Muni Update

May 24, 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, prices on bonds maturing 10 years and in were steady, while prices on bonds on the long end strengthened. On Tuesday, the front-end was 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 bonds maturing 10 years and in were steady, while prices on bonds on the long end strengthened.

The projected level of new-issue offerings for the upcoming pre-holiday trading week is $6.99B 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 an eleventh week in a row, as tax-exempt weekly reporting funds data showed that funds experienced inflows of $725.0MM in the latest week, after experiencing inflows of $750.0MM the week prior.

Last week the yields on the two- and 10-year maturities on the MMD Triple-A Scale were unchanged from Thursday to Friday and ended the week at 0.14% and 1.01%, respectively. Meanwhile, the yield 30-year maturity on the MMD Triple-A Scale fell one basis point (bp) from Thursday to Friday and ended the week at 1.57%. Overall, week-over-week the yield on the two-year general obligation (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 three 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 ended the week at 0.23%, 1.27%, and 1.83%, respectively. Overall, week-over-week the yields on the two-, 10-, and 30-year GO bonds were unchanged.


New-Issue Volume is Forecasted to be $6.99B for the Pre-Holiday Trading Week

Total new-issue offerings for the trading week per IHS Markit Ipreo are estimated to be $6.99B. This week’s projected level of bond issuance is comprised of $5.59B in negotiated deals and $1.40B in competitive sales. There are 19 deals larger than $100.0MM on the calendar. The largest negotiated deal of the week will come from the Washington Metropolitan Area Transit Authority, which plans to offer $874.0MM of dedicated revenue green bonds (Climate Bond Certified) on Tuesday. The deal is rated AA by Standard and Poor’s Global Ratings (S&P) and Fitch Ratings (Fitch), and AA+ by Kroll Bond Rating Agency (KBRA). The Main Street Natural Gas, Incorporated deal is still on the day-to-day calendar with $771.6MM of gas supply revenue bonds, Series 2021A. The deal is rated AA by S&P.

Other notable negotiated deals this week include but are not limited to the $344.8MM of university facilities program bonds, consisting of $260.6MM of series 2021A, and $84.2MM of green Series 2021B by the University of Nebraska Facilities Corporation on Wednesday. The deal is rated Aa1 by Moody’s Investors Service (Moody’s) and AA by S&P. The California Public Finance Authority is set to price $307.9MM of Enso Village Project senior living revenue and refunding green bonds, Series 2021A, B-1, B-2, B-3, & C, also on Wednesday. The Houston Combined Utility System (System) is set to price $259.5MM of first lien revenue refunding bonds, serials 2022-2041, terms 2046, 2051 on Wednesday. The deal is rated AA by S&P and Fitch. The System is also set to price $100.3MM of taxable first lien revenue refunding bonds, Series 2021B, serials 2021-2038 on Wednesday.

The State of Ohio is set to price on $151.0MM of major new infrastructure project revenue bonds on Tuesday, consist of $92.7MM of tax-exempt bonds and $58.2MM of taxable bonds. The deal is rated Aa2 by Moody’s and AA by S&P. The State of Hawaii is set to price $145.7MM of highway revenue bonds on Thursday. The deal is rated Aa2 by Moody’s and AA+ by S&P. The City of El Segundo, Los Angeles County, is set to price on $144.1MM of taxable pension obligation bonds on Wednesday. The deal is rated AA+ by S&P. The Leander Independent School District, Texas, is set to price on $130.1MM unlimited tax refunding bonds, Series 2021A and taxable Series 2021B, Permanent School Fund Guarantee Program on Tuesday.

In the competitive market, Loudoun County, Virginia, is set to sell $156.5MM of unlimited tax GO bonds, 2021-2040, at 10:15 a.m. Tuesday. The deal is rated Triple-A by Moody’s, S&P and Fitch. The New Jersey Infrastructure Bank is set to sell $118.6MM of environmental infrastructure green bonds, 2022-2043, at 10:30 a.m. Tuesday. The deal is rated AAA by S&P. The Frisco, Texas, Independent School District, Texas is set to sell $90.0MM of unlimited tax GO bonds, serials 2022-2043, at 11 a.m. Tuesday.


