Muni Update

November 1, 2021


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


Municipal Market Recap

Municipal prices were mixed daily through Thursday. On Monday and Tuesday prices on bonds maturing in the front-end weakened, while prices on bonds maturing 10-years and longer were steady. On Wednesday prices on bonds in the front-end were steady, while prices on bonds maturing 10-years and longer strengthened. On Thursday prices on bonds maturing 10-years and in were steady, while prices on bonds in the long end strengthened. On Friday municipal prices were steady across the curve.

This week, the projected level of new issue offerings for the trading week are $4.99B and coupled with bank qualified (BQ) and general market (GM) offerings in the secondary market should offer market participants numerous opportunities to fill their needs, especially as demand continues to outpace supply. The continued strong demand in the municipal market is being driven by redemption activity and inflows into funds, as both continue to be solid and contribute to demand outpacing supply for the year. For November, the imbalance in redemption activity picks up substantially from October’s level of $19.6B to $40.0B. This $40.0B level is comprised of $29.7B in redemptions and $10.3B in coupon payments.

For funds latest reporting period, investors in municipal bond funds put cash into funds for a 34th week in a row, as tax-exempt weekly reporting funds data showed that funds experienced inflows of $396.900MM in the latest week, after experiencing inflows of $177.277MM the week prior. The four-week moving average was positive at $268.070MM, after being in the green at $270.859MM 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 0.25%, 1.21% and 1.69%, respectively. Overall, week-over-week the yield on the two-year general obligation (GO) bond rose four basis points (bps), while the yield on the 10-year GO bond fell three bps and the yield on the 30-year GO bond fell four bps.

Last week the yields on the two-, 10-, and 30-year maturities on the MMA Triple-A Scale were also unchanged from Thursday to Friday and they ended the week at 0.24%, 1.38%, and 1.92%. Overall, week-over-week the yield on the two-year GO bond rose one bp, while the yield on the 10-year maturity fell two bps and the yield on the 30-year maturity fell four bps.


New-issue Volume is Forecasted to be $4.99B for the Trading Week

Total new-issue offerings for the trading week per IHS Markit Ipreo are estimated to be $4.99B. This week’s projected level of bond issuance is comprised of $3.97B in negotiated deals and $1.02B in competitive deals. The largest deal of the week is the $830.0MM offering by the State of Texas of GO bonds. Other large offerings this week in the negotiated sector include a $286.2MM offering by the State of Washington, a $212.0MM offering by Central Health Obligated Group, Virginia, and a $207.6MM offering by American Leadership Academy, Utah. In the competitive arena, the largest deal of the week is the $169.0MM offering of taxable refunding bonds by Miami-Dade County School District, Florida.


Municipal Bond Funds Posted Inflows for a 34th Week in a Row

Investors in municipal bond funds put cash into funds for a 34th week in a row, as tax-exempt weekly reporting funds experienced inflows of $396.900MM in the latest week, after experiencing inflows of $177.227MM the week prior. The four-week moving average remained positive at $268.070MM after being in the green at $270.859MM the week prior.

Long-term municipal bond funds had outflows of $206.890MM in the latest week, after experiencing inflows of $44.249MM the week prior. Intermediate-term funds had inflows of $171.580MM after inflows of $146.687MM the week prior. National funds had inflows of $396.609MM after experiencing inflows of $170.746MM the week prior. High-yield municipal funds reported inflows of $3.232MM in the latest week, after outflows of $57.543MM the week prior. Exchange traded funds reported inflows of $69.869MM, after inflows of $255.564MM the week prior.


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 large part by investors having to replace rolloffs due to continued strong redemption activity and inflows into funds. The municipal market is still dealing with a supply-demand imbalance, though it is not as dramatic as it was during the summer months.

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 and clean-up any odd lots (on-going monitoring of line items), as well as credit clean-up for any credits on negative credit watches or recent downgrades. Finally, extension swaps present an opportunity to sell short duration municipals and extend on out the yield curve, while maintaining or improving the overall credit quality of the portfolio, especially, as overall credit quality continues to stabilize and improve in the municipal market. Week-over-week, BQ spreads were mixed, as the one-year maturity tightened one bp, while the two-, three-, five-, 10-, 15-, and 30-year maturities all widened, with the largest widening occurring in the three-year maturity, eight bps.


