Muni Update

November 12, 2019


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


Municipal Market Recap

Municipal prices were mixed on both Monday and Tuesday. On Monday bonds maturing 10 years and in were steady, while the long-end weakened. On Tuesday, the front-end was steady, while prices on bonds maturing 10 years and longer weakened. On Wednesday municipal prices were steady across the curve. On Thursday prices weakened across the curve. On Friday prices were mixed again, as the front-end was steady, while prices on bonds maturing 10 years and longer weakened. Issuance for the holiday-shortened trading week is forecasted to be $11.15B, which is just below last week’s revised total of $11.67B in new issue paper that came to market, but surprising high for a short trading week. This week’s projected issuance, together with secondary market opportunities and the rise in the issuance of taxable municipal bonds in the last quarter have all contributed to providing market participants with a number of opportunities, especially given the continued strong demand in the municipal market. Driving this strong demand in the municipal market is the continuing combination of high redemption flows and inflows into municipal bond mutual funds, which continues to be strong at this time.

Investors in municipal bond funds put cash into funds for a 44th week, as weekly reporting funds experienced inflows of $1.103B, after experiencing inflows of $1.161B the week prior. The four-week moving average was a positive $899.269MM, after being a positive $1.294B the week prior. Investors still facing low or negative rates overseas continue to find higher-yielding U.S. assets attractive, especially since municipal bonds are off to their best start in five years. Municipal securities have been bolstered by low supply and strong demand. All these factors, including Investors plowing billions into municipal-bond mutual funds, as investors seek to reduce their tax burden should have both traditional and non-traditional market participants continuing to look for opportunities in the U.S. municipal market.

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 1.13%. Meanwhile, the yield on the 10-year maturity rose one basis point (bp) and the yield on the 30-year maturity rose two bps on the MMD Triple-A Scale from Thursday to Friday and they ended the week at 1.60% and 2.22%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond rose two bps, while the yield on the 10-year GO bond rose 11 bps and the yield on the 30-year GO bond rose 16 bps.

Last week the yield on the two-year maturity on the MMA Triple-A Scale was unchanged from Thursday to Friday and ended the week at 1.24%. Meanwhile the yields on the 10- and 30-year maturities on the MMA Triple-A Scale from Thursday to Friday each rose one bp and they ended the week at 1.70% and 2.33%, respectively. Overall, week-over-week the yield on the two-year GO bond rose seven bps, while the yield on the 10-year GO bond rose 14 bps and the yield on the 30-year GO bond rose 13 bps.


New-Issue Volume is Forecasted to Be $11.15B for Trading Week

Total new issuance for the trading week per IHS Markit Ipreo is estimated to be $11.15B, which is slightly down from last week’s revised total of $11.67B. The calendar consists of $8.461B of negotiated deals and $2.74B of competitive sales. There are 32 scheduled deals with a par offering amount equal to or greater than $100.0MM in issuance, with seven of those coming competitively. Eight of those $100.0MM or larger scheduled deals are either partially or completely taxable.

The largest deal of the week will be the District of Columbia’s $944.825MM of income tax secured revenue and revenue refunding bonds on Wednesday. The deal is rated Aa1 by Moody’s Investors Service (Moody’s), triple-A by Standard and Poor’s Global Ratings (S&P), and AA+ by Fitch Ratings (Fitch).  Also on Wednesday, the Harris County Cultural Education Facilities Finance Corporation, Texas, plans to offer $566.7MM of hospital revenue forward delivery taxable bonds. The deal is rated A1 by Moody’s and A+ by S&P.

On Thursday the Texas Transportation Commission plans to price $789.550MM of state highway improvement GO taxable refunding bonds. The deal is expected to mature serially from 2021 through 2034 and include a term bond in 2044. The deal is rated triple-A by Moody’s, S&P, and Fitch.

In the competitive arena, the State of California plans to offer $682.435MM of various purpose GO and refunding bonds on Wednesday. Fitch upgraded the state’s GO bond rating in August to AA from AA-, while Moody’s elevated the GO rating to Aa2 from Aa3 on October 14th. S&P rates the bonds AA- and hasn’t boosted the ratings since 2015. All have stable outlooks.


Municipal Bond Funds Post Inflows for a 44th Week

Investors in municipal bond funds put cash into funds for a 44th week, as weekly tax-exempt weekly reporting funds experienced inflows of $1.103B in the latest week, after experiencing inflows of $1.161B the week prior. This marks the fifth week in a row and eighth time in the past 12 weeks inflows have exceeded $1.0B The four-week moving average was a positive $899.269MM, after being a positive $1.294B the week prior.

Long-term municipal bond funds had inflows of $738.369MM in the latest week after experiencing inflows of $1.339B the week prior. Intermediate-term funds had inflows of $218.007MM after inflows of $125.413MM the week prior. National funds had inflows of $977.543MM after experiencing inflows of $1.033B the week prior. High-yield municipal funds reported inflows of $84.106MM in the latest week, after inflows of $402.256MM the week prior week. Exchange traded funds reported inflows of $152.249MM after inflows of $240.027MM the week prior.


