Muni Update

May 18, 2020


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


Municipal Market Recap

Municipal prices started the week mixed, as the front-end was steady, while bonds maturing 10 years and longer strengthened. On Tuesday municipal prices were mixed again, as the front-end strengthened while bonds maturing 10 years and loner were steady. For the rest of the week municipal prices strengthened daily. This week’s projected level of new-issue offerings is $7.62B and together with secondary market opportunities should provide market participants with opportunities to meet demand, especially given the continued strong demand in the municipal market due to high redemption flows coming on June 1st and June 15th.

Investors in municipal bond funds put cash into funds last week, as evidenced by the latest tax-exempt weekly reporting funds data showing that funds experienced inflows of $581.943MM after experiencing outflows of $408.424MM the week prior. The four-week moving average was a negative $252.099MM, after being in the red at $189.238MM 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 two basis points (bps) from Thursday to Friday and ended the week at 0.49%. Meanwhile, the yields on the 10-and 30-year maturities on MMD Triple-A Scale each fell four bps from Thursday to Friday and they ended the week at 1.01% and 1.82%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond fell 14 bps, while the yields on the 10- and 30-year GO bonds each fell 15 bps.

Last week the yields on the two-, 10-, and 30-year maturities on the MMA Triple-A Scale each fell two bps from Thursday to Friday and they ended the week at 0.67%, 1.48%, and 2.10%, respectively. Overall, week-over-week the yield on the two-year GO bonds fell 15 bps, while the yields on the 10- and 30-year GO bonds each fell 11 bps.


New-Issue Volume is Forecasted to be $7.62B for the Week

Total new issuance for the trading week per IHS Markit Ipreo is estimated to be $7.62B. The largest deal of the week will be the $850.0MM Connecticut offering of special tax obligation bonds for transportation infrastructure purposes. Also this week there are several large university deals that are set to price: Emory University plans to offer $506.0MM, and the triple-A Board of Regents of the University of Texas System plans to offer $400.0MM of taxable and $100.0MM of tax-exempt revenue financing system exempts. Also, from Texas this week, will be a $383.0MM offering of state revolving fund revenue bonds from the Texas Water Development Board, which is also rated triple-A.

Other University deals scheduled for the week include $300.0MM in taxable bonds from Brown University and $300.0MM in taxable bonds from Northwestern University. Brunswick, North Carolina plans to offer $146.0MM of enterprise systems revenue bonds.


Municipal Bond Funds Posted Inflows for the Week

Investors in municipal bond funds put cash into funds for the week, as tax-exempt weekly reporting funds experienced inflows of $581.943MM in the latest week, after experiencing outflows of $408.424MM the week prior. The four-week moving average was a negative $252.099MM, after being in the red $189.238MM the week prior.

Long-term municipal bond funds had outflows of $39.032MM in the latest week after experiencing outflows of $804.309MM the week prior. Intermediate-term funds had inflows of $184.283MM after outflows of $37.521MM the week prior. National funds had inflows of $661.757MM after experiencing outflows of $243.507MM the week prior. High-yield municipal funds reported outflows of $293.599MM in the latest week, after outflows of $736.606MM the week prior. Exchange traded funds reported inflows of $199.031MM, after outflows of $18.992MM the week prior.


Demand in the Bank Qualified (BQ) Market Remains Strong

The expected level of new-issue paper this week, coupled with BQ and General Market (GM) 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 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 U.S. 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 were mixed, as the one-, two-, three- five-, 10-, and 30-year maturities all tightened, with the largest tightening occurring in the one-year maturity, 51 bps. Meanwhile, the week-over-week bank qualified spread on the 15-year maturity widened six bps.


Daily Overview of the General Market for the Week Ending May 15th

Last Monday municipal prices were mixed, as market participants prepped for the $5.0B of new-issue offerings scheduled for the week. On the day, the yield on the two-year GO bond was unchanged, 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. Treasurys weakened, as U.S. stocks finished the session mixed. The Dow finished down 0.5%, while the S&P was essential unchanged on the day and the NASDAQ was up 0.8%. On the day, the yield on the two-year maturity rose one bp, while the yields on the 10- and 30-year year maturities each rose four bps. The 10-year municipal-to-Treasury ratio fell to 154.8% on Monday from last Friday’s level of 168.1%, while the 30-year municipal-to-Treasury ratio fell to 135.7% on Monday from last Friday’s level of 141.7%.

