Muni Update

November 16, 2020


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


Municipal Market Recap

Municipal prices were weaker to start the holiday-shortened trading week across the curve. On Tuesday municipal prices were steady across the curve. On Thursday municipal prices strengthened across the curve. On Friday municipal prices were mixed, as prices on bonds in the front end were steady, while prices on bonds maturing 10 years and longer strengthened.

This trading week’s projected level of new-issue offerings is $11.4B and coupled with secondary market offerings should provide market participants with opportunities to fill their needs, as demand continues to outpace supply. The continued strong demand is due in part to continued, although reduced redemption activity from this summer, coupled with overall strong inflows into funds.

Investors in municipal bond funds put cash into funds for the week, as evidenced by the latest tax-exempt weekly reporting funds data showing that funds experienced inflows of $1.167B in the latest week, after experiencing outflows of $954.015MM the week prior. The four-week moving average remained positive at $350.497MM, after being in the green at $212.457MM 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 was unchanged from Thursday to Friday and ended the week at 0.18%. Meanwhile, the yields on the 10- and 30-year maturities on the MMD Triple-A Scale each fell two basis points (bps) from Thursday to Friday and they ended the week at 0.81% and 1.55%, respectively. Overall, week-over-week the yields on the two- and 30-year General Obligation (GO) bonds each fell one bp, while the yield on the 10-year GO bond was unchanged.

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 0.30%. Meanwhile the yield on the 10-year maturity on the MMA Triple-A Scale fell one bp from Thursday to Friday, while the yield on the 30-year maturity on the MMA Triple-A Scale fell two bps from Thursday to Friday, and they ended the week at 1.18% and 1.78%, respectively. Overall, week-over-week the yields on the two-, 10-, and 30-year GO bonds each rose two bps.

New-Issue Volume is Forecasted to be Just $11.4B for the Week

Total new-issue offerings for the trading week per IHS Markit Ipreo are estimated to be just $11.4B. This week’s projected bond issuance is comprised of $9.6B in negotiated deals and $1.8MM in competitive sales. New Jersey is coming to market with $4.0B of COVID-19 emergency GO bonds. The deal is expected to price on Wednesday. The issue consists of Series 2020A tax-exempt GOs and Series 2020B taxable GO social bonds and they are rated A3 by Moody’s Investors Service (Moody’s) BBB+ by Standard and Poor’s Global Ratings (S&P), A- by Fitch Ratings (Fitch), and A by Kroll Bond Ratings Agency (KBRA).

The Commonwealth of Massachusetts plans to offer $1.362B of GO bonds on Wednesday. The deal consists of $500.0MM of consolidated loan of 2020 Series E GOs, $417.655MM of Series 2020D GO refunding bonds and $444.09MM of Series 2020E taxable GO refunding bonds. The deal is rated Aa1 by Moody’s, AA by S&P and AA+ by Fitch. The State of Hawaii plans to come to market with a $242.0MM offering of harbor system revenue bonds. The deal is set to price on Thursday and is comprised of Series 2020A bonds subject to the alternative minimum tax (AMT), Series 2020B taxables and Series 2020C non-AMT bonds. Also, on the calendar this week is Baltimore, Maryland’s $670.33MM offering of revenue bonds on Wednesday. The deal consists of Series 2020A water project revenue bonds, Series 2020B taxable water project refunding revenue bonds and Series 2020A taxable wastewater project revenue refunding bonds. The deal is rated Aa2 by Moody’s and AA- by S&P.

The State of California is coming to market with a variable-rate deal and is set to price $100.0MM of Series 2020A variable-rate GOs due in 2048 on Wednesday. Also, from California the Port of Oakland plans to come to market with $531.08MM of bonds in two deals on Thursday. They consist of $344.29MM of Series 2020R taxable senior lien refunding revenue bonds and $186.79MM of Series 2021H forward delivery intermediate lien refunding revenue AMT bonds.

In the competitive arena, the City and County of Denver, Colorado will sell $401.68MM of bonds in two offerings on Tuesday. The sale consists of $231.755MM of Series 2020B Better Denver GO refunding bonds and $169.925MM of Series 2020A Elevate Denver GOs.


