Muni Update

May 11, 2020


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


Municipal Market Recap

For the week, municipal prices strengthened daily across the curve. This week’s projected level of new-issue offerings is $5.0B and together with secondary market opportunities should provide market participants with numerous opportunities to meet demand, especially given the continued strong demand in the municipal market due to high redemption flows coming on May 15th, June 1st, and June 15th.

Investors in municipal bond funds pulled cash out of funds for a second week in a row, as evidenced by the latest tax-exempt weekly reporting funds data showing that funds experienced outflows of $408.424MM after experiencing outflows of $1.256B the week prior. The four-week moving average was a negative $189.238MM, after being in the red at $663.721MM the week prior. Investors still facing low or negative rates overseas continue to find positive yielding U.S. assets attractive despite the recent outflows.

Last week the yield on the two-year maturity on the MMD Triple-A Scale fell 12 basis points (bps) from Thursday to Friday and ended the week at 0.63%. Meanwhile, the yields on the 10- and 30-year maturities on MMD Triple-A Scale each fell five bps from Thursday to Friday and they ended the week at 1.16% and 1.97%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond fell 24 bps, while the yields on the 10- and 30-year GO bonds each fell 19 bps.

Last week the yield on the two-year maturity on the MMA Triple-A Scale fell 10 bps from Thursday to Friday and ended the week at 0.82%. Meanwhile, the yields on the 10- and 30-year maturities on the MMA Triple-A Scale each fell four bps from Thursday to Friday and they ended the week at 1.59% and 2.21%, respectively. Overall, week-over-week the yield on the two-year GO bonds fell 20 bps, while the yield on the 10-year GO bond fell 15 bps and the yield on the 30-year GO bond fell 16 bps.


New-Issue Volume is Forecasted to be $5.0B for the Week

Total new issuance for the trading week per IHS Markit Ipreo is estimated to be $5.0B. This week, one of the more closely watched deals by market participants will be the New York City Transitional Finance Authority (NYCTFA) offering of $726.0MM of future tax secured subordinate bonds. The deal is composed of $500.0MM of tax-exempt fixed-rate bonds and $226.0MM of taxable fixed-rate bonds. The tax-exempt deal is expected to price on Wednesday, after a one-day retail order period. The taxable deal will also price on Wednesday but has no retail offering planned the day before. The deals are rated Aa1 by Moody’s Investors Service (Moody’s), and AAA by both Standard and Poor’s Global Ratings (S&P) and Fitch Ratings (Fitch).

Also, this week, there are two universities with large taxable corporate CUSIP deals on the calendar. Duke University plans to offer $1.3B with terms in 2044, 2050, 2055. The deal rated Aa1 by Moody’s and AA+ by S&P. The other will be from Emory University, which plans to offer $800.0MM of taxable corporate CUSIPs. The deal is rated Aa2 by Moody’s.

Other notable deals this week include the Great Lakes Water Authority, which continues to keep its $715.0MM offering of sewage disposal system revenue refunding taxable bonds on the day-to-day calendar. The Dormitory Authority of the State of New York (DASNY) plans to bring $464.0MM of school districts revenue bond financing program revenue bonds. The deal is rated Aa3 by Moody’s and AA- by S&P. The City of Ontario, California (/AA/AA-) plans to offer $339.0MM of taxable pension obligation bonds on Wednesday. The deal is rated AA by S&P and AA- by Fitch. The Lower Colorado River Authority (LCRA) plans to offer $304.5MM of LCRA Transmission Services Corporation Project transmission contract refunding revenue bonds on Wednesday. The deal is rated A+ by S&P. The Southern California Public Power Authority plans to offer $276.0MM for Windy Point/Windy Flats Project refunding revenue green bonds on Wednesday. The deal is rated Aa2 by Moody’s and AA- by S&P. Finally, the State of Wisconsin plans to offer a taxable refunding on approximately $200.0MM sometime this week.

In the competitive markets, Miami-Dade County, Florida has a $365.0MM GO deal scheduled and the Fayetteville School District #1, Arkansas has a $173.0MM refunding and construction offering on the calendar for this week.


Municipal Bond Funds Posted Outflows for a Second Week in a Row

Investors in municipal bond funds pulled cash out of funds for a second week in a row, as tax-exempt weekly reporting funds experienced outflows of $408.424MM in the latest week, after experiencing outflows of $1.256BMM the week prior. The four-week moving average was a negative $189.238MM, after being in the red $663.721MM the week prior.

Long-term municipal bond funds had outflows of $804.309MM in the latest week after experiencing outflows of $1.323B the week prior. Intermediate-term funds had outflows of $37.521MM after outflows of $36.397MM the week prior. National funds had outflows of $243.507MM after experiencing outflows of $982.938MM the week prior. High-yield municipal funds reported outflows of $790.359MM in the latest week, after outflows of $790.359MM the week prior. Exchange traded funds reported outflows of $18.992MM, after outflows of $259.315MM 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 numerous 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 and with May 15th, June 1st, and June 15th being extremely large redemption dates we expected this pressure to intensify over the next month.  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.

While currently you can buy anywhere along the curve and pick up spread over Treasurys, we continue to see bank portfolio managers purchase municipals in the steepest part of the curve (10+ years). Along with outright purchases of Bank Qualified municipals 10 years and out, bank portfolio managers have taken advantage of the yield pickup and larger block size available in General Market (100% TEFRA) municipals in this low cost of funds environment. Week-over-week, bank qualified spreads tightened, with the largest tightening occurring in the 10-year maturity, 14 bps.


