Muni Update

May 3, 2021


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


Municipal Market Recap

Municipal prices were mostly steady on Monday and Tuesday. Also, on Tuesday the Federal Open Market Committee (FOMC) started its two-day meeting. On Wednesday municipal prices weakened across the curve and the FOMC ended its April meeting and voted unanimously to leave policy unchanged and thus kept the overnight target range at 0.00%-0.25% and continued the purchase of $40.0B in MBS and $80.0B in U.S. Treasury securities per month. Municipal prices weakened again on Thursday. On Friday municipal prices were steady across the curve.

Other noteworthy news last week in the municipal market was a bipartisan group of senators reintroduced a direct-pay bond bill to help finance infrastructure. These will be similar in type to the Build America Bonds Program (BABs) that ended some 11 years ago. The bill would include a subsidy rate of 28% (42% per the Senate version) on the bonds and would be exempt them from sequestration. As with BABs, the issuer would receive a direct payment from the federal government to cover a percentage of the interest costs associated with the taxable bonds.

The projected level of new-issue offerings for the upcoming trading week are $9.92B 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.

As to redemption activity, issuers are scheduled to be paying out about $116.0B of principal from maturing and called bonds in the Summer Redemption Season (SRS), which is June, July, and August. Including interest, investors will be receiving $158.0B over the course of the season. The average amount of redemptions for this year is $27.0B per month, but for the three months of summer the average is $39.0B. In addition, market participants will be receiving $26.0B of principal plus $11.5B in interest, totaling $37.5B in May as a total potential reinvestment demand.

For funds latest reporting period, investors in municipal bond funds put cash into funds for an eighth week in a row, as tax-exempt weekly reporting funds data showed that funds experienced inflows of $1.637B in the latest week, after experiencing inflows of $1.889B the week prior. The four-week moving average remained positive at $1.976B, after being in the green at $1.607B the week prior.

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 they ended the week at 0.10%, 0.99%, and 1.59%, respectively. Overall, week-over-week the yield on the two-year general obligation (GO) bond rose three basis points (bps), while the yield on the 10-year GO bond rose six bps and the yield on the 30-year GO bond rose four bps.

Last week the yield on the two-year maturity on the MMA Triple-A Scale rose one bp from Thursday to Friday and ended the week at 0.24%. Meanwhile, the yields on the 10- and 30-year maturities each rose four bps rose on the MMA Triple-A Scale from Thursday to Friday and they ended the week at 1.27% and 1.82%, respectively. Overall, week-over-week the yield on the two-year GO bond rose one bp, while the yields on the 10- and 30-year GO bonds each rose five bps.


New-Issue Volume is Forecasted to be Around $9.92B for the Trading Week

Total new-issue offerings for the trading week per IHS Markit Ipreo are estimated to be $9.92B. This week’s projected level of bond issuance is comprised of $6.57B in negotiated deals and $3.35B in competitive sales. Leading the way this week will be the competitive pricing of the Commonwealth of Pennsylvania’s $1.04B of tax-exempt and taxable GO bonds. The deal is rated Aa3 by Moody’s Investors Service (Moody’s) and AA- by Fitch Ratings (Fitch).

In the negotiated arena this week the $741.1MM gas supply revenue bonds of the Main Street Natural Gas, Incorporated offering is on the day-to-day calendar. The deal is rated Aa2 by Moody’s and AA by Fitch. The Washington State Housing Finance Commission is set to price $571.961MM of social municipal certificates Series 2021-1 Class X, on Thursday. The deal is rated BBB+ by Standard and Poor’s Global Ratings (S&P). The North Texas Tollway Authority is set to price $448.7MM of system revenue and refunding second tier bonds, Series 2021B. The deal is rated A2 by Moody’s and A by S&P. The North Texas Tollway Authority is also set to sell $402.9MM of system revenue and refunding first tier taxable bonds, Series 2021A, serials 2026-2038, term, 2043, on Wednesday. The state of Ohio is set to price $228.6MM of capital facilities lease-appropriation bonds, comprised of $150.0MM of Series MHF, serials 2022-2031 and $78.6MM of Series ABF, serials 2022-2041 on Wednesday. The deals are rated Aa2 by Moody’s, and AA by both S&P and Fitch. The Northside Independent School District, Texas, is set to price $212.5MM of Unlimited Tax School Building and Refunding Bonds, Series 2021, backed by Permanent School Fund Guarantee on Tuesday.

Also, this week out of California, the California Infrastructure and Economic Development Bank is set to price $281.4MM of California Academy of Sciences index mode sustainability revenue bonds on Wednesday. The deal is rated A2 by Moody’s. The State of California Department of Water Resources is set to price $264.0MM of taxable Central Valley Project Water System revenue bonds on Wednesday. The deal is rated Aa1 by Moody’s and AAA by S&P. Also on Wednesday, the State of California Department of Water Resources will also price $212.2MM of Central Valley Project Water System Revenue Bonds, Series BD. This deal is also rated Aa1 by Moody’s and AAA by S&P.

