Muni Update

May 10, 2021


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


Municipal Market Recap

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

Bloomberg reported last week that federal aid is giving lower-quality state and municipal borrowers a financial lift, boosting demand for their securities, and pushing yields to below pre-pandemic levels. This is helping to lower borrowing costs for issuers rated in the BBB category. It is a part of the tax-exempt market that is investment grade but offers more yield because of the potential risk of a downgrade to junk. Yields on BBB rated municipals were 1.64% on Wednesday, down from 2.0% at the end of February, according to data compiled by Bloomberg. That yield drop has helped BBB rated debt earn 2.7% this year, soundly beating the 0.09% loss for top-rated municipals by the widest margin for the first five months of a year so far, since 2014.

The projected level of new-issue offerings for the upcoming trading week are $6.57B and coupled with bank qualified (BQ) and general market (GM) offerings in the secondary market should provide market participants with various opportunities to fill their needs, especially as demand continues to outpace supply. The continuing strong demand in the municipal market is being driven by redemption activity, as well as inflows into funds, both of which continue to contribute to demand outpacing supply so far for the year.

For funds latest reporting period, investors in municipal bond funds put cash into funds for a ninth week in a row, as tax-exempt weekly reporting funds data showed that funds experienced inflows of $584.911MM in the latest week, after experiencing inflows of $1.637B the week prior. The four-week moving average remained positive at $1.591B, after being in the green at $1.976B the week prior.

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 0.11%.  Meanwhile, the yields on the 10- and 30-year maturities each fell two basis points (bps) on the MMD Triple-A Scale from Thursday to Friday and they ended the week at 0.97% and 1.55%, respectively. Overall, week-over-week the yield on the two-year general obligation (GO) bond rose one bp, while the yield on the 10-year GO bond fell two bps and the yield on the 30-year GO bond fell four bps.

Last week the yield on the two-year maturity on the MMA Triple-A Scale fell two bps from Thursday to Friday and ended the week at 0.20%. Meanwhile, the yields on the 10- and 30-year maturities each fell one bps on the MMA Triple-A Scale from Thursday to Friday and they ended the week at 1.24% and 1.79%, respectively. Overall, week-over-week the yield on the two-year GO bond fell four bps, while the yields on the 10- and 30-year GO bonds each fell three bps.


New-Issue Volume is Forecasted to be Around $6.57B for the Trading Week

Total new-issue offerings for the trading week per IHS Markit Ipreo are estimated to be $6.57B. This week’s projected level of bond issuance is comprised of $5.0B in negotiated deals and $1.57B in competitive sales. Leading the way this week will be the $1.1B offering from Energy Northwest in Washington State on Tuesday. The offering is comprised of $68.7MM of Project 1 electric revenue refunding bonds, Series 2021-A, $523.97MM of Columbia Generating Station electric revenue and refunding bonds, Series 2021-A, $15.4MM of Project 3 electric revenue refunding bonds, Series 2021-A, $395.0MM of taxable Project 1 electric revenue refunding bonds, Series 2021-B, and $100.8MM of taxable Columbia Generating Station electric revenue refunding bonds, Series 2021-B on Tuesday. The deals are rated Aa2 by Moody’s Investor Service (Moody’s) AA- Standard and Poor’s Global Ratings (S&P), and AA Fitch Ratings (Fitch). Also, this week the Main Street Natural Gas, Incorporated offering of $747.1MM of gas supply revenue bonds, is on the day-to-day calendar.

Other notable deals this week include the Dormitory Authority of the State of New York’s (DASNY) offering of $336.3MM of school district revenue bond financing program refunding bonds, Series 2021A, B, & C. The Series 2021A bonds consist of $277.2MM and are rated A1 by Moody’s and AA- by Fitch. The Series 2021 B bonds will be in the amount of $47.27MM and are rated Aa3 by Moody’s and AA- by Fitch. The Series 2021C bonds will be in the amount of $11.87MM and are also rated A1 by Moody’s and AA- by Fitch. All three deals will be priced on Tuesday. DASNY is also set to price $125.9MM of St. John’s University revenue bonds Series 2021A on Wednesday. The deal is rated Aa3 by Moody’s and A- by S&P. The San Antonio Independent School District, Bexar County, Texas, is set to price $254.2MM of unlimited tax school building bonds, Series 2021, backed by the Permanent School Fund Guarantee Program and rated triple-A by Moody’s and Fitch. Fairfax County, Virginia, is set to price $232.0MM of sewer revenue bonds, Series 2021A and sewer revenue refunding bonds on Tuesday. The offerings are rated triple-A by Moody’s, S&P and Fitch. Johnson County, Kansas, is set to price $157.7MM of Shawnee Mission Unified School District Number 512 GO refunding and improvement bonds. The deal is rated Aaa by Moody’s.

Notable deals from California this week include two offerings from Fremont Union High School District, Santa Clara County, California. The first is for $110.0MM of GO green bonds and the second is for $101.5MM of taxable GO refunding bonds, both on Tuesday. The offerings are rated triple-A by Moody’s and S&P. The Huntington Beach Union High School District, Orange County, California, plans to sell $104.0MM of taxable GO refunding bonds on Wednesday. The offering is rated AA- by S&P. Grossmont-Cuyamaca Community College District, San Diego County, California, is set to price $100.0MM of GO bonds, Election of 2012, Series 2021 on Tuesday. The deal is rated Aa2 by Moody’s and AA by S&P.

