Muni Update

May 6, 2019


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


Municipal Market Recap

Municipal prices started the week steady across the curve. On Tuesday prices were mixed, as the front and long-ends were steady, while prices on intermediate maturities strengthened across the curve. On Wednesday prices were mixed again, as the front-end was steady, while bonds maturing 10 years and longer strengthened and the Federal Open Markets Committee (FOMC) voted to keep its overnight target rate range steady, at 2.25% to 2.50%. On Thursday prices were steady across the curve. Friday was a repeat of Wednesday’s price action. Issuance for the week is forecasted to be $6.5B, which is above last week’s revised level of $5.4B in issuance. This week’s projected level of issuance combined with secondary market offerings should provide market participants with a number of opportunities for the trading week, especially given the current demand in the municipal market. Driving this strong demand in the municipal market is a combination of high redemption flows and inflows into municipal bond mutual funds.

Investors in municipal bond funds put cash into funds for a seventeenth week, as weekly reporting funds experienced inflows of $1.191B, after experiencing inflows of $1.576B the week prior. The four-week moving average was a positive $1.1B, after being a positive $981.153MM the week prior. Investors still facing low rates overseas continue to find higher-yielding U.S. assets attractive, especially since municipal bonds are off to their best start in five years. The ICE BofAML Municipal Bond Index has returned 3.38% so far this year, its best start since 2014 when it was up 5.15%. Municipal securities have been bolstered by low supply and strong demand. Municipal debt has returned more than double U.S. Treasury securities since the start of the year. All these factors, should have both traditional and non-traditional market participants continuing to look for opportunities in the U.S. municipal market. In addition, municipal bonds are attracting investors from high-tax states, in a ripple effect from last year’s tax law.

Last week the yield on the two-year maturity on the MMD Triple-A Scale was unchanged from Thursday to Friday and ended the week at 1.57%. Meanwhile the yields on the 10- and 30-year maturities each fell one basis point (bp) on the MMD Triple-A Scale from Thursday to Friday and they ended the week at 1.84% and 2.52%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) was unchanged, while the yields on the 10- and 30-year GO bonds each 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 they ended the week at 1.53%, 2.03%, and 2.68%, respectively. Overall, week-over-week the yields on the two- and 30-year GO bonds each fell two bps, while the yield on the 10-year GO bond fell three bps.


New Issue Volume is Forecasted to be $6.5B for Trading Week

Total new issuance for the trading week per IHS Markit Ipreo is estimated to be $6.5B, which above last week’s trading volume of $5.4B in issuance, according to revised data from Refinitiv. This week’s trading calendar is comprised of $4.1B in negotiated offerings and $2.4B in competitive offerings.

The biggest deal of the week will come from the Commonwealth of Massachusetts, which will be selling $700.0MM of GO bonds in four competitive sales on Tuesday. The sales will consist of $400.0MM of Series 2019C GOs, $100.0MM of Series 2019D GOs, $100.0MM of Series 2019E GOs and $100.0MM of Series 2019F GOs. The offerings are rated Aa1 by Moody’s Investors Service (Moody’s), AA by Standard and Poor’s Global Ratings (S&P) and AA+ by Fitch Ratings (Fitch). Also on Tuesday the Massachusetts Development Finance Agency plans to offer $174.0MM of tax-exempt and taxable revenue bonds for Atrius Health expected. The deal is rated BBB by S&P.

Another competitive deal on Tuesday, will be the Los Angeles Unified School District’s $634.0MM offering of Series 2019A GOs. The deal is rated Aa2 by Moody’s and AAA by Fitch. Proceeds will be used to refund on a current basis certain outstanding maturities.

On Wednesday the Pennsylvania Commonwealth Financing Authority plans to offer $502.0MM in two series. The deal is rated A1 by Moody’s, A by S&P, and A+ by Fitch. On Thursday another Massachusetts issuer will come to market, as the Massachusetts Water Resources Authority will offer $145.0MM of general revenue and refunding green bonds. The deal is rated Aa1 by Moody’s, and AA+ by S&P and Fitch.

Finally, Miami-Dade County, Florida plans to offer their Aviation revenue refunding bonds that will consist of tax-exempt Series 2019A offering subject to the alternative minimum tax (AMT) and a Series 2019B taxable portion. The par amount of the offerings have not be set as of yet. The offerings are rated A by S&P and Fitch.


Municipal Bond Funds Post Inflows for an Seventeenth Week

Investors in municipal bond funds put cash into funds for a seventeenth week, according to the latest data from Lipper. The weekly reporting funds saw inflows of $1.191B of inflows in the latest week, after experiencing inflows of $1.576B the week prior. The four-week moving average was a positive $1.1B, after being a positive $981.153MM the week prior.

Long-term municipal bond funds had inflows of $707.615MM in the latest week after experiencing inflows of $2.220B the week prior. Intermediate-term funds had inflows of $273.623MM after outflows of $162.223MM the week prior. National funds had inflows of $1.112B after experiencing inflows of $1.249B the week prior. High-yield municipal funds reported inflows of $294.690MM in the latest week, after inflows of $279.009MM the week prior. Exchange traded funds reported inflows of $314.019MM, after inflows of $294.445MM the week prior.


