Muni Update

May 13, 2019


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


Municipal Market Recap

Municipal prices started the week stronger across the majority of the curve. On Tuesday municipal prices were mixed, as the front-end was steady, while bonds maturing 10 years and longer strengthened. On Wednesday and Thursday municipal prices strengthened across the curve. On Friday prices were steady across the curve. Issuance for the week is forecasted to be $6.8B, which is above last week’s revised level of $6.1B in issuance. This week’s projected level of issuance combined with secondary market offerings should provide market participants with a number of opportunities for the trading week, especially given the current demand in the municipal market. Driving this strong demand in the municipal market is a combination of high redemption flows as evidenced by the latest estimates for calls for municipal bond redemptions in June, July, and August to total $123.0B. In just the next 30-days, Bloomberg estimates net supply (new issues minus redemptions) to be -$16.4B (in other words, principal returned by issuers will exceed the amount of bonds currently expected to come to market). Inflows into municipal bond mutual funds is also contributing to exceptional strong demand the market is experiencing at this time.

Investors in municipal bond funds put cash into funds for a eighteenth week, as weekly reporting funds experienced inflows of $1.502B, after experiencing inflows of $1.191B the week prior. The four-week moving average was a positive $1.237B, after being a positive $1.1B the week prior. Investors still facing low rates overseas continue to find higher-yielding U.S. assets attractive, especially since municipal bonds are off to their best start in five years. Municipal securities have been bolstered by low supply and strong demand. All these factors, should have both traditional and non-traditional market participants continuing to look for opportunities in the U.S. municipal market.

Last week the yields on the two-, 10-, and 30-year maturities on the MMD Triple-A Scale were unchanged from Thursday to Friday and ended the week at 1.53%, 1.75%, and 2.43%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond fell four basis points (bps), while the yields on the 10- and 30-year GO bonds each fell nine 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 1.50%, 1.96%, and 2.60%, respectively. Overall, week-over-week the yield on the two-year GO bond fell three bps, while the yield on the 10-year GO bond fell seven bps and the yield on the 30-year GO bond fell eight bps.


New Issue Volume is Forecasted to be $6.8B for Trading Week

Total new issuance for the trading week per IHS Markit Ipreo is estimated to be $6.8B, which above last week’s trading volume of $6.1B in issuance, according to revised data from Refinitiv. This week’s trading calendar is comprised of $4.2B in negotiated offerings and $2.6B in competitive offerings.

The Allegheny County Hospital Development Authority, Pennsylvania plans to offer $738.0MM of Series 2019A University of Pittsburgh Medical Center (UPMC) revenue bonds on Wednesday. Proceeds will be used to refund outstanding revenue bonds and notes of the UPMC, issued by the Allegheny County Hospital Development Authority, the Lycoming County Authority, the Monroeville Finance Authority, and the Dauphin County General Authority. The deal is rated A1 by Moody’s Investors Service (Moody’s) and A+ by both Standard and Poor’s Global Ratings (S&P) and Fitch Ratings (Fitch).

Also on tap this week, the Dormitory Authority of the State of New York (DASNY) plans to offer $498.0MM of school districts revenue bond financing program in five series. The issue will consists of $427.88MM of Series 2019A bonds, $12.62MM of Series 2019B bonds, $11.245MM of Series 2019C bonds, $24.66MM of Series 2019D bonds, and $9.24MM of Series 2019E bonds. All five series are rated Aa3 by Moody’s and AA- by Fitch.

In the competitive arena, the Virginia College Building Authority is expected to sell $512.17MM of Series 2019A educational facilities revenue bonds for the 21st Century College and Equipment Program. The deal is rated Aa1 by Moody’s and AA+ by S&P and Fitch.


Municipal Bond Funds Post Inflows for an Eighteenth Week

Investors in municipal bond funds put cash into funds for an eighteenth week, according to the latest data from Lipper. The weekly reporting funds saw inflows of $1.502B of inflows in the latest week, after experiencing inflows of $1.191B the week prior. The four-week moving average was a positive $1.237B, after being a positive $1.1B the week prior.

Long-term municipal bond funds had inflows of $982.190MM in the latest week after experiencing inflows of $707.615MM the week prior. Intermediate-term funds had inflows of $440.006MM after inflows of $273.623MM the week prior. National funds had inflows of $1.313B after experiencing inflows of $1.112B the week prior. High-yield municipal funds reported inflows of $429.105MM in the latest week, after inflows of $294.690MM the week prior. Exchange traded funds reported inflows of $237.397MM, after inflows of $314.019MM the week prior.