In the competitive arena, Hillsborough County, Florida, is set to sell $164.0MM of capital improvement non-ad valorem tax revenue bonds. The deal is rated Aa1 by Moody’s, AAA by S&P, and AA+ by Fitch. Portland, Oregon, is set to sell $163.0MM of senior lien water system revenue and refund bonds Series 2021. The deal is rated AA by S&P. On Wednesday, the State of New Mexico is set to sell $171.7MM of capital projects GO bonds. The deal is rated Aa2 by Moody’s and AA by S&P.


Municipal Bond Funds Posted Inflows for a Ninth Week in a Row

Investors in municipal bond put cash into funds for a ninth week in a row, as tax-exempt weekly reporting funds experienced inflows of $584.911MM in the latest week, after experiencing inflows of $1.637B the week prior. The four-week moving average remained positive at $1.591B, after being in the green $1.976B the week prior.

Long-term municipal bond funds had inflows of $740.0MM in the latest week after experiencing inflows of $1.431B the week prior. Intermediate-term funds had outflows of $63.0MM after inflows of $54.515MM the week prior. High-yield municipal funds reported inflows of $341.0MM in the latest week, after inflows of $629.772MM the week prior. Exchange traded funds reported inflows of $113.428MM, after inflows of $460.339MM 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. Significant demand continues to be the story this year and is being driven in part by investors having to replace rolloffs due to continued strong redemption activity and flows into funds. As to redemption activity, for June, July and August, a net negative supply is expected, as over $150.0B is to either mature or be called during this time frame.

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 encourage participants to review their portfolio’s and look to sell shorter maturities to take gains and extend out the curve, especially lower coupon and pre-refunded bonds at this time, as overall credit quality continues to stabilize and improve in the municipal market. Week-over-week, BQ spreads widened across the curve, with the largest widening occurring in the 15-year maturity, 16 bps.


Daily Overview of the General Market for the Week Ending May 7th

Last Monday municipals prices were mixed, as the first of the trading week’s $9.92B in new-issue long-term debt was offered. On the day, the yields on the two- and 10-year GO bonds 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, as were prices for U.S. stock for the session. The Dow finished up 238 points, or 0.7%, while the S&P was down 0.3% and the NASDAQ was down 0.5%. On the day, the yield on the yields on the two- and 30-year maturities were unchanged, while the yield on the 10-year maturity fell two bps. The 10-year municipal-to-Treasury ratio rose to 61.4% on Monday from last Friday’s level of 60.0%, while the 30-year municipal-to-Treasury was unchanged on Monday from Last Friday’s level of 69.1%.

Last Tuesday municipals prices were mixed, as a few new deals were priced including the competitive offerings from the Commonwealth of Massachusetts and the Port Authority of New York and New Jersey and the negotiated offering from Northside, Independent School District, Texas. On the day, the yield on the two-year GO bond was unchanged, while the yield on the 10-year GO bond fell one bp and the yield on the 30-year GO bond fell two bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were also mixed on Tuesday, as were U.S. stock prices for the session. The Dow was up just 20 points or 0.06%, while the S&P was down 0.7% and the NASDAQ was down 1.9%. On the day, the yield on the two-year maturity was unchanged, while the yield on the 10-year maturity fell two bps and the yield on the 30-year maturity fell three bps. The 10-year municipal-to-Treasury ratio bumped up slightly to 61.5% on Tuesday from Monday’s level of 61.4%, while the 30-year municipal-to-Treasury ratio also bumped up slightly to 69.2% on Tuesday from Monday’s level of 69.1%.

Last Wednesday municipals prices were steady, as several new-issue offerings were priced including the competitive offering of $1.056B of GO tax-exempt and taxable bonds from the Commonwealth of Pennsylvania and $144.0MM of tax-exempt GO bonds form the City of Seattle, Washington. 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, as were U.S. stock prices for the session. The Dow was up 97 points or 0.3%, while the S&P was barely up 0.07% and the NASDAQ was down 0.4%. On the day, the yield on the two-year maturity was unchanged, while the yields on the 10- and 30-year maturities each fell two bps. The 10-year municipal-to-Treasury ratio rose to 62.3% on Wednesday from Tuesday’s level of 61.5%, while the 30-year municipal-to-Treasury ratio rose to 69.8% on Wednesday from Tuesday’s level of 69.2%.

Last Thursday municipals prices were steady, as the last of the week’s new-issue offerings came to market and were priced. 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, as U.S. equity prices rose for the session. The Dow was up 376 points or 0.9%, while the S&P was also up 0.8%, and the NASDAQ was up 0.4%. On the day, the yield on the two-year maturity was unchanged, while the yields on the 10- and 30-year maturities each fell one bp. The 10-year municipal-to-Treasury ratio rose to 62.7% on Thursday from Wednesday’s level of 62.3%, while the 30-year municipal-to-Treasury ratio bumped up to 70.1% on Thursday from Wednesday’s level of 69.8%.

Last Friday municipal prices were steady across the curve for the session, as market participants were also looking ahead to the $6.57B 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 were mixed on Friday, as U.S. stocks rose for the session. The Dow was up 229 points or 0.7%, while the S&P was also up 0.7% and the NASDAQ was up 0.9%. On the day, the yield on the two-year maturity fell two bps, while the yield on the 10-year maturity rose two bps and the yield on the 30-year maturity rose four bps. The 10-year municipal-to-Treasury ratio fell to 60.6% on Friday from Thursday’s level of 62.7%, while the 30-year municipal-to-Treasury ratio fell to 68.0% on Friday from Thursday’s level of 70.1%.


Taxable Comments

Activity in the taxable arena was steady last week, especially in the 7-to-12-year range of the curve. New-issue offerings this week are expected to pick up, which should provide opportunities for buyers.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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