November 30, 2020
In this week’s Municipal Market Update, we highlight the following:
- Municipal prices were steady on a daily basis for the Thanksgiving-Holiday shortened trading week, as reflected by weekly data for the Municipal Market Data (MMD) Triple-A Scale; also shown are the yields for the Municipal Market Advisors (MMA) Triple-A Scale;
- New-issue offerings are forecasted to be $7.68B for the trading week;
- Demand in the Bank Qualified (BQ) market remains strong;
- Day-by-day recap of activity in the General Market.
Municipal Market Recap
Municipal prices started the Thanksgiving Holiday-shortened trading week steady across the curve and remained steady on a daily basis for the rest of the week. The projected level of new-issue offerings for the trading week is $7.68B 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. As of the publication of this report, no municipal bond funds data from Lipper was available.
Last week the yields on the two-, 10-, and 30-year maturities on the MMD Triple-A Scale were unchanged from Wednesday to Friday and ended the week at 0.15%, 0.73%, and 1.42%, respectively. Overall, week-over-week the yields on the two-, 10-, and 30-year General Obligation (GO) bonds were unchanged.
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 0.27%, 1.10%, and 1.66%., respectively. Week-over-week the yields on the two- and 30-year GO bonds were unchanged, while the yield on the 10-year GO bond fell one basis point (bp).
New-Issue Volume is Forecasted to be $7.68B for the Week
Total new-issue offerings for the trading week per IHS Markit Ipreo are estimated to be $7.687B. This week’s projected bond issuance is comprised of $6.99B in negotiated deals and $688MM in competitive sales. The largest deal of the week will be the $1.5B tax-exempt transportation program bonds from the New Jersey Transportation Trust Fund Authority. The deal is scheduled to price on Thursday and is rated Baa1 by Moody’s Investors Service (Moody’s), AAA by Standard and Poor’s Global Ratings (S&P), BBB+ by Fitch Ratings (Fitch), and A- by Kroll Bond Rating Agency (KBRA). Also, on Thursday the New York State Housing Finance Agency plans to offer two deals totaling $483.44MM. One will be a $287.55MM offering of Series 2020L-2 climate bond certified affordable housing revenue sustainability and Series 2020M-2 sustainability bonds. The other will be a $195.89MM of Series 2020L-1 climate bond certified/sustainability bonds and Series 2020M-1 affordable housing revenue bonds. These offerings are rated Aa2 by Moody’s.
Kicking off the week’s larger deals will be the $500.0MM offering from the Illinois State Toll Highway Authority of Series 2020A toll highway senior revenue bond on Tuesday. The deal is rated A1 by Moody’s, and AA- by S&P and Fitch. Also, on Tuesday, the Regional Transportation District, Colorado, plans to offer $343.0MM of Series 2020A tax-exempt private activity bonds not subject to the alternative minimum tax (Non-AMT) and Series 2020B taxable private activity bonds for the Denver Transit Partners Eagle P3 Project. The offerings are rated Baa2 by Moody’s and A- by Fitch.
On Wednesday the New York City Municipal Water Finance Authority plans to offer $494 million of tax-exempt fixed rate bonds on, after a one-day retail order period. The deal is rated Aa1 by Moody’s and AA+ by S&P and Fitch.
In the competitive arena, the Metropolitan St. Louis Sewer District, Missouri, is selling $120.0MM of Series 2020B wastewater system revenue bonds on Thursday.
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 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 portfolios 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 three- and five-year maturities widened, with the largest widening occurring in the three-year maturity, two bps. Meanwhile, the week-over-week spreads on the 10-, 15-, and 30-year maturities all tightened with the largest tightening occurring in the 30-year maturity, five bps.
Daily Overview of the General Market for the Week Ending November 27th
Last Monday municipals prices were steady, as a bulk of the holiday-shortened trading week’s $1.27B in new-issue long-term debt was offered. 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 last Monday, as U.S. Stock prices were up for the session, as investors refocused on the effectiveness of vaccines against COVID-19. The Dow finished up 327 points, or 1.1%, while the S&P was up 0.6% and the NASDAQ was up 0.2%. On the day, the yield on the two-year maturity was unchanged, while the yields on the 10- and 30-year maturities each rose three bps. The 10-year municipal-to-Treasury ratio fell to 84.9% on Monday from last Friday’s level of 88.0%, while the 30-year municipal-to-Treasury ratio fell to 91.0% on Monday from Last Friday’s level of 92.8%.
Last Tuesday municipals prices were steady again, as the largest deals of the week came to market, including the New York Transportation Development Corporation’s $331.57MM of special facility revenue refunding bonds for the John F. Kennedy International Airport Terminal 4 Project. The deal was oversubscribed and was repriced as much as 45 bps lower in yield on the long end. 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 last Tuesday, as U.S. stock prices rose for the session, as optimism over the imminent deployment of a COVID-19 vaccine propelled the Dow Jones Industrial Average above 30,000 for the first time ever, extending a rally that’s carried stocks deep into a bull market. The Dow finished up 455 points, or 1.5%, while the S&P was up 1.6% and the NASDAQ was up 1.3%. On the day, the yield on the two-year maturity was unchanged, while the yield on the 10-year maturity rose two bps and the yield on the 30-year maturity rose four bps. The 10-year municipal-to-Treasury ratio fell to 83.0% on Tuesday from Monday’s level of 84.9%, while the 30-year municipal-to-Treasury ratio fell to 88.8% on Tuesday from Monday’s level of 91.0%.
Last Wednesday municipals prices were steady ahead of the Thanksgiving Holiday. 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 finished down 174 points or 0.6%, while the S&P was down just 0.2% and the NASDAQ was up 0.5%. 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 rose by two bps. The 10-year municipal-to-Treasury ratio was unchanged on Wednesday from Tuesday’s level of 83.0%, while the 30-year municipal-to-Treasury ratio fell to 87.7% on Wednesday from Tuesday’s level of 88.8%.
Last Friday prices on municipals were steady, as market participants were looking ahead to the $7.68B in expected new-issue offerings next week. 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 strengthened last Friday, while U.S. stocks prices rose for session. The Dow finished up 38 points, or 0.1%, while the S&P was up 0.2% and the NASDAQ was up 0.9%. On the day, the yield on the two-year maturity fell one bp, 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 86.9% on Friday from Wednesday’s level of 83.0%, while the 30-year municipal-to-Treasury rose to 90.5% on Friday from Wednesday’s level of 87.7%.
Senior Vice President, Investment Strategies
Vining Sparks IBG, LP