Muni Update

November 8, 2021


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


Municipal Market Recap

Municipal prices were on mixed daily through Thursday. On Monday municipal prices on bonds maturing in the front and long end of the curve were steady, while prices on intermediate maturities weakened. On Tuesday municipal prices on bonds maturing in the front and long end of the curve were steady, while prices on intermediate maturities strengthened and Federal Open Market Committee (FOMC) started its two-day meeting. On Wednesday and Thursday prices on bonds in the front end were steady, while prices on bonds maturing 10-years and longer strengthened. Also on Wednesday, the FOMC ended its two-day meeting and voted unanimously to keep its overnight target rate range unchanged at 0.00-0.25% and announced it would begin the process of slowing its monthly asset purchases starting later this month. On Friday municipal prices strengthened across the curve.

This week, the projected level of new-issue offerings for the trading week jumps up from last week to $9.60B 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 picks 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.

For funds latest reporting period, investors in municipal bond funds put cash into funds for a 35th week in a row, as tax-exempt weekly reporting funds data showed that funds experienced inflows of $602.933MM in the latest week, after experiencing inflows of $396.900MM the week prior. The four-week moving average was positive at $409.586MM, after being in the green at $268.070MM the week prior.

Last week the yield on the two-year maturity on the MMD Triple-A Scale fell on basis point (bp) from Thursday to Friday and ended the week at 0.24%. Meanwhile, the yield on the 10-year maturity fell four bps and the yield on the 30-year maturity fell six bps on the MMD Triple-A Scale from Thursday to Friday and they ended the week at 1.23% and 1.58%, respectively. Overall week-over-week the yield on the two-year general obligation (GO) bond fell one bp, while the yield on the 10-year GO bond fell eight bps and the yield on the 30-year GO bond fell 11 bps.

Last week the yield on the two-year maturity rose one bp and the yield on the 30-year maturity fell six bps on the MMA Triple-A Scale from Thursday to Friday and they ended the week at 0.19% and 1.82%, respectively. Meanwhile the yield on the 10-year maturity on the MMA Triple-A Scale from Thursday to Friday was unchanged and ended the week at 1.31%. Overall, week-over-week the yield on the two-year GO bond fell five bps, while the yield on the 10-year GO bond fell seven bps and the yield on the 30-year GO bond fell 10 bps.


New-issue Volume is Forecasted to be $9.60B for the Trading Week

Total new-issue offerings for the trading week per IHS Markit Ipreo nearly double from last week’s level to an estimated $9.60B for upcoming trading week. This week’s projected level of bond issuance is comprised of $6.71B in negotiated deals and $2.89B in competitive deals. The largest issue of the week will be come from the State of California, when it sells three competitive offerings of GO refunding bonds totaling $1.250B. The offerings are only rated AA by Fitch Ratings (Fitch), at this time.

Meanwhile in the negotiated arena, Main Street Natural Gas remains on the day-to-day calendar with a $750.0MM offering of gas supply revenue bonds, Series 2021A. The deal is rated Aa2 by Moody’s Investors Service (Moody’s) and AA- by Fitch.

Other notable negotiated deals this week include but are not limited to the $654.815MM offering of GO bonds in two refunding series by the District of Columbia. The deals are rated Triple-A by Moody’s and AA+ by Standard and Poor’s Global Ratings (S&P) and Fitch. The Dallas Area Rapid Transit plans to offer $578.7MM of senior lien sales tax revenue refunding bonds, taxable series 2021A on Tuesday. The deal is rated Aa2 by Moody’s, AA+ by S&P, and Triple-A by Kroll Bond Rating Agency (KBRA). The State of Connecticut (Aa3/AA-/AA-/AA+) is set to price $500.0MM special tax obligation bonds (transportation infrastructure purposes), 2021 Series D Bonds, also on Tuesday. The deal is rated Aa3 by Moody’s, AA- by S&P, and Fitch and AA+ by Kroll. The Commonwealth of Massachusetts is set to price $302.495MM of GO refunding bonds, 2021 Series B on Tuesday. The deal is rated Aa1 by Moody’s, AA y S&P, and AA+ by Fitch. El Paso, Texas, is set to price $167.03MM in two offerings; $78.105MM of GO bonds, Series 2021B, and $88.925MM of combination tax and revenue certificates of obligation, Series 2021C. The deals are rated AA BY S&P and Fitch. The Board of Trustees of the University of Arkansas is set to $149.73MM of taxable various facility revenue refunding bonds (Fayetteville Campus).

Other deals in the competitive arena this week include the $195.89MM offering of hospital revenue bonds, taxable series 2021A (South Broward Hospital District Obligated Group) at 11 a.m. Tuesday. The issuer is also set to sell $50.0MM of taxable hospital revenue bonds at 11:30 a.m. Tuesday. The deals are rated Aa3 by Moody’s and AA by S&P. Snohomish County, Washington, (Aa1/AA+//) is set to sell $125.78MM of limited tax GO and refunding bonds, 2021 Series B (federally taxable) taxable at 11:45 a.m. Tuesday. Snohomish is also set to sell $34.32MM of limited tax GO and refunding bonds, 2021, Series A at 11:15 a.m. on Tuesday. The State of Wisconsin is set to sell $219.605MM of GO bonds of 2021, Series B at 10:30 a.m. Tuesday.


Municipal Bond Funds Posted Inflows for a 35th Week in a Row

Investors in municipal bond put cash into funds for a 35th week in a row, as tax-exempt weekly reporting funds experienced inflows of $602.933MM in the latest week, after experiencing inflows of $396.900MM the week prior. The four-week moving average remained positive at $409.586MM after being in the green at $268.070MM the week prior.

