Muni Update

May 4, 2020


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


Municipal Market Recap

Municipal prices started the week unchanged across the curve. On Tuesday municipal prices weakened across the curve. On Wednesday municipal prices were mixed, as the front-end was steady, while prices on bonds maturing 10 years and longer weakened. On Thursday municipal prices were steady across the curve. On Friday municipal prices strengthened across the curve. This week’s projected level of new-issue offerings is $4.67B and together with secondary market opportunities should provide market participants with numerous opportunities to meet demand, especially given the continued strong demand in the municipal market due to high redemption flows.

Investors in municipal bond funds pulled cash out of funds for the week, as evidenced by the latest tax-exempt weekly reporting funds data showing that funds experienced outflows of $1.255B after experiencing inflows of $73.844MM the week prior. The four-week moving average was a negative $663.721MM, after being in the red $537.077MM 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 four basis points (bps) from Thursday to Friday and ended the week at 0.87%. Meanwhile, the yield on the 10-year maturity fell 11 bps and the yield on the 30-year maturity fell 12 bps on the MMD Triple-A Scale from Thursday to Friday and they ended the week at 1.35% and 2.16%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond fell three bps, while the yield on the 10-year GO rose seven bps and the yield on the 30-year GO bond rose three bps.

Last week the yield on the two-year maturity on the MMA Triple-A Scale fell four bps from Thursday to Friday and ended the week at 1.02%. Meanwhile, the yield on the 10-year maturity fell seven bps and the yield on the 30-year maturity fell eight bps on the MMA Triple-A Scale from Thursday to Friday and they ended the week at 1.74% and 2.37%, respectively. Overall, week-over-week the yield on the two-year GO bonds was unchanged, while the yield on the 10-year GO bond rose eight bps and the yield on the 30-year GO bond rose four bps.


New-Issue Volume is Forecasted to be $4.67B for the Week

The largest negotiated deal of the week will be the $1.13B offering from Pennsylvania State University, Pennsylvania. The deal is comprised of both tax-exempt and taxable paper and is rated Aa1 by Moody’s Investors Service (Moody’s) and AA by Standard and Poor’s Global Ratings (S&P). The Great Lakes Water Authority is back on the day-to-day calendar with a $715.0MM offering of sewage disposal system revenue refunding bonds in two taxable series. The first series will be for $548.0MM of senior lien bonds, rated A1 by Moody’s, AA- by S&P, and A+ by Fitch Ratings (Fitch). The other is a second lien secured offering of $167.0MM, which is rated A2 by Moody’s, A+ by S&P, and A by Fitch.

Other notable offerings scheduled for the week include a $700.0MM offering from the New York Metropolitan Transportation Authority (NYMTA). A $383.4MM offering from the Texas Water Development Board State Revolving Fund, Texas. A $263.8MM offering from the Virginia Hospital Center Arlington Health System, Virginia, and a $261.0MM offering from the Denver City & County Board of Water Commissioners, Colorado.

In the competitive space, the State of Illinois plans to offer $1.2B of one-year cash flow certificates on Wednesday to help cover delayed income tax payments.


Municipal Bond Funds Post Outflows for the Week

Investors in municipal bond funds pulled cash out of funds for the week, as tax-exempt weekly reporting funds experienced outflows of $1.255B in the latest week, after experiencing inflows of $73.844MM the week prior. The four-week moving average was a negative $663.721MM, after being in the red $537.077MM the week prior.

Long-term municipal bond funds had outflows of $1.323B in the latest week after experiencing outflows of $123.137MM the week prior. Intermediate-term funds had outflows of $36.397MM after outflows of $43.059MM the week prior. National funds had inflows of $982.938MM after experiencing inflows of $167.068MM the week prior. High-yield municipal funds reported outflows of $790.359MM in the latest week, after outflows of $318.769MM the week prior. Exchange traded funds reported outflows of $259.315MM, after inflows of $32.169MM the week prior.


Demand in the Bank Qualified (BQ) Market Remains Strong

The expected level of new-issue paper this week, coupled with 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. 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 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 spreads on the one-, two-, three-, and five-year maturities all widened, with the largest widening occurring in the three-year maturity, four bps. The week-over-week spreads on the 10-, 15-, and 30-year maturities all tightened, with the largest tightening occurring in the 30-year maturity, 14 bps.


Daily Overview of the General Market for the Week Ending May 1st

Last Monday, municipal prices were steady across the curve, as market participants prepped for the $6.23B of new-issue offerings scheduled for the 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.