Daily Overview of the General Market for the Week Ending October 29th

On Monday municipals prices were mixed, as the first of the trading week’s $7.41B in new-issue debt was offered. On the day, the yield on the two-year maturity rose two 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 on Monday, while U.S. stocks rose for the session, as investors awaited a slew of earnings results from the Big Tech companies, as well as a myriad of other corporations across industries. The Dow was up 64 points or 0.2%, while the S&P was up 0.5% and the NASDAQ was up 0.9%. On the day, the yield on the two-year maturity fell one bp, while the yield on the 10-year maturity fell two bps and the yield on the 30-year maturity rose one bp. The 10-year municipal-to-Treasury ratio rose to 75.6% on Monday from last Friday’s level of 74.7%, while the 30-year municipal-to-Treasury ratio fell to 82.8% on Monday from last Friday’s level of 83.2%.

On Tuesday municipals prices were mixed again, as a number of new-issue offerings came to market in the negotiated arena including the $208.13MM of Series 2021, revenue bonds by the Wisconsin Health and Educational Facilities Authority (for Aspirus, Incorporated, Obligated Group), and the $141.72MM of unlimited tax refunding bonds by Lamar Consolidated Independent School District, Fort Bend County, Texas, to name a few. In the competitive arena, Milwaukee County (County) sold $95.82MM of taxable GO pension promissory notes, Series 2021A. The County also sold $4.18MM of GO promissory notes, Series 2021B and $10.53MM of GO transit promissory notes, Series 2021C. On the day, the yield on the two-year GO bond rose two 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 on Tuesday, while U.S. stocks barely rose for the session. The Dow was up 16 points or 0.04%, while the S&P was up 0.2% and the NASDAQ was up 0.06%. 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 four bps. The 10-year municipal-to-Treasury ratio rose to 76.1% on Tuesday from Monday’s level of 75.6%, while the 30-year municipal-to-Treasury ratio rose to 84.4% on Tuesday from Monday’s level of 82.8%.

On Wednesday municipals prices were mixed again, as investors digested a number of new-issue offerings on the day including four series of Ohio GO bonds totaling $3329.195MM, a $288.84MM offering of Penn State Health revenue bonds by the Lancaster County Hospital Authority, and $217.715MM offering of water and wastewater system revenue refunding bond by Austin, Texas, to name a few. 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 were also mixed again on Wednesday, as were U.S. stocks for the session. The Dow was down 266 points or 0.7%, while the S&P was down 0.5%. The NASDAQ was basically unchanged for the session. On the day, the yield on the two-year maturity rose three bps, while the yield on the 10-year maturity fell seven bps and the yield on the 30-year maturity fell 10 bps. The 10-year municipal-to-Treasury ratio rose to 78.6% on Wednesday from Tuesday’s level of 76.1%, while the 30-year municipal-to-Treasury ratio rose to 87.2% on Wednesday from Tuesday’s level of 84.4%.

Last Thursday municipals prices were once again mixed, as the last of the week’s new-issue offerings came to market. 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.

U.S. Treasury prices were also mixed, while U.S. stocks rose despite a weaker than expected first estimate of gross domestic product (GDP). The Dow was up 240 points or 0.7%, while the S&P was up 1.0% and the NASDAQ was up 1.4%. On the day, the yield on the two-year maturity was unchanged, while the yield on the 10-year maturity rose three bps and the yield on the 30-year maturity rose one bp. The 10-year municipal-to-Treasury ratio fell to 77.1% on Thursday from Wednesday’s level of 78.6%, while the 30-year municipal-to-Treasury ratio fell to 86.2% on Thursday from Wednesday’s level of 87.2%.

Last Friday municipal prices were steady, as market participants looked ahead to the $4.99B in expected new-issue offerings in the upcoming trading week and the two-day Federal Open Market Committee meeting that starts on Tuesday and ends on Wednesday. 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 Friday, while U.S. stocks rose for the session. The Dow was up 89 points or 0.3%, while the S&P was up 0.2% and the NASDAQ was up 0.3%. On the day, the yields on the two- and 10- year maturities each fell two bps, while the yield on the 30-year maturity fell three bps. The 10-year municipal-to-Treasury ratio rose to 78.1% on Friday from Thursday’s level of 77.1%, while the 30-year municipal-to-Treasury rose to 87.6% on Friday from Thursday’s level of 86.2%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks

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