Muni Update

May 17, 2021


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


Municipal Market Recap

Municipal prices were steady on Monday. On Tuesday and Wednesday municipal prices weakened across the curve. On Thursday and Friday municipal prices were mostly steady.

The projected level of new-issue offerings for the upcoming trading week are $8.53B 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 tenth week in a row, as tax-exempt weekly reporting funds data showed that funds experienced inflows of $750.0MM in the latest week, after experiencing inflows of $584.1MM the week prior.

Helping to meet this demand, Bloomberg reported last week that states and cities are turning to the municipal-bond market to raise money for new projects at the fastest pace in at least a decade, a sign of optimism, as tax revenue improves with the reviving economy and as federal aid pours in. Localities issued about $65.0B in long-term municipal debt in the first four months of 2021 solely for new projects, a 31% jump from the same period of last year. The tally marks the most bond sales for new endeavors, known as new-money issuance, to begin a year since 2010. Local officials are seizing on low interest rates and robust demand for municipal debt to borrow for projects or refinance for savings.  If this increase in issuance continues it should help feed the demand of market participants that continues to grip the 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 0.14%, 1.02%, and 1.60%, respectively. Overall, week-over-week the yield on the two-year general obligation (GO) bond rose three basis points (bps), while the yields on the 10- and 30-year GO bonds each rose five bps.

Last week the yields on the two-, 10-, and 30-year maturities on the MMA Triple-A Scale were also unchanged from Thursday to Friday and ended the week at 0.23%, 1.27%, and 1.83%, respectively. Overall, week-over-week the yields on the two- and 10-year GO bonds each rose three bps, while the yield on the 30-year GO bond rose four bps.


New-Issue Volume is Forecasted to be Around $8.53B for the Trading Week

Total new issue offerings for the trading week per IHS Markit Ipreo are estimated to be $8.53B. This week’s projected level of bond issuance is comprised of $6.15B in negotiated deals and $2.38B in competitive sales. The largest negotiated deal of the week will be comprised of two primary offering from the State of Connecticut totaling $1.0B in State GO bonds. One offering will be for $700.0MM offering of State GO bonds in three series and the other will be a $300.0MM offering of State taxable refunding GO bonds, both are scheduled for Wednesday. The bonds are rated Aa3 by Moody’s Investors Service (Moody’s), A+ by Standard and Poor’s Global Ratings (S&P), and AA- by Fitch Ratings (Fitch).

The State of Colorado plans to price $500.0MM of Rural Colorado Certificates of Participation (COPs) on Wednesday. The deal is rated Aa2 by Moody’s and AA- by S&P. On Tuesday, the City of Phoenix Improvement Authority plans to a price a $317.310MM offering of Junior Lien Water System Revenue Bonds comprised of a $250.0MM offering of Series 2021A bonds and $67.310 offering of Series B Refunding Bonds. The deal is rated Aa2 by Moody’s and triple-A by S&P. Also, this week on a day-to-day status, for the third week in a row will be the $771.615MM offering by Main Street Natural Gas, Incorporated, of Gas Supply Revenue Bonds, Series 2021A. The deal is rated AA by S&P.

The largest competitive deal of the week will be a $535.230MM offering of educational facilities revenue bonds, Series 2021A (21st Century Collage and Equipment Programs Bonds) from the Virginia College Building Authority on Wednesday. The deal is rated Aa1 by Moody’s and AA+ by S&P. On Tuesday Prince George’s County, Maryland will offer $271.670MM of GO consolidated public improvement bonds, Series 2021A. The deal is rated Triple-A by S&P and Fitch. Also on Tuesday, the State of West Virginia will price $200.0MM of State GO bonds and $14.265MM of GO state road refunding bonds. The offerings are rated AA- by S&P and AA by Fitch.


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

Investors in municipal bond put cash into funds for a tenth week in a row, as tax-exempt weekly reporting funds experienced inflows of $750.0MM in the latest week, after experiencing inflows of $584.1MM the week prior. Also, Long-term, intermediate-term, and high yield funds all saw inflows last week.


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 portfolios 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 were mixed, as spreads on the one-, two-, three-, five-, and 10-year maturities all widened, with the largest widening occurring in the one and two-year maturities, seven bps each. Meanwhile, week-over-week the spreads on the 15-and 30-year maturities each tightened six bps.