Demand in the Bank Qualified (BQ) Market Remains Strong

The BQ market continues to see good activity, even with the lower level of new issue supply so far this year, which has contributed to secondary market bid lists being well received. 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 (15+ years) in general market paper, due in part to the lower tax rates from tax reform and attractive spreads. Other market participants continue to find opportunities in both primary offerings and secondary market BQ opportunities, to address their needs. We continue to encourage participants to utilize extension swaps, as a way to pick up more yield with little to no drop-off in credit quality. Finally, we recommend market participants look to unsold balance of deals that have priced in the past several weeks, as a chance to possibly pick up cheaper paper compared to more recent new issue balances and offerings. Week-over-week, bank qualified spreads were mixed, as the spreads on one- and five-year maturities, with the largest widening occurring in the five-year maturity, three bps. Meanwhile spreads on two-, three-, 10-, 15-, and 30-year maturities all tightened week-over-week, with the largest tightening occurring in the 10-year maturity, nine bps.


Daily Overview of the General Market for the Week Ending May 3rd

Last Monday prices on municipals were steady, as market participants prepped for the $5.0B of new issue offerings scheduled for the trading week. On the day, the yields on the two-, 10-, and 30-year GO bonds were steady, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasuries weakened across the curve, as U.S. stocks posted minimal gains for the session. 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 73.6% on Monday from last Friday’s level of 74.5%, while the 30-year municipal-to-Treasury ratio fell to 86.2% on Monday from last Friday’s level of 87.3%.

Last Tuesday prices on municipals were mixed, as a number of deals were priced including the $190.16MM City of Philadelphia’s Series 2019A GO refunding bond offering. On the day, the yield on the two- and 30-year GO bonds were steady, while the yield on the 10-year GO bond fell one bp, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasuries were stronger across the curve, as U.S. stocks finished the session mixed. The Dow and S&P were up 0.15% and 0.10%, respectively, while the NASDAQ was down 0.81%. The FOMC started its two day meeting and many expect it will maintain rates at their current level when the meeting concludes on Wednesday. On the day, the yields on the two-, 10-, and 30-year maturities each fell three bps. The 10-year municipal-to-Treasury ratio rose to 74.1% on Tuesday from Monday’s level of 73.6%, while the 30-year municipal-to-Treasury ratio rose to 87.0% on Tuesday from Monday’s level of 86.2%.

Last Wednesday prices on municipals were mixed, as a few deals came to a market and the FOMC voted to keep its overnight target rate range steady at 2.25% to 2.50%. On the day, the yield on the two-year 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 two bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasuries mixed, as markets were whipsawed as investors responded to corporate earnings and disappointing economic data, but the sharpest volatility occurred after the Fed’s afternoon decision to maintain the overnight target rate steady. Overall, stocks finished the session down. As mentioned above, the FOMC voted to keep its overnight target rate range steady at 2.25% to 2.50% and its assessment of economic activity was improved from March’s Statement which said “growth of economic activity has slowed” to May’s Statement that said “economic activity rose at a solid rate.” On the day, the yield on the two-year maturity rose four bps, while the yield on the 10-year maturity rose one bp and the yield on the 30-year maturity fell one bp. The 10-year municipal-to-Treasury ratio fell to 73.4% on Wednesday from Tuesday’s levels of 74.1%, while the 30-year municipal-to-Treasury ratio fell to 86.6% on Wednesday from Tuesday’s level of 87.0%.

Last Thursday prices on municipals were steady, as the last of the week’s new issue offerings came to market, including offerings from the Massachusetts Educational Financing Authority and the City of Milwaukee. On the day, the yields on the two-, 10- and 30-year GO bonds were steady, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices finished weaker across the curve, as US Stocks posted losses for a second session. On the day, the yield on the two-year maturity rose four bps, while the yield on the 10-year maturity rose three bps and the yield on the 30-year maturity rose two bps. The 10-year municipal-to-Treasury ratio fell to 72.6% on Thursday from Wednesday’s level of 73.4%, while the 30-year municipal-to-Treasury ratio fell to 86.1% on Thursday from Wednesday’s level of 86.6%.

Last Friday, prices on municipals were mixed, as market participants were looking ahead to the coming trading week’s $6.5B in new issue offerings. On the day, the yield on the two-year GO bond was steady, 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.

U.S. Treasury prices finished the day stronger, as U.S. stocks posted gains for the session. On the day, the yield on the two-year maturity fell two bps, while the yields on the 10- and 30-year maturities each fell one bp. The 10-year municipal-to-Treasury ratio slipped to 72.4% on Friday from Thursday’s level of 72.6%, while the 30-year municipal-to-Treasury was relatively unchanged on Friday from Thursday’s level of 86.1%.


Taxable Market






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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