Muni Update

November 2, 2020


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


Municipal Market Recap

Municipal prices started the week steady across the curve. On Tuesday, Wednesday, and Thursday they were mixed. On Tuesday the front-end weakened, while prices on bonds maturing 10 years and longer strengthened. On Wednesday the front-end was steady, while prices on bonds maturing 10 years and longer strengthened. On Thursday the front-end weakened, while prices on bonds maturing 10 years and longer were steady. On Friday municipal prices were steady across the curve.

This trading week’s projected level of new-issue offerings is just $760.0MM, as most issuers took advantage of the low rates in October to come to market ahead of the national elections on Tuesday. For October issuance was $65.2B, the second highest issuance month ever and only trailed the $69.83B issued in December of 2017, right before tax law changes that eliminated advanced refundings went into effect. The market has now digested four consecutive months of issuance greater than $40.0B, with two of those months exceeding $60.0B. Year-to-date, volume stands at $414.33B, meaning that 2020 stands roughly $35.0B of issuance away from breaking 2017’s record annual issuance of $448.61B.

Investors in municipal bond funds put cash into funds for a fourth week in a row, as evidenced by the latest tax-exempt weekly reporting funds data showing that funds experienced inflows of $582.3669MM in the latest week, after experiencing inflows of $607.029MM the week prior. The four-week moving average was a positive $883.120MM, after being in the green at $543.841MM 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 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 0.21%, 0.36%, and 1.71%, respectively. Overall, week-over-week the yields on the two-year General Obligation (GO) bond rose three basis points (bps), while the yields on the 10- and 30-year GO bonds each fell three bps.

Last week the yields on the two-, 10-, and 30-year maturities were unchanged on the MMA Triple-A Scale from Thursday to Friday and they ended the week at 0.33%, 1.25%, and 1.87%, respectively. Overall, week-over-week the yield on the two-year GO bond rose one bp, while the yield on the 10-year GO bond was unchanged and the yield on the 30-year GO bond fell one bp.

New-Issue Volume is Forecasted to be Just $760.0MM for the Week

Total new-issue offerings for the trading week per IHS Markit Ipreo are estimated to be just $760.0MM. This week’s projected bond issuance is comprised of $529.1MM in negotiated deals and $230.5MM in competitive sales. Only one deal this week is sized at over $100.0MM and that is the $130.0MM offering of Series 2020 turnpike revenue bonds on Tuesday from the Maine Turnpike Authority. The deal is rated Aa3 by Moody’s Investors Service (Moody’s) and AA- from Standard and Poor’s Global Ratings (S&P) and Fitch Ratings (Fitch).


Municipal Bond Funds Posted Inflows for a Fourth Week in a Row

Investors in municipal bond put cash into funds for a fourth week, as tax-exempt weekly reporting funds experienced inflows of $582.366MM in the latest week, after experiencing inflows of $607.029MM the week prior. The four-week moving average was a positive $883.120MM, after being in the green at $543.841MM the week prior.

Long-term municipal bond funds had outflows of $205.727MM in the latest week, after experiencing outflows of $97.084MM the week prior. Intermediate-term funds had inflows of $87.597MM after inflows of $61.102MM the week prior. National funds had inflows of $593.114MM after experiencing inflows of $584.010MM the week prior. High-yield municipal funds reported inflows of $100,092MM in the latest week, after inflows of $21.399MM the week prior. Exchange traded municipal funds reported inflows of $40.771MM, after outflows of $116.503MM the week prior.


Demand in the Bank Qualified (BQ) Market Remains Strong

This week’s very low level of issuance will have both BQ and General Market participants looking to the secondary market for opportunities to fill their needs, as buyers will certainly outpace new-issue opportunities. 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 were mixed, as the one- and two-year maturities were unchanged, while the five- and 15-year maturities tightened, with the largest tightening occurring in the 15-year maturity, three bps. Meanwhile the spreads on the three-, 10-, and 30-year maturities all widened, with the largest widening occurring in the 30-year maturity, 17 bps.


