Muni Update

November 18, 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 Wednesday and Thursday, municipal prices strengthened across the curve. On Friday, municipal prices were once again steady across the curve. Issuance for the week is forecasted to be $11.77B, which is above last week’s holiday-shortened trading week revised total of $9.78B in new-issue paper that came to market. 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 45th week, as weekly reporting funds experienced inflows of $1.275B, after experiencing inflows of $1.103B the week prior. The four-week moving average was a positive $1.242B, after being a positive $899.269MM 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 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 1.11%, 1.55%, and 2.15%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond fell two basis points (bps), while the yield on the 10-year GO bond fell five bps and the yield on the 30-year GO bond fell seven 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 1.21%, 1.65%, and 2.27%, respectively. Overall, week-over-week the yield on the two-year GO bond fell three bps, while the yield on the 10-year GO bond fell five bps and the yield on the 30-year GO bond fell six bps.


New-Issue Volume is Forecasted to Be $11.77B for Trading Week

Total new issuance for the trading week per IHS Markit Ipreo is estimated to be $11.77B, which is above last week’s revised total of $9.78B. The calendar consists of $10.22B of negotiated deals and $1.55B of competitive sales. There are 39 scheduled deals with a par offering amount equal to or greater than $100.0MM in issuance. Twelve of those $100.0MM or larger scheduled deals are either partially or completely taxable.

The largest deal of the week is scheduled to come from the Port Authority of New York and New Jersey on Tuesday, when its offers $1.1B of consolidated bonds. The deal is rated Aa3 by Moody’s Investors Service (Moody’s) and AA- by both Standard and Poor’s Global Ratings (S&P) and Fitch Ratings (Fitch).  Staying in New York, the Dormitory Authority of the State of New York plans to offer $520.33MM of facility revenue federally taxable bonds on Thursday. The deal is rated Aa3 by Moody’s and A+ by S&P.

Also on Tuesday, the California Health Facilities Authority plans to offer $500.0MM of senior revenue federally taxable bonds. The deal is rated Aa3 by Moody’s and AA- by both S&P and Fitch. Staying in California, the California Institute of Technology’s plans to offer $500.0MM of taxable corporate CUSIP century bond on Thursday. The deals is rated Aa3 by Moody’s and AA- by S&P.

There is a second century bond deal scheduled for the week, as the University of Pittsburgh plans to offer $350.0MM of commonwealth system of higher education bonds, with a 2119 maturity. The deal is rated Aa1 by Moody’s and AA+ by S&P.

The North Carolina Turnpike Authority plans to offer $510.04MM of triangle expressway system senior lien revenue and system appropriation capital appreciation bonds on Wednesday. The system senior lien bonds are rated BBB by both S&P and Fitch, while the appropriation capital appreciation bonds are rated Aa1 by Moody’s, and AA+ by both S&P and Fitch

The largest competitive deal of the week will come from the State of Nevada when it sells $155.29MM of GO limited tax capital improvement and refunding bonds on Tuesday. The deal is rated Aa1 by Moody’s and AA+ by both S&P and Fitch.


Municipal Bond Funds Post Inflows for a 45th Week

Investors in municipal bond funds put cash into funds for a 45th week, as weekly tax-exempt weekly reporting funds experienced inflows of $1.275B in the latest week, after experiencing inflows of $1.103B the week prior. This marks the sixth 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 $1.242B, after being a positive $899.269MM the week prior.

Long-term municipal bond funds had inflows of $826.817MM in the latest week after experiencing inflows of $738.369MM the week prior. Intermediate-term funds had inflows of $262.672MM after inflows of $218.007MM the week prior. National funds had inflows of $ 1.177B after experiencing inflows of $977.543MM the week prior. High-yield municipal funds reported inflows of $249.308MM in the latest week, after inflows of $84.106MM the week prior week. Exchange traded funds reported inflows of $176.045MM after inflows of $152.249MM 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 monthly 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 widened across the curve, with the largest widening occurring in the 10-year maturity, 11 bps.


Daily Overview of the General Market for the Week Ending November 15th

Last Tuesday, prices on municipals were steady, as a few deals were priced ahead of the big push of issuance scheduled for Wednesday and Thursday. 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 strengthened, as U.S. stocks posted mixed results for the session. The Dow finished flat, while the S&P and the NASDAQ were up 0.16% and 0.26%, respectively. 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 four bps. The 10-year municipal-to-Treasury ratio rose to 83.3% on Tuesday from last Friday’s level of 82.5%, while the 30-year municipal-to-Treasury ratio rose to 92.9% on Tuesday from last Friday’s level of 91.4%.

Last Wednesday, municipal prices strengthened across the curve, as a number of new issues came to market, including the largest negotiated deal of the week that was upsized from its original par amount of $944.825MM to $1.3B. On the day, the yield on the two-year GO bond fell one bp, while the yield on the 10-year GO bond fell two bps and the yield on the 30-year GO bond fell three bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys also strengthened, as U.S. stocks were up and down during the day and ultimately closed mixed for the session. The Dow and the S&P were up 0.33% and 0.07%, respectively, meanwhile the NASDAQ fell 0.05%. On the day, the yields on the two- and 30-year maturities each fell three bps, while the yield on the 10-year maturity fell four bps. The 10-year municipal-to-Treasury ratio rose to 84.0% on Wednesday from Tuesday’s level of 83.3%, while the 30-year municipal-to-Treasury slipped 92.8% on Wednesday from Tuesday’s level of 92.9%.

Last Thursday, prices on municipals strengthened again, following the rally in U.S. Treasurys, as the last of the week’s new offerings came to market. On the day, the yield on the two-year GO bond fell one bp, while the yield on the 10-year GO bond fell three bps and the yield on the 30-year GO bond fell four bps.

As mentioned above, U.S. Treasury prices strengthened as U.S. stocks posted mixed results again for the session. The Dow and NASDAQ both finished down 0.01% and 0.04%, respectively, while the S&P was up 0.08%. On the day, the yields on the two- and 30-year maturities each fell five bps, while the yield on the 10-maturity fell six bps. The 10-year municipal-to-Treasury rose to 85.2% on Thursday from Wednesday’s level of 84.0%, while the 30-year municipal-to-Treasury ratio bumped up to 93.1% on Thursday from Wednesday’s level of 92.8%.

On Friday, prices on municipals were steady, as market participants were looking ahead to the trading week’s $11.77B in new-issue long-term debt offerings. 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 were mixed, as U.S. stocks posted gains for the session and reached new highs on continued optimism of a U.S. – China trade deal. The Dow rose 0.80%, while the S&P and NASDAQ rose 0.77% and 0.73%, respectively. On the day, the yield on the two-year maturity rose three bps, while the yield on the 10-year maturity rose two bps and the yield on the 30-year maturity was unchanged. The 10-year municipal-to-Treasury ratio fell to 84.2% on Friday from Thursday’s level of 85.2%, while the 30-year municipal-to-Treasury ratio was unchanged on Friday from Thursday’s level of 93.1%.


Taxable Market

Taxable bonds are a small but growing part of the municipal bond market: last year, they made up 7.7% of total long-term new-issue volume, but so far this year (through October 8th), 15.1% of new-issue volume has been taxable. About 22% of this year’s taxable municipal bond new-issue volume have been GO bonds, 13% have been for higher education purposes, 8% have been for airports and 7% have been water and sewer bonds, based on data from Bloomberg.


Taxable Market






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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