Muni Update

November 15, 2021


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


Municipal Market Recap

Municipal prices started the holiday-shortened trading week steady across the curve. On Tuesday municipal prices strengthened across the curve. On Wednesday municipal prices were mostly steady. On Thursday, the bond markets were closed in observance of Veterans Day. On Friday municipal prices were mixed, as prices on bonds in the front-end weakened, while prices on bonds maturing 10 years and longer were steady.

This week, the projected level of new-issue offerings for the trading week is $9.13B 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 36th week in a row, as tax-exempt weekly reporting funds data showed that funds experienced inflows of $1.899B in the latest week, after experiencing inflows of $602.933MM the week prior. The four-week moving average was positive at $768.916MM, after being in the green at $409.586MM the week prior.

Last week the yield on the two-year maturity on the MMD Triple-A Scale rose one basis point (bp) from Wednesday to Friday and ended the week at 0.24%. Meanwhile, the yields on the 10- and 30-year maturities on the MMD Triple-A Scale were unchanged from Wednesday to Friday and they ended the week at 1.08% and 1.53%, respectively. Overall week-over-week the yield on the two-year general obligation (GO) bond was unchanged, while the yields on the 10- and 30-year GO bonds each fell five bps.

Last week the yields on the two-, 10-, and 30-year maturities on the MMA Triple-A Scale each rose one bp from Wednesday to Friday and they ended the week at 0.19%, 1.29%, and 1.79%, respectively. Overall, week-over-week the yield on the two-year GO bond were unchanged, while the yield on the 10-year GO bond fell two bps and the yield on the 30-year GO bond fell three bps.


New-issue Volume is Forecasted to be $9.13B for the Trading Week

Total new-issue offerings for the trading week per IHS Markit Ipreo is projected to be an estimated $9.13B for upcoming trading week. This week’s projected level of bond issuance is comprised of $6.51B in negotiated deals and $2.62B in competitive deals. One of the largest deals of the week will be the $1.225MM of GO bonds, by the State of Mississippi. The offerings will consist of $198.85MM of tax-exempt GOs, $126.89MM of taxable GOs, and $900.0MM of taxable refunding GOs. The offerings are rated Aa2 by Moody’s Investors Service (Moody’s), AA by Standard and Poor’s Global Ratings (S&P) and AA by Fitch Ratings (Fitch).

On Tuesday a number of negotiated deals are expected to be priced and they include but are not limited to the Metropolitan Water Reclamation District of Greater Chicago’s $500.0MM offering of GO limited and unlimited tax, tax-exempt, green, and taxable bonds. The offering is rated AA by S&P and Triple-A by Fitch. The Port of Houston Authority, Harris County, Texas, is set to price $315.95MM of first lien revenue bonds. The deal is rated Aa3 by Moody’s and AA+ by S&P. Bellevue, Washington, is set to price $122.73MM of limited tax GO taxable delayed delivery refunding bonds. The deal is rated Triple-A by Moody’s and S&P. The Forsyth County School District, Georgia, is set to price $109.575MM of taxable GO refunding bonds. The deal is rated Triple-A by Moody’s and S&P. Finally, the Michigan Finance Authority is set to price $107.585MM of drinking water revolving fund revenue bonds, this deal is also rated Triple-A by Moody’s and S&P.

On Wednesday, the $1.05B offering by the California Health Facilities Financing Authority of Cedars-Sinai Health System revenue bonds will price. The deal is rated Aa3 by Moody’s and AA- by S&P and Fitch. Cedars-Sinai Health System is also set to price $300.0MM of taxable corporate CUSIP bonds. This deal is also rated Aa3 by Moody’s and AA- by S&P and Fitch. Also on Wednesday, Cook County, Illinois, is set to price $193.19MM of GO refunding bonds, serials 2022-2028. The deal is rated A2 by Moody’s, A+ by S&P, and AA- by Fitch. The State of Colorado is set to price $149.56MM of Building Excellent Schools Today, certificates of participation. The deal is rated Aa2 by Moody’s and AA- by S&P.

In the competitive arena, King County, Washington, is set to sell $494.9MM of taxable limited tax GO bonds at 10:45 a.m. on Tuesday. King County will also sell $30.555MM of limited tax GO bonds at 11:15 a.m. on Tuesday. Both deals are rated Triple-A by Moody’s, S&P and Fitch. Also, on Tuesday, the San Francisco Public Utilities Commission is set to sell $266.265MM of green wastewater revenue SSIP bonds at 10 a.m. Tuesday and an additional $38.735MM of wastewater revenue bonds non-SSIP at 10:30 a.m. Tuesday. The deals are rated Aa2 by Moody’s and AA by S&P.