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

Investors in municipal bond put cash into funds for an eleventh week in a row, as tax-exempt weekly reporting funds experienced inflows of $725.0MM in the latest week, after experiencing inflows of $750.0MM the week prior. Also, Long-term, intermediate-term, and high yield funds all saw inflows last week, with high yield inflows up 89% week-over-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 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 were mixed, as the spreads on the one-, three-, and 10-year maturities were unchanged, while the spreads on the two-, five- and 15-year maturities all tightened, with the largest tightening occurring in the 15-year maturity, four bps. Finally, the week-over-week spread on the 30-year maturity widened, two bps.


Daily Overview of the General Market for the Week Ending May 21st

Last Monday municipals prices were mixed, as the first of the trading week’s $8.53B in new-issue long-term debt was offered. On the day, the yields on the two- and 10-year GO bonds were steady, while the yield on the 30-year GO bond fell one bp, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were also mixed last Monday, as prices on U.S. stock fell for the session. The Dow finished down 54 points, or 0.2%, while the S&P was also down 0.2% 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 rose one bp. The 10-year municipal-to-Treasury ratio fell to 62.2% on Monday from last Friday’s level of 62.6%, while the 30-year municipal-to-Treasury fell to 67.4% on Monday from Last Friday’s level of 68.1%.

Last Tuesday municipals prices were mixed, as the new-issue market came alive with two high-grade competitive loans and the speculative-grade pricing of Guam’s bonds to strong demand. 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 one bp, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were also mixed on Tuesday, as U.S. stock prices fell for the session. The Dow was down 268 points or 0.8%, while the S&P was down 0.9% and the NASDAQ was down 0.6%. On the day, the yields on the two- and 10-year maturities were unchanged, while the yield on the 30-year maturity rose one bp. The 10-year municipal-to-Treasury ratio fell to 61.6% on Tuesday from Monday’s level of 62.2%, while the 30-year municipal-to-Treasury ratio rose to 66.7% on Tuesday from Monday’s level of 67.4%.

Last Wednesday municipals prices were steady across the curve, as new issues in the negotiated market saw yields repriced lower on two major deals: the State of Connecticut’s $691.5MM offering of State GO bond and the $500.0MM Rural Colorado, Certificates of Participation. Meanwhile, competitive offerings for the day experienced strong demand, as municipals largely ignored the Federal Open Market Committees (FOMC) taper talk and weakening U.S. Treasurys prices, following the news. 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 U.S. stock prices fell for a third session in a row. The Dow was down 165 points or 0.5%, while the S&P was down 0.3% and the NASDAQ was barely down 0.03%. On the day, the yield on the two-year maturity was unchanged, while the yield on the 10-year maturity rose four bps and the yield on the 30-year maturity rose one bp. The 10-year municipal-to-Treasury ratio fell to 60.1% on Wednesday from Tuesday’s level of 61.6%, while the 30-year municipal-to-Treasury ratio fell to 66.4% on Wednesday from Tuesday’s level of 66.7%.

Last Thursday municipals prices were steady, as the last of the week’s new-issue offerings came to market including the $244.0MM negotiated offering of GO bonds for the Maricopa County Special Health Care District, Arizona. 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 strengthened on Thursday, as did U.S stocks for the session, as investors reacted to jobless claims falling to a new COVID-19 era low but were wary of rising inflation that may force the Federal Reserve to normalize monetary policy sooner rather than later. The Dow was up 188 points or 0.6%, while the S&P was up 1.1%, and the NASDAQ was up 1.8%. 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 30-year maturities fell four bps. The 10-year municipal-to-Treasury ratio rose to 62.0% on Thursday from Wednesday’s level of 60.1%, while the 30-year municipal-to-Treasury ratio rose to 67.5% on Thursday from Wednesday’s level of 66.4%.

Last Friday municipal prices were mixed, as market participants were focused on the $6.99B in expected new-issue offerings to be coming in the upcoming trading week. On the day, the yields on the two- and 10-year GO bonds were unchanged, while the yield on the 30-year GO bond fell one bp, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were also mixed on Friday, as were U.S. stocks prices for the session. The Dow was up 124 points or 0.4%, while the S&P was barely down at 0.08% and the NASDAQ was down 0.5%. On the day, the yield on the two-year maturity rose two bps, while the yield on the 10-year maturity was unchanged and the yield on the 30-year maturity fell one bp. The 10-year municipal-to-Treasury ratio was unchanged on Friday from Thursday’s level of 62.0%, while the 30-year municipal-to-Treasury ratio slipped to 67.4% on Friday from Thursday’s level of 67.5%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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