Demand in the Bank Qualified (BQ) Market Remains Strong

The BQ market continues to see good activity, even with the lower level of new issue supply so far this year, which has contributed to secondary market bid lists being well received. 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 (15+ years) in general market paper, due in part to the lower tax rates from tax reform and attractive spreads. 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 two-, three, five, 10-, and 15-year maturities, six bps each.


Daily Overview of the General Market for the Week Ending May 10th

Last Monday prices on municipals were stronger, as market participants prepped for the $6.5B of new issue offerings scheduled for the trading 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 three bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasuries strengthened, as U.S. stocks pared back major losses in the morning to close the session with minimal losses overall. On the day, the yields on the two- and 30-year maturities each fell two bps, while the yield on the 10-year maturity fell three bps. The 10-year municipal-to-Treasury ratio slipped to 72.1% on Monday from last Friday’s level of 72.4%, while the 30-year municipal-to-Treasury ratio fell to 85.6% on Monday from last Friday’s level of 86.0%.

Last Tuesday prices on municipals were mixed, as the $700.0MM GO offering from Massachusetts and the $595.0MM GO offerings from the Los Angeles Unified School District were priced. On the day, the yield on the two-year GO bond was steady, while the yield on the 10-year GO bond fell three bps and the yield on the 30-year GO bond fell four bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasuries strengthened again, as U.S. stocks finished the session down amid the re-escalation of trade tensions between the U.S. and China. The Dow was down 1.79%, while the S&P was down 1.65% and the NASDAQ was down 1.96%. On the day, the yield on the two-year maturity was down three bps, while the yield on the 10-year maturity was down six bps and the yield on the 30-year maturity was down five bps. The 10-year municipal-to-Treasury ratio rose to 72.7% on Tuesday from Monday’s level of 72.1%, while the 30-year municipal-to-Treasury ratio was relatively unchanged on Tuesday from Monday’s level of 85.6%.

Last Wednesday prices on municipals were stronger, as a number of deals came to a market, including offerings from the Pennsylvania Commonwealth Financing Authority, the Board of Regents of the University of Texas System, and the Massachusetts Water Resources Authority to name a few. On the day, the yields on the two, 10-, and 30-year GO bonds each fell one bp, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasuries weakened, as markets were whipsawed and U.S. Stocks finished mixed on the day. The Dow was relatively unchanged, while the S&P was down 0.16% and the NASDAQ was down 0.26%. On the day, the yield on the two-year maturity rose two bps, while the yield on the 10-year maturity rose four bps and the yield on the 30-year maturity rose three bps. The 10-year municipal-to-Treasury ratio fell to 71.1% on Wednesday from Tuesday’s levels of 72.7%, while the 30-year municipal-to-Treasury ratio fell to 84.4% on Wednesday from Tuesday’s level of 85.7%.

Last Thursday prices on municipals strengthened, as the last of the week’s new issue offerings came to market. On the day, the yields on the two-and 30-year GO bonds each fell one bp, while the yield on the 10-year GO bond fell two bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices finished stronger across the curve, as another day of whippy trading on Wall Street, due to trade uncertainty on trade, contributed to U.S. stocks posting losses for the third session in the past four. On the day, the yields on the two- and 10-year maturities each fell four bps, while the yield on the 30-year maturity fell two bps. The 10-year municipal-to-Treasury ratio bumped up to 71.4% on Thursday from Wednesday’s level of 71.1%, while the 30-year municipal-to-Treasury ratio bumped up to 84.7% on Thursday from Wednesday’s level of 84.4%.

Last Friday, prices on municipals were steady, as market participants were looking ahead to the coming trading week’s $6.8B in new issue offerings. 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 finished the day mixed, as U.S. stocks rallied back in the afternoon, after spending the morning in negative territory to finish up for the session. On the day, the yield on the two-year maturity was unchanged, while the yields on the 10- and 30-year maturities each rose two bps. The 10-year municipal-to-Treasury ratio fell to 70.9% on Friday from Thursday’s level of 71.4%, while the 30-year municipal-to-Treasury was fell to 84.1% on Friday from Thursday’s level of 84.7%.


Taxable Market






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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