Municipal Bond Funds Posted Inflows for a 36th Week in a Row

Investors in municipal bond put cash into funds for a 36th week in a row, as tax-exempt weekly reporting funds experienced inflows of $1.899B in the latest week, after experiencing inflows of $602.933MM the week prior. The four-week moving average remained positive at $768.916MM after being in the green at $409.586MM the week prior.

Long-term municipal bond funds had inflows of $1.810B in the latest week, after experiencing inflows of $586.687MM the week prior. Intermediate-term funds had inflows of $162.894MM after inflows of $184.412MM the week prior. National funds had inflows of $1.817B after experiencing inflows of $598.065MM the week prior. High-yield municipal funds reported inflows of $1.223B in the latest week, after outflows of $1.072MM the week prior. Exchange traded funds reported inflows of $671.670MM, after inflows of $519.543MM 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 widen by four bps and the 15-maturity was unchanged. Meanwhile, the spreads on the two-, three-, five-, 10-, and 30-year maturities all tightened, with the largest tightening occurring in the three-year maturity, 18 bps.


Daily Overview of the General Market for the Week Ending November 12th

On Monday municipals prices were steady, as the first of the holiday – shortened trading week’s $9.60B in new-issue 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 weakened on Monday, while U.S. Stocks rose for the session. The Dow was up 104 points or 0.3%. While the S&P and the NASDAQ were both up just 0.1%. On the day, the yields on the two- and 10-year maturities each rose six bps, while the yield on the 30-year maturity rose two bps. The 10-year municipal-to-Treasury ratio fell to 74.8% on Monday from last Friday’s level of 77.9%, while the 30-year municipal-to-Treasury ratio fell to 83.6% on Monday from last Friday’s level of 84.5%.

On Tuesday municipals prices strengthened, as a number of new-issue offerings came to market. In the competitive arena the largest deal of the week came as the State of California sold $1.250B In four competitive offerings, three of which were comprised of GO refunding tax-exempt and taxable bonds and one series was comprised of GO taxable improvement bonds. Other competitive deals included the $219.605MM offering of GO bonds by the State of Wisconsin and the $125.78MM of limited tax taxable GO improvement and refunding bonds. In the negotiated arena the District of Columbia sold two series of bonds totaling $661.275MM comprised of a GO improvement bond offering and a GO refunding bond offering, and the Dallas Area Rapid Transit Authority sold $451.255MM of senior lien sales tax revenue improvement and refunding bonds. On the day, the yield on the two-year GO bond fell one bp, while the yields on the 10- and 30-year GO bonds each fell five bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys also strengthened on Tuesday, while U.S. Stocks fell for the session. The Dow was down 112 points or 0.3%. The S&P was also down 0.3% and the NASDAQ was down 0.6%. On the day, the yield on the two-year maturity fell four bps, while the yield on the 10-year maturity fell five bps and the yield on the 30-year maturity fell six bps. The 10-year municipal-to-Treasury ratio fell to 74.0% on Tuesday from Monday’s level of 74.8%, while the 30-year municipal-to-Treasury was unchanged on Tuesday from Monday’s level of 83.6%.

On Wednesday municipals prices were mostly steady across the curve, thus ignoring a large selloff in the U.S Treasury market, as investors digested a number of new-issue offerings that came to market. 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 on Wednesday, and U.S. Stocks fell for the session. The Dow was down 240 points or 0.7%, while the S&P was down 0.8% and the NASDAQ was down 1.7%. On the day, the yields on the two- and 10-year maturities each rose 10 bps, while the yield on the 30-year maturity rose nine bps. The 10-year municipal-to-Treasury ratio fell to 69.2% on Wednesday from Tuesday’s level of 74.0%, while the 30-year municipal-to-Treasury ratio fell to 79.7% on Wednesday from Tuesday’s level of 83.6%.

Last Thursday the bond markets were closed in observance of Veterans Day, while the U.S. Stock markets were open and finished mixed for the session. The Dow was down 158 points or 0.4%, while the S&P was barely up 0.06% and the NASDAQ was up 0.5%.

Last Friday municipals prices were mixed, as market participants looked ahead to the $9.13B in expected new-issue offerings in the upcoming trading week. On the day, the yield on the two-year GO bond rose one bp, while the yields on the 10-and 30-year GO bonds were unchanged, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices weakened on Friday, while U.S. Stocks rose for the session. The Dow was up 179 points or 0.5%, while the S&P was up 0.7% and the NASDAQ was up 1.0%. On the day, the yields on the two- and 10-year maturities each rose two bps, while the yield on the 30-year maturity rose three bps. The 10-year municipal-to-Treasury ratio fell to 68.4% on Friday from Wednesday’s level of 69.2%, while the 30-year municipal-to-Treasury fell to 78.5% on Friday from Wednesday’s level of 79.7%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks

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