Muni Update

March 9, 2020



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


Municipal Market Recap

Municipal prices were mixed through Thursday. On Monday the short-end strengthened, while bonds maturing 10 years and longer were steady. On Tuesday the Federal Open Market Committee (FOMC) cut the fed funds rate by 50 basis points (bps) to a range between 1.0% and 1.25%. The decision to cut the rate was unanimous and after the emergency cut, stocks were briefly in the black before taking a big dip, while U.S. Treasurys rallied and municipals turned weaker. On the day, the front-end was steady while bonds maturing 10 years and longer weakened. On Wednesday the front-end strengthened, while bonds maturing 10 years and longer were steady. Thursday’s municipal price action was a repeat of Wednesday’s. On Friday municipal process strengthened across the curve. Issuance for the trading week is projected to be $11.01B, which is above last week’s new-issue level. This projected level of new-issue offerings coupled with secondary market opportunities should provide market participants with a number of opportunities to meet their needs.

The safe-haven-seeking rally due to fears over the coronavirus (COVID-19) continues to push municipal and U.S. Treasury yields lower and into never before territory. Since January 7th, the yield on the 10-year General Obligation (GO) bond maturity on the MMD Triple-A Scale has fallen 51 bps, while the yield on the 10-year U.S Treasury bond for the same period has fallen 106 bps. The 30-year GO bond maturity on the same scale has fallen 54 bps, while the 30-year U.S Treasury bond yield has fallen 101 bps. The decoupling of municipals yields to U.S Treasury yields (U.S. Treasury yields falling faster than municipal yields) has resulted in the 10- and 30-year municipal-to-Treasury ratios jumping to over 100.0% on both last Thursday and Friday.

Investors in municipal bond funds pulled cash out of funds for the first time in 60 weeks, as weekly reporting funds experienced outflows of $249.657MM after experiencing inflows of $2.266B the week prior. The four-week moving average remained positive $1.478B, after being in the green at $1.948B the week prior. Investors still facing low or negative rates overseas continue to find positive yielding U.S. assets attractive.

Last week the yields on the two-, 10-, and 30-year maturities on the MMD Triple-A Scale each fell 10 bps from Thursday to Friday and they ended the week at 0.53%, 0.86%, and 1.46%, respectively. Overall, week-over-week the yield on the two-year GO bond fell 20 bps, while the yield on the 10-year GO bond fell seven bps and the yield on the 30-year GO bond fell six bps.

Last week the yield on the two-year maturity on the MMA Triple-A Scale fell seven bps from Thursday to Friday and ended the week at 0.68%. Meanwhile the yields on the 10- and 30-year maturities on the MMA Triple-A Scale each fell nine bps from Thursday to Friday and they ended the week at 0.99% and 1.59%, respectively. Overall, week-over-week the yield on the two-year GO bond fell eight bps, while the yield on the 10-year GO bond fell 10 bps and the yield on the 30-year GO bond fell six bps.


New-Issue Volume is Forecasted to be $11.01B for the Week

Total new issuance for the trading week per IHS Markit Ipreo is estimated to be $11.01B, which is above last week’s revised level of issuance. This week’s projected issuance is comprised of $9.45B in negotiated deals and $1.56B in competitive sales. There are a total of 31 deals scheduled that are $100.0MM or larger in par, with five of them competitive. Eight of the $100.0MM or larger deals are taxable or have a taxable tranche.

The State of California plans to offer $2.17B in various purpose GO and refunding bonds on Tuesday. The deal is rated Aa2 by Moody’s Investors Service (Moody’s) and AA- by Standard and Poor’s Global Ratings (S&P) and AA by Fitch Ratings (Fitch). Also this week is a day-to-day offering from the Hope Cultural Education Facilities Finance Corporation, Texas. The $668.95MM offering of senior living revenue tax-exempt and taxable bonds was expected last week, but is now expected this week. There is $470.0MM offering of taxable corporate CUSIP bonds for John Hopkins University scheduled this week that has no specific pricing date. The deal is rated Aa2 by Moody’s, AA by S&P and AA+ by Fitch.

On Wednesday, the Ohio Water Development Authority plans to price $450.0MM of water pollution control loan fund revenue bonds. The deal is rated triple-A by Moody’s and S&P.


Municipal Bond Funds Post Outflows for the First Time in 60 Weeks

Investors in municipal bond funds pulled cash out of funds for the first time in 60 weeks, as tax-exempt weekly reporting funds experienced outflows of $249.657MM in the latest week, after experiencing inflows of $2.266B the week prior. The four-week moving average remained positive at $1.478B, after being in the green at $1.948B the prior week.

Long-term municipal bond funds had outflows of $377.862MM in the latest week after experiencing inflows of $1.674B the week prior. Intermediate-term funds had outflows of $6.813MM after inflows of $359.445MM the week prior. National funds had outflows of $204.484MM after experiencing inflows of $2.040B the week prior. High-yield municipal funds reported outflows of $128.523MM in the latest week, after inflows of $529.060MM the week prior. Exchange traded funds reported outflows of $156.744MM after inflows of $522.955MM 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 at this time. Other market participants continue to find opportunities in both primary offerings and secondary market BQ opportunities, to address their needs. 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. Finally, we recommend market participants look to unsold balance of deals that have priced in the past several weeks, as a chance to possibly pick up cheaper paper compared to more recent new-issue balances and offerings. Week-over-week, bank qualified spreads were wider, with the largest widening occurring in the one-year maturity, 44 bps.