Demand in the Bank Qualified (BQ) Market Remains Strong

BQ market participants expect demand to continue to outpace supply again this week and therefore will focus on opportunities in both the primary and secondary markets. BQ participants continue to have significant demand for municipal paper due in large part to having to replace rolloffs due to redemptions. BQ participants continue to find attractive opportunities in the new issue market both in size and structure (20+ year maturity range) in both BQ and in general market paper, due in part to the lower tax rates from tax reform and attractive yields on general market paper due to the sell-off last week.

We continue to encourage participants to utilize extension swaps, especially given the strong bids for short paper by retail investors in high tax states, as a way roll out the curve for more yield with little to no drop-off in credit quality. Also participants should be looking at credit clean-up of their portfolio in this current environment. Week-over-week, bank qualified spreads tightened across the curve, with the largest tightening occurring in the 25-year maturity, 25 bps.


Daily Overview of the General Market for the Week Ending November 8th

Last Monday prices on municipals were mixed, as market participants prepped for the $12.92B of new issue paper scheduled for the 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 rose two bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys weakened, as optimism that the first phase of a U.S.-China trade deal could be near, a sentiment that has been growing since last week and propelled U.S. stocks higher for the session. The Dow was up 0.43%, while the S&P was up 0.37% and the NASDAQ rose 0.56%. On the day, the yield on the two-year maturity rose four bps, while the yields on the 10- and 30-year maturities each rose six bps. The 10-year municipal-to-Treasury fell to 83.2% on Monday from last Friday’s level of 86.1%, while the 30-year municipal-to-Treasury ratio fell to 91.6% on Monday from last Friday’s level of 93.2%.

Last Tuesday prices on municipals were mixed, as a number of the deals were priced. The yield on the two-year GO Bond was steady, while the yield on the 10-year GO bond rose three bps and the yield on the 30-year GO bond rose five bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys weakened, as U.S. stocks posted mixed results for the session. The Dow finished up 011%, while the S&P was down 0.12% and the NASDAQ was up 0.02%. On the day, the yield on the two-year maturity was up three bps, while the yields on the 10- and 30-year maturities each rose seven bps. The 10-year municipal-to-Treasury ratio fell to 81.7% on Tuesday from Monday’s level of 83.2%, while the 30-year municipal-to-Treasury ratio fell to 91.0% on Tuesday from last Monday’s level of 91.6%.

Last Wednesday municipal prices were steady across the curve, as the two largest negotiated deals of the week, plus all six of the large competitive deals came to market and priced. On the day, the yields on the two-, 10-, and 30-year GO bonds were all unchanged, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys strengthened, as U.S. stocks were relatively flat for the session after reports that a meeting between Presidents Trump and Xi to potentially sign a phase one trade deal could be pushed into December. The Dow and the S&P were essential unchanged, while NASDAQ fell 0.29% on weakness in tech. On the day, the yield on the two-year maturity fell two bps, while the yield on the 10-year maturity fell five bps and the yield on the 30-year maturity fell four bps. The 10-year municipal-to-Treasury ratio rose to 84.0% on Wednesday from Tuesday’s level of 81.7%, while the 30-year municipal-to-Treasury rose to 92.6% on Wednesday from Tuesday’s level of 91.0%.

Last Thursday prices on municipals followed U.S. Treasurys and weakened, as the last of the week’s new offerings came to market. 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 each rose seven bps.

As mentioned above U.S. Treasury prices weakened, as U.S. stocks posted gains for the session on continued speculation that a trade deal with China is coming. The Dow finished the session up 0.66%, while the S&P and NASDAQ were up 0.27% and 0.28%, respectively. On the day, the yield on the two-year maturity rose seven bps, while the yield on the 10-maturity rose 11 bps and the yield on the 30-year maturities rose 10 bps. The 10-year municipal-to-Treasury fell to 82.8% on Thursday from Wednesday’s level of 84.0%, while the 30-year municipal-to-Treasury ratio fell to 91.7% on Thursday from Wednesday’s level of 92.6%.

On Friday prices on municipals were mixed, as market participants were looking ahead to the coming holiday-shortened trading week’s $12.15B in new issue long-term debt offerings. On the day, the yield on the two-year GO bond was unchanged, while the yield on the 10-year GO bond rose one bp and the yield on the 30-year GO bond rose two bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were also mixed, as U.S. stocks posted gains for the session. The Dow was relatively unchanged on the day, while the S&P and NASDAQ were up 0.25% and 0.48%, respectively. On the day, the yield on the two-year maturity was unchanged, while the yield on the 10-year maturity rose two bps and the yield on the 30-year maturity rose three bps. The 10-year municipal-to-Treasury ratio slipped to 82.5% on Friday from Thursday’s level of 82.8%, while the 30-year municipal-to-Treasury ratio slipped to 91.4% on Friday from Thursday’s level of 91.7%.


Taxable Market

The issuance of taxable municipal securities has risen to record levels in 2019 against a post-advance refunding backdrop of historically-low rates and heightened interest from an expanding pool of international investors. The exponential surge of such issuance in the past three months could be the signal of a potential even larger boom for this asset class on the horizon and a potential reshaping of the municipal bond market, especially when it comes to the levels of tax-exempt and taxable financings.


Taxable Market






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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