Prices on U.S. Treasurys weakened, and U.S. stocks finished up for the session, as investors shrugged off another selloff in the oil market and focused on the busy earnings calendar ahead. The Dow finished up 1.5%, or 359 points, while the S&P was up 1.5% and the NASDAQ was up 1.1%. On the day, the yield on the two-year maturity rose two bps, while the yield on the 10-year maturity rose seven bps and the yield on the 30-year maturity rose eight bps. The 10-year municipal-to-Treasury ratio fell to 191.1% on Monday from last Friday’s level of 213.3%, while the 30-year municipal-to-Treasury ratio fell to 170.4% on Monday from last Friday’s level of 182.1%.

Last Tuesday prices on municipals weakened, as some deals were priced, while other deals were postponed, and market participants grappled with the long-term effects of the pandemic. On the day, the yield on two-year GO bond rose one bp, while the yields on the 10- and 30-year GO bonds each rose 10 bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys strengthened, and U.S. stocks closed lower snapping a four-day winning streak, its longest since February. The Dow finished down 0.1%, or 32 points, while the S&P was down 0.5% and the NASDAQ was down 1.4%. On the day, the yield on the two-year maturity fell four bps, while the yields on the 10- and 30-year maturities each fell five bps. The 10-year municipal-to-Treasury ratio rose to 222.6% on Tuesday from Monday’s level of 191.1%, while the 30-year municipal-to-Treasury ratio rose to 185.8% on Tuesday from Monday’s level of 170.4%.

Last Wednesday municipals prices were mixed, as a few new-issue offerings were priced, including a $1.12B offering from New York Power Authority. The entire deal was structured to mature later than 2045 and a good portion of it was designated green bonds. The deal repriced to lower yields by three bps in 2045 and one to two bps in maturities from 2055 to 2060. On the day, the yield on the two year GO bond was steady, while the yield on the 10-year GO bond rose eight bps and the yield on the 30-year GO bonds rose five bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were also mixed, and U.S. stocks closed sharply higher for the session, as investors once again grew optimistic about a potential coronavirus treatment. Gilead Sciences announced encouraging results for Remdesivir, an antiviral drug tested as part of a National Institute of Allergy and Infectious Disease study. Meanwhile, the Federal Reserve kept interest unchanged near zero and committed to using its “full range of tools” to support the US economy throughout this unprecedented crisis. The Dow finished up 2.2%, or 532 points, while the S&P was up 2.7% and the NASDAQ was up 3.6%. 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 four bps. The 10-year municipal-to-Treasury ratio rose to 231.8% on Wednesday from Tuesday’s level of 222.6%, while the 30-year municipal-to-Treasury ratio slipped to 183.9% on Wednesday from Tuesday’s level of 185.8%.

Last Thursday municipals prices were steady, as the last of the week’s new-issue offerings were priced, including two deals from California issues that were bumped when repriced. On the day, the yields on the two-, 10-, and 30-year GO bonds each rose five bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were mixed, as U.S. stocks finished the last trading session of the month in the red. Another bleak look at the U.S. labor market and inaction from the European Central Bank weighed on investor sentiment. The Dow was down 1.2%, or 288 points, while the S&P was down 0.9% and the NASDAQ was down 0.3%. 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 four bps. The 10-year municipal-to-Treasury ratio slipped to 228.8% on Thursday from Wednesday’s level of 231.8%, while the 30-year municipal-to-Treasury ratio slipped to 178.1% on Thursday from Wednesday’s level of 183.9%.

Last Friday prices on municipals strengthened, as market participants started looking ahead to the expected almost $4.67B in new-issue long-term debt to be offered next week. On the day, the yield on the two-year GO bond fell four bps, while the yield on the 10-year GO bond fell 11 bps and the yield on the 30-year GO bond fell 12 bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were mixed, as U.S. stocks ended the session down, erasing the gains for the week. Concerns about increased tension between President Trump and China due to the Covid-19 pandemic weighed on stocks, as did a weak reading on manufacturing in the United States. The Dow finished down 2.6%, or 622 points, while the S&P was down 2.8% and the NASDAQ was down 3.0%. 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 fell to 210.9% on Friday from Thursday’s level of 228.1%, while the 30-year municipal-to-Treasury ratio fell to 170.1% on Friday from Thursday’s level of 178.1%.


Taxable Market






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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