Muni Update

November 29, 2021


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


Municipal Market Recap

Municipal prices were steady daily through Wednesday. On Friday municipal prices strengthened following U.S. Treasurys prices which rose due to a flight-to-quality bid brought on by fears that a coronavirus resurgence could derail the current economic recovery being experienced around the world.

This week, the projected level of new-issue offerings for the trading week is $6.5B and coupled with bank qualified (BQ) and general market (GM) offerings in the secondary market should offer market participants numerous opportunities to fill their 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 picked 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.

As of the publication of this report, funds data for the latest reporting period was limited, but did reveal investors in municipal bond funds put cash into funds for a 38th week in a row. It also revealed that tax tax-exempt weekly reporting funds data showed that funds experienced inflows of $720.0MM in the latest week, after experiencing inflows of $1.399B the week prior.

Last week the yield on the two-year maturity on the MMD Triple-A Scale fell one basis point (bp) from Wednesday to Friday and ended the week at 0.24%. Meanwhile, the yields on the 10- and 30-year maturities each fell three bps on the MMD Triple-A Scale from Wednesday to Friday and they ended the week at 1.06% and 1.51%, respectively. Overall week-over-week the yield on the two-year general obligation (GO) bond fell one bp, while the yields on the 10- and 30-year GO bonds each fell three bps.

Last week the yield on the two-year maturity on the MMA Triple-A Scale fell two bps from Wednesday to Friday and ended the week at 0.19%. Meanwhile, the yields on the 10- and 30-year maturities each fell three bps on the MMA Triple-A Scale from Wednesday to Friday and they ended the week at 1.28% and 1.79%, respectively. Overall, week-over-week the yields on the two- and 30-year GO bonds each fell one bp, while the yield on the 10-year GO bond fell two bps.


New-Issue Volume is Forecasted to be $6.5B for the Holiday-Shortened Trading Week

Total new-issue offerings for the trading week per IHS Markit Ipreo is estimated to be $6.5B. This week’s projected level of bond issuance is comprised of $4.47B in negotiated deals and $2.03B in competitive deals. The largest deal of the week in the negotiated arena will come on Thursday, when the Illinois State Toll Highway Authority prices $600.0MM of toll highway senior revenue bonds. The deal is rated Aa3 by Moody’s Investors Service (Moody’s), and AA- by Standard and Poor’s Global Ratings (S&P) and Fitch Ratings (Fitch). Also on Thursday, Harris County, Texas, is set to price $120.0MM of permanent improvement refunding bonds. The deal is rated Aa2 by Moody’s and AA by S&P.

The majority of negotiated offerings this week will be priced on Wednesday, and they include the following offerings. The New York State Housing Finance Agency will offer $454.03MM of affordable housing revenue climate bond certified and sustainability bonds. The deal is rated Aa2 by Moody’s. The Black Belt Energy Gas District is set to price $423.875MM of gas project revenue bonds (Project No. 7). The deal is rated A2 by Moody’s. The Anaheim Public Financing Authority is set to price $250.330MM of taxable convention center lease revenue refunding bonds, insured by Assured Guaranty Municipal Corp on Wednesday, the deal is rated A2 by Moody’s, AA by S&P, and AA+ by Fitch due to the insurance. The New Mexico Educational Assistance Foundation is set to price $208.0MM of Alternative Minimum Tax (AMT) and taxable education loan bonds. The deal is rated Triple-A by Moody’s. Finally, the Board of Supervisors of Louisiana are set to price $155.68MM of State University and Agricultural and Mechanical College taxable auxiliary revenue refunding bonds, insured by Build America Mutual.

In the competitive arena, Tampa, Florida, is set to sell $102.62MM of non-ad valorem refunding and improvement sustainable revenue bonds at 11 a.m. eastern on Tuesday. The issuer will also sell $26.94MM non-ad valorem refunding and improvement bonds at 10:30 a.m. eastern. The deals are rated Aa2 by Moody’s, Triple-A by S&P, and AA by Fitch. On Wednesday, the State of Illinois is set to sell $200.0MM of GO bonds at 10:15 a.m. eastern and $200.0MM of GOs bonds at 10:45 a.m. eastern. The deals are rated Baa2 by Moody’s, BBB by S&P and BBB- by Fitch. Also on Wednesday, Westchester County, New York, is set to sell $135.115MM of GO bonds at 11 a.m. Eastern.


