell to 80.0% on Wednesday from Tuesday’s level of 81.5%.

Last Thursday municipals prices strengthened across the curve, resulting in municipal yields falling and not following US Treasury yields higher for the session, as the last of the week’s new-issue offerings came to market. On the day, 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, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were mixed on Thursday, as U.S. equities sold-off after Federal Reserve Chairman Jerome Powell tried to calm investor concerns over inflation and rising rates to no avail. The Dow was down 346 points or 1.1%, while the S&P was down 1.3% and the NASDAQ was down 2.1%. On the day, the yield on the two-year maturity was unchanged, while the yield on the 10-year maturity rose seven bps and the yield on the 30-year maturity rose five bps. The 10-year municipal-to-Treasury ratio fell to 72.7% on Thursday from Wednesday’s level of 78.2%, while the 30-year municipal-to-Treasury ratio fell to 77.0% on Thursday from Wednesday’s level of 80.0%.

Last Friday municipal prices were mixed, as market participants started looking ahead to the $9.04B in expected new-issue offerings next week. 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 fell one bp, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were also mixed on Friday, while U.S. stocks prices rose for the session. The Dow was up 572 points, or 1.9%, while the S&P was up 2.0% and the NASDAQ was up 1.6%. 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 two bps. The 10-year municipal-to-Treasury ratio fell to 71.2% on Friday from Thursday’s level of 72.7%, while the 30-year municipal-to-Treasury bumped up to 77.2% on Friday from Thursday’s level of 77.0%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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