Municipal Bond Funds Posted Inflows for the Week

Investors in municipal bond put cash into funds for the week, as tax-exempt weekly reporting funds experienced inflows of $1.167B in the latest week, after experiencing outflows of $954.015MM the week prior. The four-week moving average was still positive at $350.497MM, after being in the green at $212.457MM the week prior.

Long-term municipal bond funds had outflows of $911.719MM in the latest week, after experiencing outflows of $887.545MM the week prior. Intermediate-term funds had outflows of $73.234MM after outflows of $120.110MM the week prior. National funds had inflows of $1.130B after experiencing outflows of $805.232MM the week prior. High-yield municipal funds reported inflows of $526.256MM in the latest week, after outflows of $260.247MM the week prior. Exchange traded municipal funds reported inflows of $617.748MM, after inflows of $24.840MM the week prior.


Demand in the Bank Qualified (BQ) Market Remains Strong

BQ participants continue to be focused on the new-issue paper and the expected level of both BQ and general market (GM) new-issue paper this week should provide BQ market participants with opportunities to fill their needs, as buyers continue to outpace sellers. BQ participants continue to have significant demand for municipal paper due in large part to having to replace rolloffs due to redemptions over the course of the year. 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.

We encourage participants to continue to utilize extension swaps, to pick up more yield with little to no drop-off in credit quality, as well as to review their portfolio’s and look to replace weaker credits at this time. Week-over-week, BQ spreads tightened across the curve, with the largest tightening occurring in the 10-year maturity, 15 bps.


Daily Overview of the General Market for the Week Ending November 13th

Last Monday municipals prices weakened, as the first of the trading week’s $2.8B in new-issue long-term debt was offered. 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 each rose five bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys also weakened last Monday, as U.S. Stock prices were mixed for the session. The Dow finished up 834 points, or 3.0%, while the S&P was up 1.2%. Meanwhile the NASDAQ was down 1.5%. On the day, the yield on two-year maturity rose one bp, while the yields on the 10- and 30-year maturities each rose 13 bps. The 10-year municipal-to-Treasury ratio fell to 89.6% on Monday from last Friday’s level of 97.6%, while the 30-year municipal-to-Treasury ratio fell to 93.1% on Monday from last Friday’s level of 97.5%.

Last Tuesday municipals prices were steady, as several deals came to market, including offerings from Louisiana, Florida, and Oregon ahead of the Veterans Day Holiday. 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. Treasurys weakened last Tuesday, as U.S. Stock prices were mixed the session. The Dow finished up 263 points, or 0.9%, while the S&P was relatively unchanged, and the NASDAQ was down 1.4%. On the day, the yields on the two-, 10-, and 30-year maturities each rose two bps. The 10-year municipal-to-Treasury ratio fell to 87.8% on Tuesday from Monday’s level of 89.6%, while the 30-year municipal-to-Treasury ratio fell to 92.0% on Tuesday from Monday’s level of 93.1%.

Last Wednesday the municipal bond market was closed in observance of Veterans Day.

Last Thursday municipals prices strengthened, as the last of the week’s new-issue offering came to market. On the day, the yield on the two-year GO bond fell two 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, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were also strengthened on Thursday, as U.S. Stocks fell for the session. The Dow finished down 318 points or 1.1%, while the S&P was down 1.0% and the NASDAQ was down 0.7%. On the day, the yield on the two-year maturity fell two bps, while the yield on the 10-year maturity fell 10 bps and the yield on the 30-year maturity fell 11 bps. The 10-year municipal-to-Treasury ratio rose to 94.3% on Thursday from Tuesday’s level of 87.8%, while the 30-year municipal-to-Treasury ratio rose to 95.7% on Thursday from Tuesday’s level of 92.0%.

Last Friday prices on municipals were mixed, as market participants started looking ahead to the $11.4B in expected new-issue offerings next week. 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 two bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were also mixed on Friday, as were U.S. stocks prices rose for session. The Dow finished up 399 points, or 1.4%. The S&P also rose by 1.4%, while the NASDAQ was up 1.0%. On the day, the yield on the two-year maturity was unchanged, while the yields on the 10- and 30-year maturities each rose one bp. The 10-year municipal-to-Treasury ratio fell to 91.0% on Friday from Thursday’s level of 94.3%, while the 30-year municipal-to-Treasury fell to 93.9% on Friday from Thursday’s level of 95.7%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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