Muni Update

November 4, 2019



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


Municipal Market Recap

Municipal prices were mixed on both Monday and Tuesday. On both days, the front-end was steady, while prices on bonds maturing 10 years and longer weakened. On Wednesday municipal prices were steady, as the Federal Open Market Committee (FOMC) cut the fed funds rate target 25 basis points (bps) to a range of a 1.50% to 1.75%, a move that was widely expected.  On Thursday prices strengthened across the curve. On Friday prices were mostly steady across the curve. Issuance for the trading week is forecasted to be $12.92B, which is almost double last week’s revised total of $6.58B in new issue paper that came to market. This week’s projected issuance, together with secondary market opportunities should provide market participants with a number of opportunities, 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. An end-of-month rally helped the Municipal Bond Index finish October in positive territory. The Index was down during much of the latter part of the month, hitting an intra-month low on October 29th when the MTD (month-to-date) total return was -0.23%. Thanks to the rate cut on Wednesday by the FOMC, municipal bond prices were able to rally in the last two days of the month to push the index into positive territory.

Investors in municipal bond funds put cash into funds for a 43rd week, as weekly reporting funds experienced inflows of $1.161B, after experiencing inflows of $1.427B the week prior. The four-week moving average was a positive $1.294B, after being a positive $1.225B 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 1.11%, 1.49%, and 2.06%, respectively. Overall, week-over-week the yields on the two- and 30-year General Obligation (GO) bonds fell four bps, while the yield on the 10-year GO bond fell two 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 1.17%, 1.56%, and 2.20%, respectively. Overall, week-over-week the yield on the two-year GO bond fell one bp, while the yield on the 10-year GO bond fell five bps and the yield on the 30-year GO bond fell four bps.


New-Issue Volume is Forecasted to Be $12.92B for Trading Week

Total new issuance for the trading week per IHS Markit Ipreo is estimated to be $12.92B, which is nearly twice the amount of last week’s revised total of $6.58B. The calendar consists of $10.43B of negotiated deals and $2.49B of competitive sales. There are 37 scheduled deals schedule with a par offering amount of greater than $100.0MM in issuance or larger, with six of those coming competitively. Thirteen of those $100.0MM or larger scheduled deals are either partially or completely taxable.

Wednesday this week is a big day, as three of the week’s largest deals are scheduled and include offering from the State of Illinois, Massachusetts School Building Authority, and the City of Phoenix Civic Improvement Corporation.

The State of Illinois is set to sell a total of $750.0MM in three separate competitive sales. The GO bonds are split into two sales of $300.0MM and one for $150.0MM. The deals are rated Aa3 by Moody’s Investors Service (Moody’s), AA by Standard and Poor’s Global Ratings (S&P), and AA+ by Fitch Ratings (Fitch).  The Massachusetts School Building Authority plans to offer $719.5MM of subordinated dedicated sales tax taxable refunding bonds. The deal is rated Aa3 Moody’s, AA S&P, and AA+ Fitch. Finally, the City of Phoenix Civic Improvement Corporation’s plans to offer $711.575 of junior lien airport revenue bonds, featuring alternative minimum tax (AMT) bonds and non-AMT bonds on Wednesday. The deal is rated A1 by Moody’s and A+ by S&P.

The State of Wisconsin’s plans to price $623.465 million of GO Fund annual appropriation taxable refunding bonds. This deal was originally scheduled to price the week of October 28th, but was pulled due to not meeting savings thresholds and was placed on the day-to-day calendar. The deal is rated Aa2 by Moody’s and AA by Fitch.


Municipal Bond Funds Post Inflows for a 43rd Week

Investors in municipal bond funds put cash into funds for a 43rd week, as weekly tax-exempt weekly reporting funds experienced inflows of $1.161B in the latest week, after experiencing inflows of $1.427B the week prior. This marks the fourth 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 $1.294B, after being a positive $1.225B the week prior.