Last Tuesday prices on municipals were mixed, as several new-issue deals were priced, including the New York City Transitional Finance Authority’s (NYCTFAs) offering of tax-exempt future tax secured subordinate bonds, Fiscal 2020 Series C Subseries C-1, for retail investors ahead of Wednesday’s institutional pricing. The deal was upsized from the originally planned offering size of $500.0MM to $700.0MM. On the day, the yield on 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, as U.S. stocks closed lower for the session. After a relatively unexciting morning session, stocks and Treasury yields moved decidedly lower around lunch and fell steadily throughout the afternoon due in part to a group of Republican Senators introducing a bill to sanction China for the COVID-19 outbreak. The Dow finished down 1.9% or 457 points, while the S&P 500 was down 2.1% and the NASDAQ was down 2.1%. On the day, the two-year maturity was unchanged, while the yield on the 10-year maturity fell four bps and the yield on the 30-year maturity fell five bps. The 10-year municipal-to-Treasury ratio rose to 163.8% on Tuesday from Monday’s level of 154.8%, while the 30-year municipal-to-Treasury ratio rose to 140.6% on Tuesday from Monday’s level of 135.7%.

Last Wednesday municipals prices strengthened across the curve, as several large new issues priced including deals from Illinois, New York City, and a California pension obligation offering. 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 four bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys also strengthened, as U.S. stocks finished down for the session, with the Dow logging its worst day since the start of the month. Dire words from Federal Reserve Chairman Jerome Powell at an event in the morning weighed on the market all day. The central banker said negative interest rates are not on the table and that significant risks in the economy remain. Powell added that the unemployment rate would likely peak in the coming month before declining. The Dow finished down 2.2% or 517 points, while the S&P 500 was down 1.8% and the NASDAQ was down 1.6%. On the day, the yield on the two-year maturity fell one bp, while the yield on the 10-year maturity fell five bps and the yield on the 30-year maturity fell three bps. The 10-year municipal-to-Treasury ratio rose to 170.3% on Wednesday from Tuesday’s level of 163.8%, while the 30-year municipal-to-Treasury ratio was relatively unchanged on Wednesday from Tuesday’s level of 140.6%.

Last Thursday municipals prices strengthened, as the last of the week’s new-issue offerings were priced, including a triple-A rated GO offering from Utah that saw yields bumped six to seven bps in a repricing. On the day, the yield on the two year GO bond fell six 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.

U.S. Treasury prices were mixed, as U.S. stocks ended higher, buoyed by investor optimism over the reopening of the US economy despite another alarming number for weekly jobless claims. The Dow finished up 1.6%, or 377 points, while the S&P was up 1.2% and the NASDAQ was up 0.9%. On the day, the yield on the two-year maturity was unchanged, while the yield on the 10-year maturity fell one bp and the yield on the 30-year maturity fell five bps. The 10-year municipal-to-Treasury ratio fell to 166.7% on Thursday from Wednesday’s level of 170.3%, while the 30-year municipal-to-Treasury ratio rose to 143.1% on Thursday from Wednesday’s level of 140.7%.

Last Friday prices on municipals strengthened for a third day, as market participants started looking ahead to the expected almost $7.62B in new-issue long-term debt to be offered next 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 four bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices weakened, as U.S. stocks were down at the open but rallied late in the day to finish in positive territory. The Dow finished up 0.3%, or 60 points, while the S&P was up 0.4% and the NASDAQ was up 0.8%. 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 two bps. The 10-year municipal-to-Treasury ratio fell to 157.8% on Friday from Thursday’s level of 166.7%, while the 30-year municipal-to-Treasury ratio fell to 137.9% on Friday from Thursday’s level of 143.1%.


Taxable Market






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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