Muni Update

November 22, 2021


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


Municipal Market Recap

Municipal prices were weaker on Monday. On Tuesday they were mixed, as prices on bonds in the front-end were steady, while prices on bonds maturing 10 years and longer weakened. On Wednesday and Thursday municipal prices were steady across the curve. On Friday municipal prices were mixed again, as prices on bonds in the front-end were steady, while prices on bonds maturing 10-years and longer strengthened.

For the holiday-shortened trading new-issue offerings drop to just $496.8MM for the week, which will have investors looking to bank qualified (BQ) and general market (GM) offerings in the secondary market to fill 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 37th week in a row, as tax-exempt weekly reporting funds data showed that funds experienced inflows of $1.399B in the latest week, after experiencing inflows of $1.899B the week prior. The four-week moving average was positive at $800.0MM plus, 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 was unchanged from Thursday to Friday and ended the week at 0.25%. Meanwhile, the yields on the 10- and 30-year maturities each fell two basis points (bps) on the MMD Triple-A Scale from Thursday to Friday and they ended the week at 1.09% and 1.54%, respectively. Overall week-over-week the yields on the two-, 10- and 30-year general obligation (GO) bonds each rose one bp.

Last week the yield on the two-year maturity on the MMA Triple-A Scale fell one bp from Thursday to Friday and ended the week at 0.20%. Meanwhile, the yields on the 10- and 30-year maturities each fell two basis points (bps) on the MMA Triple-A Scale from Thursday to Friday and they ended the week at 1.30% and 1.80%, respectively. Overall, week-over-week the yields on the two-, 10-, and 30-year GO bonds each rose one bp.


New-Issue Volume is Forecasted to be $496.8MM for the Holiday-Shortened Trading Week

Total new-issue offerings for the Thanksgiving Holiday-shortened trading week per IHS Markit Ipreo is estimated to be just $496.8MM. This week’s projected level of bond issuance is comprised of $402.9MM in negotiated deals and $93.9MM in competitive deals. The only large deal scheduled for the week is the $291.535MM offering of tax-exempt and taxable GO bonds, by the Desert Community College District, California. The deal is rated Aa2 by Moody’s Investors Service (Moody’s).


Municipal Bond Funds Posted Inflows for a 37th Week in a Row

Investors in municipal bond put cash into funds for a 37th week in a row, as tax-exempt weekly reporting funds experienced inflows of $1.399B in the latest week, after experiencing inflows of $1.899B the week prior. The four-week moving average remained positive at $800.0MM plus, after being in the green at $768.916 the week prior.

Long-term municipal bond funds had inflows of $1.042B in the latest week, after experiencing inflows of $1.810B the week prior. Intermediate-term funds had inflows of $367.022MM after inflows of $162.894MM the week prior. National funds had inflows of $1.355B after experiencing inflows of $1.817B the week prior. High-yield municipal funds reported inflows of $548.643MM the latest week, after inflows of $1.233B the week prior. Exchange traded funds reported outflows of $56.3MM, after inflows of $671.670MM the week prior.


Demand in the Bank Qualified (BQ) Market Remains Strong

With issuance for the holiday-shortened trading week being less than $500.0MM BQ participants will have to look to secondary market offerings in both the BQ and General Market (GM) paper to fill their needs, especially as demand continues to be a driving force this year. This exceptional level of demand throughout year, which has been driven by replacement of rolloffs/redemptions and demand for funds, has had the municipal market dealing with a supply-demand imbalance throughout the majority of the year.

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-, two-, five-, 10-, and 15-year maturities all widened, with the largest widening occurring in the 10-year maturity, eight bps. Meanwhile spreads on the three- and 30-year maturities tightened, with the largest tightening occurring in the 30-year maturity, 14 bps.


Daily Overview of the General Market for the Week Ending November 19th

On Monday municipals prices weakened, but still outperformed U.S Treasurys, as the first of the trading week’s $9.13B in new-issue debt was offered. On the day, the yields on the two-, 10-, and 30-year maturities each rose one bp, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed on Monday, as were U.S. stocks for the session. The Dow was barely down 13 points or 0.04%, while the S&P was unchanged, and the NASDAQ was also down just 0.04%. On the day, the yield on the two-year maturity was unchanged, while the yield on the 10-year maturity rose five bps and the yield on the 30-year maturity rose six bps. The 10-year municipal-to-Treasury ratio fell to 66.9% on Monday from last Friday’s level of 68.4%, while the 30-year municipal-to-Treasury ratio fell to 76.6% on Monday from last Friday’s level of 78.5%.

On Tuesday municipals prices were mixed, as a number of new-issue offerings came to market including the $821.62MM offering of gas supply revenue bonds by Main Street Natural Gas, which had been on the day-to-day calendar for a while. Other deals that were priced included the $602.655MM offering of clean energy project revenue climate bond certified green bonds by the California Community Choice Financing Authority, the $320.82MM of first lien revenue bonds by the Port of Houston Authority, Harris County, Texas, and the $119.77MM of drinking water revolving fund revenue bonds by the Michigan Finance Authority to name a few. On the day, the yield on the two-year GO bond was steady, while the yields on the 10- and 30-year GO bonds each rose two bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were also mixed on Tuesday, while U.S. stocks rose for the session. The Dow was up 55 points or 0.2%, while the S&P was up 0.4% and the NASDAQ was up 0.8%. On the day, the yields on the two- and 30-year maturities each rose one bp, while the yield on the 10-year maturity was unchanged. The 10-year municipal-to-Treasury ratio rose to 68.1% on Tuesday from Monday’s level of 66.9%, while the 30-year municipal-to-Treasury ratio rose to 77.2% on Tuesday from Monday’s level of 76.6%.

On Wednesday municipals prices were steady, as a number of new-issue offerings came to market and were repriced to lower yields, as demand continues to be strong and drive prices higher. 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 on Wednesday, while U.S. stocks fell for the session. The Dow was down 212 points or 0.6%, while the S&P was down 0.3% and the NASDAQ was also down 0.3%. On the day, the yields on the two-and 30-year maturities each fell two bps, while the yield on the 10-year maturity fell three bps. The 10-year municipal-to-Treasury ratio rose to 69.4% on Wednesday from Tuesday’s level of 68.1%, while the 30-year municipal-to-Treasury ratio rose to 78.0% on Wednesday from Tuesday’s level of 77.2%.

Last Thursday municipals prices were once again steady, as the last of the week’s new-issue offerings 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.

U.S. Treasury prices were mixed on Thursday, as were U.S. stocks for the session, as investors weighed a batch of solid corporate earnings results against lingering inflation concerns. The Dow was down 60 points or 0.2%, while the S&P was up 0.3% and the NASDAQ was up 0.5%. On the day, the yield on the two-year maturity was unchanged, while the yield on the 10-year maturity fell one bp and the yield on the 30-year maturity fell three bps. The 10-year municipal-to-Treasury ratio rose to 69.8% on Thursday from Wednesday’s level of 69.4%, while the 30-year municipal-to-Treasury ratio rose to 79.2% on Thursday from Wednesday’s level of 78.0%.

Last Friday municipals prices were mixed, as market participants looked ahead to the $496.8MM in expected new-issue offerings in the upcoming Thanksgiving-holiday-shortened trading 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 for the session. The Dow was down 269 points or 0.8%, while the S&P was down 0.1% and the NASDAQ was up 0.4%. On the day, the yield on the two-year maturity was unchanged, 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 rose to 70.8% on Friday from Thursday’s level of 69.8%, while the 30-year municipal-to-Treasury rose to 80.6% on Friday from Thursday’s level of 79.2%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks

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