Daily Overview of the General Market for the Week Ending March 6th

Last Monday prices on municipals were mixed, as market participants took a break from their continued flight-to-quality trades, while also looking ahead to the expected $9.1B in new-issue long-term debt to be offered. On the day, the yield on the two-year GO bond fell four bps, while the yields on the 10- and 30-year GO bonds were steady, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were also mixed, as U.S. stocks opened sharply higher and experienced some flipping between gains and losses during mid-morning activity before moving solidly higher by the close. The Dow was up 5.09%, while the S&P was up 4.60% and the NASDAQ was up 4.49%. On the day, the yield on the two-year maturity fell two bps, while the yield on the 10-year maturity fell three bps and the yield on the 30-year maturity rose one bp. The 10-year municipal-to-Treasury ratio rose to 84.6% on Monday from last Friday’s level of 82.3%, while the 30-year municipal-to-Treasury ratio fell to 91.6% on Monday from last Friday’s level of 92.1%.

Last Tuesday prices on municipals were mixed again, and yields were either steady in the front-end or, for maturities 10 years and longer, they rose, thus municipal yields did not participate in the massive Fed rate cut-inspired U.S. Treasury rally. On the day, a number of deals came to market, as the yield on the two-year GO bond was unchanged, while the yield on the 10-year GO bond rose three bps and the yield on the 30-year GO bond rose four bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys strengthened, as U.S. stocks opened down and after the FOMC cut the fed funds rate target 50 bps to a range between 1% and 1.25%, U.S. stocks were briefly in the black before taking a big dip and finishing the session down. The Dow fell 2.94%, while the S&P fell 2.81% and the NASDAQ fell 2.99%. On the day, the yield on the two-year maturity fell 13 bps, while during the day the yield on the 10-year maturity briefly fell below one percent for the first time in history, only to rise back above one percent before the end of trading. Ultimately the yield on the 10-year maturity closed down eight bps, while the yield on the 30-year maturity fell two bps. The 10-year municipal-to-Treasury ratio jumped to 94.1% on Tuesday from Monday’s level of 84.6%, while the 30-year municipal-to-Treasury ratio rose to 95.1% on Tuesday from Monday’s level of 91.6%.

Last Wednesday municipal prices were mixed, as a number of deals came to market including $860.125MM of fiscal 2020 GO bonds. The deal was priced on Monday and Tuesday for retail customers. Also on Tuesday the City added a paragraph about COVID-19 to its preliminary official statement for the deal. On the day, the yield on the two-year GO bond fell four 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 were also mixed, and U.S. stocks bounced back and posted strong results for the session due in part to Joe Biden’s wins on Super Tuesday. The Dow and the S&P closed up 4.53% and 4.22%, respectively, while the NASDAQ closed up 3.85%. On the day, the yield on the two-year maturity fell four bps, while the yield on the 10-maturity was unchanged and the yield on the 30-maturity rose three bps. The 10-year municipal-to-Treasury ratio was unchanged on Wednesday from Tuesday’s level of 94.1%, while the 30-year municipal-to-Treasury ratio fell to 93.4% on Wednesday from Tuesday’s level of 95.1%.

Last Thursday prices on municipals were mixed once again, 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 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.

U.S. Treasury prices strengthened, as U.S. stocks faced another sharp selloff, as worries about coronavirus remain. The Dow and S&P were down, 3.58% and 3.39%, respectively, while the NASDAQ was down 3.10%. On the day, the yield on the two-year maturity fell eight bps, while the yield on the 10-year maturity fell 10 bps and the yield on the 30-year maturity fell 11 bps. The 10-year municipal-to-Treasury ratio rose to 104.4% on Thursday from Wednesday’s level of 94.1%, while the 30-year municipal-to-Treasury ratio rose 100.0% on Thursday from Wednesday’s level of 93.4%.

Last Friday prices on municipals strengthened, as market participants continue their flight to quality while also looking ahead to the expected $11.01B in new-issue long-term debt to be offered. On the day, the yields on the two-, 10-, and 30-year GO bonds each fell 10 bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices strengthened, as U.S. stocks fell on the open and continued to fall most of the day. Stocks did reversed course in the late afternoon and despite finishing in the red were able to pare back some of the day’s losses. The Dow finished down 0.98%, while the S&P was down 1.70% and the NASDAQ closed down 1.87%. On the day, the yield on the two-year maturity 10 bps, while the yield on the 10-year maturity fell eight bps and the yield on the 30-year maturity fell 31 bps. The 10-year municipal-to-Treasury ratio jumped to 116.2% on Friday from Thursday’s level of 104.4%, while the 30-year municipal-to-Treasury ratio jumped up to 116.8% on Friday from Thursday’s level of 100.0%.


Taxable Market







Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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