Municipal Bond Funds Posted Inflows for a 38th Week in a Row

Funds data for the latest reporting period was limited but did reveal investors in municipal bond funds put cash into funds for a 38th week in a row. It also revealed that tax tax-exempt weekly reporting funds data showed that funds experienced inflows of $720.0MM in the latest week, after experiencing inflows of $1.399B the week prior.


Demand in the Bank Qualified (BQ) Market Remains Strong

BQ participants continue to be focused on both BQ and general market (GM) new-issue offerings to fill their needs, as well as secondary market offerings in both BQ and GM paper. Significant demand continues to be the story this year. The exceptional level of demand experienced throughout year has been driven by replacement of rolloffs/redemptions and demand for funds and 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-, three-, five-, 10-, and 15-year maturities all tightened, with the largest tightening occurring in the five-year maturity, seven bps. Meanwhile the spreads on the two- and 30-year maturities widened, with the largest widening occurring in the 30-year maturity, two bps.


Daily Overview of the General Market for the Week Ending November 26th

On Monday municipals prices were steady across the curve thus outperforming the large sell-off in U.S. Treasurys following President Biden’s decision to renominate Jerome Powell as Federal Reserve Chairman, as the first of the holiday-shortened trading week’s $496.8MM in new-issue debt was offered. On the day, the yields on the two-, 10- and 30-year maturities were unchanged, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys weakened on Monday, while U.S. stocks were mixed for the session. The Dow was up 17 down or just 0.05%, while the S&P was down 0.3% and the NASDAQ was down just 1.3%. On the day, the yield on the two-year maturity rose 11 bps, while the yield on the 10-year maturity rose nine bps and the yield on the 30-year maturity rose seven bps. The 10-year municipal-to-Treasury ratio fell to 66.9% on Monday from last Friday’s level of 70.8%, while the 30-year municipal-to-Treasury ratio fell to 77.8% on Monday from last Friday’s level of 80.6%.

On Tuesday municipals prices were steady, as a few new-issue offerings came to market. On the day, the yields on the two-, 10- and 30-year GO bonds were steady, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed on Tuesday, as were U.S. stocks the session. The Dow was up 195 points or 0.6%, while the S&P was up 0.2% and the NASDAQ was down 0.5%. On the day, the yield on the two-year maturity fell three bps, while the yields on the 10- and 30-year maturities each rose four bps. The 10-year municipal-to-Treasury ratio fell to 65.3% on Tuesday from Monday’s level of 66.9%, while the 30-year municipal-to-Treasury ratio fell to 76.2% on Tuesday from Monday’s level of 77.8%.

On Wednesday municipals prices were mostly steady, in very light activity ahead of the Thanksgiving Holiday tomorrow. 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 were mixed on Wednesday, as were U.S. stocks for the session. The Dow was barley down 9 points or just 0.03%, while the S&P was up 0.2% and the NASDAQ was up 0.4%. On the day, the yield on the two-year maturity rose four bps, while the yield on the 10-year maturity fell three bps and the yield on the 30-year maturity fell six bps. The 10-year municipal-to-Treasury ratio rose to 66.5% on Wednesday from Tuesday’s level of 65.3%, while the 30-year municipal-to-Treasury ratio rose to 78.6% on Wednesday from Tuesday’s level of 76.2%.

Last Friday municipals prices strengthened, on fears of a resurgence in COVID due to a new variant, as market participants looked ahead to the $6.5B in expected new-issue offerings in the upcoming trading week. On the day, the yield on the two-year GO bond fell one bp, 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.

U.S. Treasury prices all strengthened, as were U.S. stocks plunged for the day over renewed COVID fears and their potential impact on the world economy recovery for the session. The Dow was down 905 points or 2.5%, while the S&P was down 2.3% and the NASDAQ was down 2.2%. On the day, the yield on the two-year maturity fell 14 bps, while the yield on the 10-year maturity fell 16 bps and the yield on the 30-year maturity fell 13 bps. The 10-year municipal-to-Treasury ratio rose to 71.6% on Friday from Wednesday’s level of 66.5%, while the 30-year municipal-to-Treasury rose to 82.5% on Friday from Wednesday’s level of 78.6%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks

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