Daily Overview of the General Market for the Week Ending May 14th

Last Monday municipals prices were steady, as the first of the trading week’s $6.57B in new issue long-term debt was offered. 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 weakened, as prices on U.S. Stock fell for the session. The Dow finished down 35 points, or 0.1%, while the S&P was down 1.0% and the NASDAQ was down 2.6%. On the day, the yield on the two-year maturity rose two bps, while the yield on the 10-year maturity rose three bps and the yield on the 30-year maturity rose four bps. The 10-year municipal-to-Treasury ratio fell to 59.5% on Monday from last Friday’s level of 60.6%, while the 30-year municipal-to-Treasury fell to 66.8% on Monday from Last Friday’s level of 68.0%.

Last Tuesday municipals prices weakened across the curve, as investors ignored the risk-of trade and U.S Treasurys rose while equities fell. A number of new issue deals were priced including two competitive loans from Florida and Oregon issuers, while a San Antonio deal repriced to lower yields and Energy Northwest came with $700.0MM plus in revenue refunding tax-exempt and taxable bonds. On the day, the yields on the two-, 10-, and 30-year GO bonds each rose one bp, 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 474 points or 1.4%, while the S&P was down 0.9% and the NASDAQ was down 0.1%. On the day, the yield on the two-year maturity was unchanged, while the yield on the 10-year maturity rose one bp and the yield on the 30-year maturity rose three bps. The 10-year municipal-to-Treasury ratio bumped up to 59.8% on Tuesday from Monday’s level of 59.5%, while the 30-year municipal-to-Treasury ratio also slipped to 66.4% on Tuesday from Monday’s level of 66.8%.

Last Wednesday municipals prices weakened for a second day, as yields rose and a sell-off in equities amid inflation concerns helped a push back from investors in the primary, that led to higher yields on new-issues. The $216.0MM offering from Fairfax County, Virginia, saw its yields rise five to 11 bps in a repricing while it changed coupon structures to a higher premium 4% from 2% in a second tranche and lowered yields there. The Dormitory Authority of the State of New York saw most of its yields stay the same from a Tuesday retail pricing but did bump levels on 10- and 15-year bonds by five and seven bps. On the day, the yield on the two-year GO bond rose two bps, while the yields on the 10- and 30-year GO bonds each rose four bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed, as U.S. stock prices fell for a third session in a row. The Dow was down 682 points or 2.0%, while the S&P was down 2.1% and the NASDAQ was down 2.7%. On the day, the yield on the two-year maturity was unchanged, while the yields on the 10- and 30-year maturities each rose five bps. The 10-year municipal-to-Treasury ratio rose to 60.4% on Wednesday from Tuesday’s level of 59.8%, while the 30-year municipal-to-Treasury ratio bumped up to 66.7% on Wednesday from Tuesday’s level of 66.4%.

Last Thursday municipals prices were mostly steady, as the last of the week’s new issue offerings came to market including the $121.9MM offering of St. John’s University revenue bonds by the Dormitory Authority of the State of New York and the $109.4MM offering of school facility refunding revenue bonds (City School District of the City of Buffalo Project) by the Erie County Industrial Development Agency, New York. 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 Thursday, while U.S stocks traded higher, as investors digested the latest stronger-than-expected print on the labor market’s recovery, while still eyeing spiking prices that could throttle the recovery. The Dow was up 434 points or 1.3%, while the S&P was also up 1.2%, and the NASDAQ was up 0.7%. 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 30-year maturities fell one bp. The 10-year municipal-to-Treasury ratio rose to 61.5% on Thursday from Wednesday’s level of 60.4%, while the 30-year municipal-to-Treasury ratio bumped up to 67.0% on Thursday from Wednesday’s level of 66.7%.

Last Friday municipal prices were steady to slightly firmer in spots, after flat retail sales moved U.S. Treasurys stronger while equities gained back mid-week losses. Market participants were also focused on the $8.53B in expected new issue offerings to be coming 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 US Stocks rose for the session, logging a second straight day of increases but still posting weekly declines after steep drops earlier in the week. The Dow was up 361 points or 1.1%, while the S&P was up 1.5% and the NASDAQ was up 2.3%. 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 four bps. The 10-year municipal-to-Treasury ratio rose to 62.6% on Friday from Thursday’s level of 61.5%, while the 30-year municipal-to-Treasury ratio rose to 68.1% on Friday from Thursday’s level of 67.0%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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