Muni Update

November 23, 2020


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


Municipal Market Recap

Municipal prices were mixed to start the week, as the front-end was steady, while prices on bonds maturing 10 years and longer strengthened. On Tuesday municipal prices strengthened across the curve. On Wednesday municipal prices were mixed again, as prices on bond maturing 10 years and in were steady, while the long end strengthened. On Thursday municipal prices strengthened once again across the curve. On Friday municipal prices were mixed, as prices on bonds 10 years and in were steady, while prices on bonds on the long end strengthened.

This Thanksgiving-Holiday shortened trading week’s projected level of new-issue offerings is just $1.27B and coupled with secondary market offerings should provide market participants with some 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 a second week, as evidenced by the latest tax-exempt weekly reporting funds data showing that funds experienced inflows of $1.328B in the latest week, after experiencing inflows of $1.167B the week prior. The four-week moving average remained positive at $530.749MM, after being in the green at $350.497MM 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- and 10-year maturities on the MMD Triple-A Scale were unchanged from Thursday to Friday and ended the week at 0.15% and 0.73%, respectively. Meanwhile, the yield on the 30-year maturity on the MMD Triple-A Scale fell one basis point (bp) from Thursday to Friday and ended the week at 1.42%. Overall, week-over-week the yield on the two-year General Obligation (GO) bond fell three bps, while the yield on the 10-year GO bond fell eight bps and the yield on the 30-year GO bond fell 13 bps.

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 0.27%. 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 1.11% and 1.66%, 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 seven bps and the yield on the 30-year GO bond fell 12 bps.

New-Issue Volume is Forecasted to be Just $1.27B for the Holiday-Shortened Week

Total new-issue offerings for the Thanksgiving-shortened trading week per IHS Markit Ipreo are estimated to be just $1.27B. This week’s projected bond issuance is comprised of just over $1.04B in negotiated deals and $233.0MM in competitive sales. There are only two negotiated deals slated this week over $100.0MM in par. One is the New York Transportation Development Corporation’s $340.045MM offering of special facility revenue refunding bonds for the Terminal 4 John F. Kennedy International Airport Terminal Project on Tuesday. The deal consists of $293.46MM of Series 2020A tax-exempts subject to the alternative minimum tax (AMT) and $46.585MM of Series 2020B taxables. The deal is rated Baa1 by Moody’s Investors Service (Moody’s) and BBB by Fitch Ratings (Fitch).

Also, on Tuesday, the Denton Independent School District, Texas plans to offer $266.693MM of Series 2020A taxable refunding bonds. The deal is backed by the Permanent School Fund guarantee program and thus rated triple-A by Standard and Poor’s Global Ratings (S&P) and Fitch. There are no competitive sales slated for the week that are over $50.0MM.


Municipal Bond Funds Posted Inflows for a Second Week

Investors in municipal bond put cash into funds for a second week, as tax-exempt weekly reporting funds experienced inflows of $1.328B in the latest week, after experiencing inflows of $1.167B the week prior. The four-week moving average was a positive at $530.749MM, after being in the green at $350.497MM the week prior.

Long-term municipal bond funds had inflows of $959.868MM in the latest week, after experiencing outflows of $911.719MM the week prior. Intermediate-term funds had inflows of $6.401MM after outflows of $73.234MM the week prior. National funds had inflows of $1.234B after experiencing inflows of $1.130B the week prior. High-yield municipal funds reported inflows of $369.196MM in the latest week, after inflows of $526.256MM the week prior. Exchange traded municipal funds reported inflows of $558.107MM, after inflows of $617.748MM 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 holiday-shortened trading week, together with secondary market offerings should provide BQ market participants with some 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 15-year maturity, 16 bps.