Daily Overview of the General Market for the Week Ending May 8th

Last Monday, municipal prices were stronger across the curve, as market participants prepped for the $4.67B of new-issue offerings scheduled for the week. 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 each fell five bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed, as U.S. stocks finished the session up after starting the session in the red. Stocks initially stumbled amid rising tensions between the United States and China. President Donald Trump last week threatened China could face new tariffs over its handling of the coronavirus outbreak. While the NASDAQ turned green earlier in the day, the Dow and S&P managed to climb into positive territory only in the final minutes of trading. The Dow finished up 0.1%, while the S&P finished up 0.4% and the NASDAQ was up 1.2%. On the day, the yield on the two-year maturity fell one bp, while the yield on the 10-year maturity was steady and the yield on the 30-year maturity rose two bps. The 10-year municipal-to-Treasury ratio fell to 203.1% on Monday from last Friday’s level of 210.9%, while the 30-year municipal-to-Treasury ratio fell to 163.6% on Monday from last Friday’s level of 170.1%.

Last Tuesday prices on municipals strengthened for a third day in a row, as the New York  Metropolitan Transportation Authority’s (NYMTAs) anticipated $700.0MM pricing was upsized to $1.125B and was completed at spreads about 300 bps north of AAA benchmark yields, but was bumped a few basis points in repricing while a planned $1.2B issuance from Illinois was put on hold. On the day, the yield on two-year GO bond rose fell three bps, while the yields on the 10- and 30-year GO bonds each fell four bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed for a second day, and U.S. stocks closed higher, as investors grew optimistic about the reopening of the US economy. The Dow finished up 133 points, or 0.6%, while the S&P 500 was up 0.9% and the NASDAQ was up 1.1%. It marked the second straight day of gains for the three indexes, though they finished well off their session highs. On the day, 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 rose three bps. The 10-year municipal-to-Treasury ratio fell to 190.9% on Tuesday from Monday’s level of 203.1%, while the 30-year municipal-to-Treasury ratio fell to 156.8% on Tuesday from Monday’s level of 163.6%.

Last Wednesday municipals prices strengthened again, as several large new-issues including the Denver Board of Water Commissioner offering and a hospital revenue bonds for the Virginia Hospital Center were priced. On the day, the yields on the two, 10-, and 30-year GO bonds each fell two bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed, as U.S. stocks also closed mixed for the session, with the Dow and the S&P snapping a two-day winning streak. The two stock benchmarks had started the session stronger, buoyed by optimism over the reopening of the economy. However, they faded as investors digested the ADP’s employment report that showed a 20.2MM drop in jobs last month. The Dow finished down 0.9%, or 218 points, while the S&P was down 0.7% and the NASDAQ ended 0.5% higher. On the day, the yield on the two-year maturity fell two bps, while the yield on the 10-year maturity rose six bps and the yield on the 30-year maturity rose nine bps. The 10-year municipal-to-Treasury ratio fell to 172.2% on Wednesday from Tuesday’s level of 190.9%, while the 30-year municipal-to-Treasury ratio fell to 145.4% on Wednesday from Tuesday’s level of 156.8%.

Last Thursday municipals prices strengthened, as the last of the week’s new-issue offerings were priced, including deals from Broward County School Board, Florida and a Tennessee Housing Development Agency’s taxable bond offering were priced. 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 also strengthened, as U.S. stocks ended higher, buoyed by investor optimism over the reopening of the US economy. The market shrugged off another alarming number for weekly jobless claims, ahead of Friday’s jobs report, which is expected to be the worst monthly report on record. Over the past seven weeks, 33.5MM Americans have filed for first-time unemployment benefits. The Dow finished up 0.9%, or 211 points, while the S&P was up 1.2% and the NASDAQ was up 1.4%. On the day, the yield on the two-year maturity fell four bps, while the yield on the 10-year maturity fell nine bps and the yield on the 30-year maturity fell ten bps. The 10-year municipal-to-Treasury ratio rose to 192.1% on Thursday from Wednesday’s level of 172.2%, while the 30-year municipal-to-Treasury ratio rose to 154.2% on Thursday from Wednesday’s level of 145.4%.

Last Friday prices on municipals strengthened for a sixth day in a row and ratios enticed crossover buyers, as investors considered the potential for a negative Fed funds rate, and the Fed buying in the short-term area of the curve pushed yields down by as much as 15 bps. In addition, market participants started looking ahead to the expected almost $5.0B in new-issue long-term debt to be offered next week. On the day, the yield on the two-year GO bond fell 12 bps, 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.

U.S. Treasury prices weakened, as U.S. stocks rallied for the session despite the worst monthly jobs report on record. The market has brushed off bleak labor market data, including the staggeringly high weekly jobless claims, over the past weeks, Friday was no exception. The April report from the Bureau of Labor Statistics said the US economy lost 20.5MM jobs, bringing the unemployment rate to 14.7%. It was the worst monthly report in history, in terms of both jobs lost and the unemployment rate. Still despite this news, the Dow finished up 1.9%, or 455 points, while the S&P was up 1.7% and the NASDAQ was up 1.6%. On the day, the yield on the two-year maturity rose three bps, while the yield on the 10-year maturity rose six bps and the yield on the 30-year maturity rose eight bps. The 10-year municipal-to-Treasury ratio fell to 168.1% on Friday from Thursday’s level of 192.1%, while the 30-year municipal-to-Treasury ratio fell to 141.7% on Friday from Thursday’s level of 154.2%.


Taxable Market






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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