Daily Overview of the General Market for the Week Ending October 30th

Last Monday municipals prices were steady, as the first of the trading week’s $15.8B in new issue long-term debt was offered to include the retail pricing of New York City Transitional Finance Authority’s $700.0MM of tax-exempt future tax-secured subordinate fixed-rate Fiscal 2021 Series D Subseries D-1 bonds. 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 strengthened last Monday, as U.S. Stock prices fell for the session. The Dow finished down 650 points, or 2.3%, while the S&P was down 1.9%, and the NASDAQ was down 1.6%. On the day, the yield on two-year maturity fell two bps, while the yield on the 10-year maturity fell four bps and the yield on the 30-year maturity fell five bps. The 10-year municipal-to-Treasury ratio rose to 118.5% on Monday from last Friday’s level of 112.9%, while the 30-year municipal-to-Treasury ratio rose to 109.4% on Monday from Last Friday’s level of 106.1%.

Last Tuesday municipals prices were mixed, as several deals came to market including large offerings from issuers in Texas and South Carolina, as well as the second day of retail pricing for the NY TFA offering. 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 fell two bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were also mixed, as were U.S. Stock prices for the session. The Dow finished down 222 points, or 0.8%, while the S&P was down 0.3% and the NASDAQ was up 0.6%. On the day, the yield on the two-year maturity was unchanged, while the yields on the 10- and 30-year maturities each fell two bps. The 10-year municipal-to-Treasury ratio rose to 119.0% on Tuesday from Monday’s level of 118.5%, while the 30-year municipal-to-Treasury ratio bumped up to 109.6% on Tuesday from Monday’s level of 109.4%.

Last Wednesday municipals prices were mixed, as the NYC TFA negotiated deal was priced for institutional buyers and its $200.0MM competitive offering also sold. In addition to these deals, a number of offerings came to market from issuers in California, including the Los Angeles Unified School District’s offering of $1.057B of Series 2020C Measure Q dedicated unlimited ad valorem property tax GO bonds consisting of $907.17MM of tax-exempts and $149.87MM of taxables. 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 one bp, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were also mixed Wednesday, as U.S. stocks finished down for the session. The Dow finished down 943 points or 3.4%, while the S&P was down 3.5% and the NASDAQ was down 3.7%. On the day, the yields on the two- and 10-year maturities were unchanged, while the yield on the 30-year maturity fell one bp. The 10-year municipal-to-Treasury ratio fell to 117.7% on Wednesday from Tuesday’s level of 119.0%, while the 30-year municipal-to-Treasury was unchanged on Wednesday from Tuesday’s level of 109.6%.

Last Thursday municipals prices were mixed, as the last of the trading week’s new-issue offerings came to market, including the Los Angeles Community College District’s $1.79B offering of taxable GO refunding bonds. On the day, the yield on the two-year GO 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 were also mixed on Thursday, as U.S. Stocks rose for the session. The Dow finished up 139 points or 0.5%, while the S&P was up 1.2% and the NASDAQ was up 1.6%. On the day, the yield on the two-year maturity was unchanged, while the yields on the 10- and 30-year maturities each rose six bps. The 10-year municipal-to-Treasury ratio fell to 109.4% on Thursday from Wednesday’s level of 117.7%, while the 30-year municipal-to-Treasury ratio fell to 105.6% on Thursday from Wednesday’s level of 109.6%.

Last Friday prices on municipals were steady, as market participants started looking ahead to the $760.0MM in expected new issue offerings next week and the national election on Tuesday. On the day, the yields on the two-, 10-, and 30-year GO bond were unchanged, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were mixed on Friday, as was U.S. stocks prices fell for most of the session, only to rally somewhat in the afternoon and cut back some of the day’s losses. The Dow finished down 157 points, or 0.6%, while the S&P was down 1.2% and the NASDAQ was down 2.5%. On the day, the yield on the two-year maturity fell two bps, while the yields on the 10- and 30-year maturities each rose three bps. The 10-year municipal-to-Treasury ratio fell to 105.79% on Friday from Thursday’s level of 109.4%, while the 30-year municipal-to-Treasury fell to 103.6% on Friday from Thursday’s level of 105.6%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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