Daily Overview of the General Market for the Week Ending November 20th

Last Monday municipals prices were mixed, as the first of the trading week’s $11.4B in new-issue long-term debt was offered. 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 fell one bp, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys weakened last Monday, as U.S. Stock prices were up for the session on optimism about a coronavirus vaccine from Moderna which is trumping renewed worries about another surge in COVID-19 cases. The Dow finished up 470 points, or 1.6%, while the S&P was up 1.2% and the NASDAQ was up 0.8%. 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 one bp. The 10-year municipal-to-Treasury ratio fell to 87.9% on Monday from last Friday’s level of 91.0%, while the 30-year municipal-to-Treasury ratio fell to 92.8% on Monday from Last Friday’s level of 93.9%.

Last Tuesday municipals prices strengthened, as several deals came to market, including the $3.7B offering of COVID-19 emergency GO bonds from the State of New Jersey. The deal was oversubscribed and was repriced as much as 20 bps lower in yield. On the day, the yield on the two-year maturity fell two bps, while the yields on the 10- and 30-year GO bonds each fell three bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys also strengthened last Tuesday, as U.S. stock prices fell for the session. The Dow finished down 167 points, or 0.6%, while the S&P was down 0.5% and the NASDAQ was down 0.2%. On the day, the yield on the two-year maturity fell one bp, while the yields on the 10- and 30-year maturities each fell four bps. The 10-year municipal-to-Treasury ratio rose to 88.5% on Tuesday from Monday’s level of 87.9%, while the 30-year municipal-to-Treasury ratio bumped up to 93.2% on Tuesday from Monday’s level of 92.8%.

Last Wednesday municipals prices were mixed, as a variety of new deals were priced, including the $1.45B offering of GO bonds by the Commonwealth of Massachusetts. Proceeds of which will be used to finance various projects. On the day, the yields on the two- and 10-year GO bonds were unchanged, while 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 were also mixed on Wednesday, as U.S. stocks finished down for the session. The Dow finished down 345 points or 1.2%, while the S&P was also down 1.2% and the NASDAQ was down 0.3%. On the day, the yield on the two-year maturity fell two bps, while the yield on the 10-year maturity rose one bp and the yield on the 30-year maturity was unchanged. The 10-year municipal-to-Treasury ratio fell to 87.5% on Wednesday from Tuesday’s level of 88.5%, while the 30-year municipal-to-Treasury ratio fell to 91.4% on Wednesday from Tuesday’s level of 93.2%.

Last Thursday municipals prices strengthened, as the last of the week’s new-issue offerings came to market including the Port of Oakland, California’s $527.0MM deal consisting of $343.77MM of Series 2020R taxable senior lien refunding revenue bonds and $183.185MM of Series 2021H forward delivery intermediate lien refunding revenue bonds, subject to the alternative minimum tax. On the day, the yield on the two-year GO bond fell one bp, while the yield on the 10-year GO bond fell four bps and the yield on the 30-year GO bond fell five bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were mixed on Thursday, as U.S. Stocks rose for the session. The Dow finished up 44 points or 0.2%, while the S&P was up 0.4% and the NASDAQ was up 0.9%. On the day, the yield on the two-year maturity rose two bps, while the yield on the 10-year maturity fell two bps and the yield on the 30-year maturity fell four bps. The 10-year municipal-to-Treasury ratio fell 84.9% on Thursday from Wednesday’s level of 87.5%, while the 30-year municipal-to-Treasury ratio fell to 90.5% on Thursday from Wednesday’s level of 91.4%.

Last Friday prices on municipals were mixed, as market participants started looking ahead to the $1.27B in expected new-issue offerings next week. On the day, the yields on the two- and 10-year GO bonds were unchanged, while the yield on the 30-year GO bond fell one bp, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices strengthened last Friday, while U.S. stocks prices fell for session. The Dow finished down 219 points, or 0.8%, while the S&P was down 0.7% and the NASDAQ was down 0.4%. On the day, the yield on the two-year maturity fell two bps, while the yield on the 10-year maturity fell three bps and the yield on the 30-year maturity fell five bps. The 10-year municipal-to-Treasury ratio rose to 88.0% on Friday from Thursday’s level of 84.9%, while the 30-year municipal-to-Treasury rose to 92.8% on Friday from Thursday’s level of 90.5%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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