Long-term municipal bond funds had outflows of $586.687MM in the latest week, after experiencing inflows of $206.890MM the week prior. Intermediate-term funds had inflows of $184.412MM after inflows of $171.580MM the week prior. National funds had inflows of $598.065MM after experiencing inflows of $396.609MM the week prior. High-yield municipal funds reported inflows of $1.072MM in the latest week, after outflows of $3.232MM the week prior. Exchange traded funds reported inflows of $519.543MM, after inflows of $69.869MM 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 and is being driven in large part by investors having to replace rolloffs due to continued strong redemption activity and inflows into funds. The municipal market is still dealing with a supply-demand imbalance, though it is not as dramatic as it was during the summer months.

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-, 15-, and 30-year maturities tightened, with the largest tightening occurring in the one- and 30-year maturities, eight bps each. Meanwhile spreads on the two-, three-, five-, and 10-year maturities all widened, with the largest widening occurring in the two-, three-, and 10-year maturities, three bps each.


Daily Overview of the General Market for the Week Ending November 5th

On Monday municipals prices were mixed, as the first of the trading week’s $4.99B in new-issue debt was offered and market participants looked to Wednesday for the FOMC announcement. On the day, the yields on the two- and 30-year maturities were unchanged, while the yield on the 10-year GO bond rose one bp, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys weakened on Monday, while U.S. stocks rose for the session. The Dow was up 94 points or 0.3%, while the S&P was up 0.2% and the NASDAQ was up 0.6%. On the day, the yield on the two-year maturity rose two bps, while the yield on the 10-year maturity rose three bps and the yield on the 30-year maturity rose five bps. The 10-year municipal-to-Treasury ratio fell to 77.2% on Monday from last Friday’s level of 78.1%, while the 30-year municipal-to-Treasury ratio fell to 85.4% on Monday from last Friday’s level of 87.6%.

On Tuesday municipals prices were mixed again, as a number of new-issue offerings came to market including the $133.665MM of unlimited tax GO bonds by the State of Washington and the $134.545MM offering of motor vehicle fuel tax GO refunding bonds, also by the State of Washington, to name a few. On the day, the yields on the two- and 30-year GO bonds were unchanged, while the yield on the 10-year GO bond fell one bp, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys strengthened on Tuesday, while U.S. stocks rose to fresh all-time highs, in another record-setting session, with investors cheering another set of better-than-expected corporate earnings results. The Dow was up 139 points or 0.4%. The S&P was also up 0.4% and the NASDAQ was up 0.3%. 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 two bps. The 10-year municipal-to-Treasury ratio rose to 77.6% on Tuesday from Monday’s level of 77.2%, while the 30-year municipal-to-Treasury ratio rose to 86.2% on Tuesday from Monday’s level of 85.4%.

On Wednesday municipals prices were mixed, as investors digested the FOMC leaving interest rates unchanged and noted that the tapering process will begin later this month, by buying $10.0B less of U.S. Treasury securities and $5.0B less agency mortgage-backed securities each month. On the issuance front, a number of new-issue offerings came to market and were well received, as demand continues to be strong. On the day, the yield on the two-year GO bond was unchanged, while the yield on the 10-year GO bond fell two bps and the yield on the 30-year GO bonds fell three bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys weakened on Wednesday, while U.S. stocks rose for the session, as investors contemplated the Federal Reserve’s latest monetary policy decisions. The Dow was up 105 points or 0.3%, while the S&P was up 0.6% and the NASDAQ was up 1.0%. On the day, the yield on the two-year maturity rose one bp, while the yields on the 10- and 30-year maturities each rose four bps. The 10-year municipal-to-Treasury ratio fell to 74.4% on Wednesday from Tuesday’s level of 77.6%, while the 30-year municipal-to-Treasury ratio fell to 83.0% on Wednesday from Tuesday’s level of 86.2%.

Last Thursday municipals prices were once again mixed, as the last of the week’s new-issue offerings came to market. 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 two bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices strengthened on Thursday, while U.S. stocks were mixed for the session, as investors continued to digest the Federal Reserve’s decision to begin paring back some of its monetary policy support and the economic recovery progressed. The Dow was down 33 points or 0.1%, while the S&P was up 0.4% and the NASDAQ was up 0.8%. On the day, the yield on the two-year maturity fell six bps, while the yield on the 10-year maturity fell seven bps and the yield on the 30-year maturity fell four bps. The 10-year municipal-to-Treasury ratio rose to 76.5% on Thursday from Wednesday’s level of 74.4%, while the 30-year municipal-to-Treasury ratio rose to 83.7% on Thursday from Wednesday’s level of 83.0%.

Last Friday municipals were part of a wider fixed income market rally, that saw municipal prices strengthened across the curve, as market participants looked ahead to the $9.60B 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 yield on the 10-year GO bond fell four bps and the yield on the 30-year GO bond fell six bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices also strengthened across the curve on Friday, while U.S. stocks rose for the session. The Dow was up 204 points or 0.6%, while the S&P was up 0.4% and the NASDAQ was up 0.2%. On the day, the yield on the two-year maturity fell two bps, while the yield on the 10-year maturity fell eight bps and the yield on the 30-year maturity fell nine bps. The 10-year municipal-to-Treasury ratio rose to 77.9% on Friday from Thursday’s level of 76.5%, while the 30-year municipal-to-Treasury rose to 84.5% on Friday from Thursday’s level of 83.7%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks

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