Muni Update

November 25, 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 Tuesday prices were mixed, as bonds maturing 10 years and in were steady, while the long-end strengthened. On Wednesday municipal prices strengthened across the curve. On Thursday and Friday municipal prices were steady across the curve. Issuance for the Thanksgiving-shortened trading week is forecasted to be $1.47B, which is well below last week’s revised level of $9.38B in new-issue paper that came to market. This week’s projected issuance is expected due to the holiday-shortened trading week and will have market participants looking towards secondary market opportunities to meet demand, 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 46th week, as weekly reporting funds experienced inflows of $1.970B, after experiencing inflows of $1.275B the week prior. The four-week moving average was a positive $1.377B, after being a positive $1.242B 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 1.09%, 1.50%, and 2.09%, 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 six 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 1.19%, 1.60%, and 2.22%, respectively. Overall, week-over-week the yield on the two-year GO bond fell two bps, while the yields on the 10- and 30-year GO bonds each fell five bps.


New-Issue Volume is Forecasted to be Just Over $1.47B for Trading Week

Total new issuance for the trading week per IHS Markit Ipreo is estimated to be just over $1.47B, which is well below above last week’s revised total of $9.38B, but is expected given the Thanksgiving holiday-shortened trading week. The calendar consists of $1.12B of negotiated deals and $356MM of competitive sales. There are only eight long-term deals and one note deal scheduled for $100.0MM or larger in par amount, all of which are expected to hit on Tuesday.

The largest deal of the week will be the Emerald Renewable Diesel LLC’s offering of $315.0MM of non-callable project-exempt facility revenue refunding bonds, limited offering for the National Finance Authority, New Hampshire. The entire deal matures in 2049 with a mandatory tender date of 8/31/2020 and is rated Aaa/MIG-1 by Moody’s Investors Service (Moody’s).

Also this week the Arlington Higher Education Finance Corporation, Texas plans to offer $172.635MM of revenue refunding bonds for Riverwalk Education Foundation, Inc. From Illinois, we well get a $150.37MM offering of revenue bonds for the Lutheran Life Communities Obligated Group from the Illinois Finance Authority. Also this week the Board of Trustees of Michigan State University plan to offer $141.43MM of general revenue refunding bonds. The deal is rated Aa2 by Moody’s and AA by Standard and Poor’s Global Ratings (S&P).

In the competitive market the New York Triborough Bridge and Tunnel Authority is expected to sell $200.0MM of general revenue bonds. As of the writing of this report, the deal is rated AA- by Fitch Ratings (Fitch). In the short-term sector, Hudson County, New Jersey will competitively sell $182.121MM of bond anticipation notes (BANs).


Municipal Bond Funds Post Inflows for a 46th Week

Investors in municipal bond funds put cash into funds for a 46th week, as weekly tax-exempt weekly reporting funds experienced inflows of $1.970B in the latest week, after experiencing inflows of $1.275B the week prior. This marks the seventh 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 $1.377B the week prior.

Long-term municipal bond funds had inflows of $1.231B in the latest week after experiencing inflows of $826.817MM the week prior. Intermediate-term funds had inflows of $358.234MM after inflows of $262.672MM the week prior. National funds had inflows of $ 1.779B after experiencing inflows of $1.177B the week prior. High-yield municipal funds reported inflows of $470.625MM in the latest week, after inflows of $249.308MM the week prior week. Exchange traded funds reported inflows of $368.233MM after inflows of $176.045MM 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 were mixed as the one- and two-year maturities tightened two bps each, while the five-, 10-, 15-, and 30-year maturities all widened, with the largest widening being in the 30-year maturity, nine bps week-over-week. The three-year 30-year maturity was unchanged week-over-week.


Daily Overview of the General Market for the Week Ending November 22nd

Last Monday, prices on municipals were steady, as market participants prepped for the $11.77B of new-issue paper scheduled for the week. On the day, the yields on the two-, 10-, and 30-year GO bonds were all unchanged, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys strengthened, as U.S. stocks posted minimal gains for the session and mixed headlines left investors cautiously clinging to hopes for a U.S. – China trade deal. The Dow and NASDAQ both rose 0.11%, while the S&P was up 0.05%. On the day, the yields on the two- and 30-year maturities each fell one bp, while the yield on the 10-year maturity fell three bps. The 10-year municipal-to-Treasury ratio rose to 85.6% on Monday from last Friday’s level of 84.2%, while the 30-year municipal-to-Treasury ratio rose to 93.5% on Monday from last Friday’s level of 93.1%.

Last Tuesday, prices on municipals were mixed, as a number of deals were priced, including the largest deal of the week. The yields on the two- and 10-year GO bonds were steady, while the yield on the 30-year GO Bond fell one bp, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were also mixed, as were U.S. stocks for the session. The Dow finished down 0.36%, while the S&P was relatively flat and the NASDAQ rose 0.24%. On the day, the yield on the two-year maturity was unchanged, 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 rose to 86.6% on Tuesday from Monday’s level of 85.6%, while the 30-year municipal-to-Treasury ratio rose to 94.7% on Tuesday from Monday’s level of 93.5%.

Last Wednesday, municipal prices strengthened across the curve, as a number of new-issue offerings came to market. On the day, the yield on the two-year GO bond fell two bps, while the yields on the 10- and 30-year GO bonds each fell five bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys also strengthened, as U.S. stocks were down at the open due to concerns that a “phase one” trade deal between the United States and China may not be completed this year, and President Trump’s threat to raise tariffs if no deal is reached. The Dow and the S&P closed down 0.40% and 0.38%, respectively, while the NASDAQ fell 0.51%. On the day, the yield on the two-year maturity fell four bps, while the yields on the 10- and 30-year maturities each fell six bps. The 10-year municipal-to-Treasury ratio bumped up to 86.7% on Wednesday from Tuesday’s level of 86.6%, while the 30-year municipal-to-Treasury ratio rose to 95.0% on Wednesday from Tuesday’s level of 94.7%.

Last Thursday, prices on municipals were steady across the curve, as the last of the week’s new offerings came to market. On the day, the yields on the two-, 10-, and 30-year GO bonds were all unchanged, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices weakened, as U.S. stocks were down for the session. The increased level of uncertainty around a trade deal has given investors reason to pause near all-time highs. The Dow and S&P both finished down 0.20% and 0.16% respectively, while the S&P was down 0.24%. On the day, the yields on the two-, 10-, and 30-year maturities each rose four bps. The 10-year municipal-to-Treasury ratio fell to 84.8% on Thursday from Wednesday’s level of 86.7%, while the 30-year municipal-to-Treasury ratio fell to 93.3 % on Thursday from Wednesday’s level of 95.0%.

On Friday, prices on municipals were once again steady, as market participants were looking ahead to the holiday-shortened trading week’s $1.4B 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 on positive economic news. The Dow rose 0.39%, while the S&P and NASDAQ rose 0.22% and 0.16%, respectively. On the day, the yield on the two-year maturity rose one bp, while the yield on the 10-year maturity was unchanged and the yield on the 30-year maturity fell two bps. The 10-year municipal-to-Treasury ratio was unchanged on Friday from Thursday’s level of 84.8%, while the 30-year municipal-to-Treasury ratio rose to 94.1% on Friday from Thursday’s level of 93.3%.


Taxable Market






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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