Long-term municipal bond funds had inflows of $1.339B in the latest week after experiencing inflows of $1.219B the week prior. Intermediate-term funds had inflows of $125.413MM after inflows of $111.414MM the week prior. National funds had inflows of $1.033B after experiencing inflows of $1.225B the week prior. High-yield municipal funds reported inflows of $402.256MM in the latest week, after inflows of $355.095MM the week prior week. Exchange traded funds reported inflows of $240.027MM after inflows of $222.255MM 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 rolloffs due to redemptions. BQ participants continue to find attractive opportunities in the new issue market both in size and structure (15- to 25-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.

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


Daily Overview of the General Market for the Week Ending November 1st

Last Monday prices on municipals were mixed, as market participants experienced a burst of issuance, led by a sale of taxable refunding bonds by New York State ahead of the two-day FOMC meeting. 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 rose three bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys weakened, as hope for progress on the US-China trade front propelled U.S. stocks higher for the session. The Dow was up 0.49%, while the S&P was up 0.56% and the NASDAQ rose 1.01%. On the day, the yield on the two-year maturity rose one bp, while the yield on the 10- and 30-year maturities each rose five bps. The 10-year municipal-to-Treasury fell to 83.2% on Monday from last Friday’s level of 83.9%, while the 30-year municipal-to-Treasury ratio fell to 91.0% on Monday from last Friday’s level of 91.7%.

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

Prices on U.S. Treasurys were also mixed, as U.S. stocks posted minimal losses for the session amid mixed corporate earnings, as the FOMC’s two-day meeting kicked off in Washington. The Dow finished down 0.07%, while the S&P was down 0.08% and the NASDAQ was down 0.59%. On the day, the yield on the two-year maturity was unchanged, while the yields on the 10- and 30-year maturities each fell one bp. The 10-year municipal-to-Treasury ratio rose to 84.2% on Tuesday from Monday’s level of 83.2%, while the 30-year municipal-to-Treasury ratio rose to 91.9% on Tuesday from last Monday’s level of 91.0%.

Last Wednesday municipal prices were steady across the curve, as a few deals came to market ahead of the FOMC’s announcement that they were cutting the fed funds rate target 25 bps to a range of a 1.50% to 1.75%, a move that was widely expected. 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 gains for the session. The Dow was up 0.43% while the S&P and NASDAQ both rose 0.33%. On the day, the yield on the two-year maturity fell three bps, while the yield on the 10-year maturity fell six bps and the yield on the 30-year maturity fell seven bps. The 10-year municipal-to-Treasury ratio rose to 87.1% on Wednesday from Tuesday’s level of 84.2%, while the 30-year municipal-to-Treasury rose to 94.7% on Wednesday from Tuesday’s level of 91.9%.

Last Thursday prices on municipals strengthened, as the last of the week’s offerings came to market. On the day, the yield on the two-year GO bond fell four bps, while the yield on the 10-year GO bond fell six bps and the yield on the 30-year GO bond fell eight bps, according to the final read of MMD Triple-A Scale.

U.S. Treasury prices also strengthened, as U.S. stocks opened notably weaker and Treasury yields pushed lower after Bloomberg reported that China doubted a long-term trade deal was possible and a regional U.S. manufacturing survey slumped sharply and unexpectedly. The Dow finished the session down 0.52%, while the S&P and NASDAQ were down 0.30% and 0.14%, respectively. On the day, the yields on the two-, 10-, and 30-year maturities each fell nine bps. The 10-year municipal-to-Treasury rose to 88.2% on Thursday from Wednesday’s level of 87.1%, while the 30-year municipal-to-Treasury ratio bumped up to 94.9% on Thursday from Wednesday’s level of 94.7%.

On Friday prices on municipals were mostly steady across the curve, as market participants were looking ahead to the coming trading week’s $12.92B 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 weakened, as U.S. stocks posted solid gains on positive jobs data for the month of October. The Dow finished the session up 1.11%, while the S&P and NASDAQ were up 0.97% and 1.13%, respectively. 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 86.1% on Friday from Thursday’s level of 88.2%, while the 30-year municipal-to-Treasury ratio fell to 93.2% on Friday from Thursday’s level of 94.9%.


Taxable Market






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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