Back in the competitive arena, the Commonwealth of Massachusetts is set to sell $200.0MM and $400.0MM of GO bonds on Tuesday. The deals are rated AA by S&P. Also on Tuesday, the Port Authority of New York and New Jersey is set to sell $187.0MM of consolidated bonds. On Wednesday, Seattle, Washington is set to sell $165.0MM of tax-exempt and taxable GO bonds in two offering. The first will be for $144.8MM of exempt bonds and the other will be for $21.4MM of taxable bonds. The offerings are rated triple-A by S&P. On Thursday, Milwaukee, Wisconsin is set to sell $118.9MM of GO promissory notes, $30.9MM of GO corporate purpose bonds, $21.9MM of taxable GO promissory notes and $13.6MM of taxable GO corporate purpose bonds. The offerings are rated A by S&P and AA- by Fitch.


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. 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.

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 for the one, two-, and three-year maturities were unchanged. Meanwhile, the spreads on the five-, 10-, 15-, and 30-year maturities all tightened, with the largest tightening occurring in the 10-year maturity, seven bps.


Daily Overview of the General Market for the Week Ending April 30th

Last Monday municipals prices were mostly steady, as the first of the trading week’s $5.51B 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 were mixed, as were prices for U.S. Stock for the session. The Dow finished down 62 points, or 0.2%, while the S&P was up 0.2% and the NASDAQ was up 0.9%. 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 Monday from last Friday’s level of 58.9%, while the 30-year municipal-to-Treasury bumped up to 69.2% on Monday from Last Friday’s level of 68.9%.

Last Tuesday municipals prices were mostly steady across the curve, as the FOMC started its two-two meeting and more positive economic data came in stirring inflation concerns for the day. Also, on Tuesday a few new deals were priced including the $233.8MM offering of unlimited tax schoolhouse bonds for the Lamar Consolidated Independent School District, Texas, Permanent School Fund Guarantee Program and a $99.0MM offering of auxiliary facilities system revenue refunding bonds for the Board of the Trustees of Northern Illinois University. The deal is insured by Build America Mutual Assurance Company. In the competitive arena the State of Vermont sold $112.0MM of unlimited tax GO bonds in two series. On the day, the yields on the two- and 30-year GO bonds, while the yield on the 10-year GO bond rose one bp, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were also mixed on Tuesday, as were U.S. stock prices for the session. The Dow was up just 3 points or 0.01%, while the S&P was barely down 0.02% and the NASDAQ was down 0.3%. On the day, the yield on the two-year maturity fell one bp, while the yields on the 10- and 30-year maturities each rose five bps. The 10-year municipal-to-Treasury ratio fell to 57.7% on Tuesday from Monday’s level of 58.9%, while the 30-year municipal-to-Treasury ratio fell to 67.7% on Tuesday from Monday’s level of 69.2%.

Last Wednesday municipals prices weakened, as the FOMC ended its April meeting and voted unanimously to leave policy unchanged and thus kept the overnight target range at 0.00%-0.25%. The FOMC’s Official Statement was revised to note that, “Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened.” Also, on Wednesday several new-issue offerings were priced in the municipal market including the $1.57B New Jersey Transportation Trust Fund deal, which was oversubscribed by as much as 20 times and repriced to lower yields. 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 steady on Wednesday, as U.S. stock prices fell for the session. The Dow was down 165 points or 0.5%, while the S&P was down 0.08% and the NASDAQ was down 0.3%. On the day, the yields on the two-, 10- and 30-year maturities were unchanged. The 10-year municipal-to-Treasury ratio bumped up to 58.2% on Wednesday from Tuesday’s level of 57.7%, while the 30-year municipal-to-Treasury ratio rose to 68.2% on Wednesday from Tuesday’s level of 67.7%.

Last Thursday municipals prices weakened, as the last of the week’s new-issue offerings came to market and were priced on the day, the yield on the two-year GO bond rose two bps, while the yield on the 10-year GO bond rose four bps and the yield on the 30-year GO bond rose three bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were mixed, as U.S. equity prices rose for the session. The Dow was up 240 points or 0.7%, while the S&P was also up 0.7%, and the NASDAQ was up 0.2%. On the day, the yield on the two-year maturity fell one bp, while the yields on the 10- and 30-year maturities each rose two bps. The 10-year municipal-to-Treasury ratio rose to 60.0% on Thursday from Wednesday’s level of 58.2%, while the 30-year municipal-to-Treasury ratio rose to 68.8% on Thursday from Wednesday’s level of 68.2%.

Last Friday municipal prices were steady across the curve for the session, as market participants were also looking ahead to the $9.92B in expected new-issue offerings 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 the US Stock market fell for the session. The Dow was down 186 points or 0.5, while the S&P was down 0.7% and the NASDAQ was down 0.9%. On the day, the yields on the two-and 10-year maturities were unchanged, while 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 60.0%, while the 30-year municipal-to-Treasury ratio bumped up to 69.1% on Friday from Thursday’s level of 68.8%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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