Muni Update

October 15, 2019


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


Municipal Market Recap

Municipal prices started the week mixed, as the front-end strengthened, while bonds maturing 10 years and longer were steady. Tuesday prices strengthened across the curve. On Wednesday municipal prices were mixed, as bonds maturing 10 years and in were steady, while the long-end weakened. On Thursday prices were mixed again, as the front-end was steady, while bonds maturing 10 years and longer weakened. On Friday prices weakened across the curve. Issuance for the holiday-shortened trading week is forecasted to be $12.37B which nearly double last week’s revised level of $6.75B in issuance. We note this week’s level of new issue offerings is unusual given that it is a shortened trading week due to the Monday holiday, as well as the majority of offering being taxable deals. 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.

Investors in municipal bond funds put cash into funds for a 40th week, as weekly reporting funds experienced inflows of $1.385B, after experiencing inflows of $883.952MM the week prior. The four-week moving average was a positive $1.029B, after being a positive $915.232MM 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 yield on the two-year maturity on the MMD Triple-A Scale rose five basis point (bps) from Thursday to Friday and ended the week at 1.10%. Meanwhile the yields on the 10- and 30-year maturities on the MMD Triple-A Scale each rose eight bps from Thursday to Friday and they ended the week at 1.40% and 2.00%, 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 rose eight bps and the yield on the 30-year GO bonds rose nine bps.

Last week the yield on the two-year maturity on the MMA Triple-A Scale rose three bps from Thursday to Friday and ended the week at 1.14%. Meanwhile the yield on the 10-year maturity rose five bps and the yield on the 30-year maturity rose six bps on the MMA Triple-A Scale from Thursday to Friday and they ended the week at 1.51% and 2.16%, respectively. Overall, week-over-week the yields on the two- and 10-year GO bonds each rose three bps, while the yield on the 30-year GO bond rose seven bps.


New-Issue Volume is Forecasted to Be $12.37B for Trading Week

Total new issuance for the holiday-shortened coming trading week per IHS Markit Ipreo is estimated to be $12.37B, which is nearly twice last week’s revised total of $6.75B. This week’s trading calendar consists of $9.67B of negotiated deals and $2.70B of competitive offerings. There are 30 deals scheduled for $100.0MM in par or larger, with seven of those being competitive deals.

The New York State Thruway Authority’s (Authority) plans to offer $1.689B of general revenue junior indebtedness obligations on Thursday, after a one-day retail order period. The deal is rated A2 by Moody’s Investors Service (Moody’s) and A- by Standard and Poor’s Global Ratings (S&P). On Wednesday, the Authority plans to price $950.0MM of general revenue taxable bonds. The deal is expected to mature serially from 2024 through 2035 and include a term bond in 2042 and the general revenue bonds are rated A1 by Moody’s and A by S&P.

Also on Wednesday Ascension Health plans to offer $714.08MM of taxable corporate CUSIPS. The deal is rated Aa2 by Moody’s and AA+ by both S&P and Fitch Ratings (Fitch).

The largest municipal bond issuer of the year, the State of California, will also be bring a combined $1.14B offering comprised of two separate competitive sales on Wednesday. There are comprised of a $680.59MM of various purpose GO taxable bond offering and a $459.975MM various purpose GO taxable refunding bond offering.


Municipal Bond Funds Post Inflows for a 40th Week

Investors in municipal bond funds put cash into funds for a 40th week, as weekly reporting funds experienced inflows of $1.385B in the latest week, after experiencing inflows of $883.952MM the week prior. This marks the seventh time in the past 12 weeks inflows have exceed $1.0B. The four-week moving average was a positive $1.029B, after being a positive $915.232MM the week prior.

Long-term municipal bond funds had inflows of $1.002B in the latest week after experiencing inflows of $558.384MM the week prior. Intermediate-term funds had inflows of $258.992MM after inflows of $228.241MM the week prior. National funds had inflows of $1.120B after experiencing inflows of $767.441MM the week prior. High-yield municipal funds reported inflows of $527.764MM in the latest week, after outflows of $209.214MM the week prior week. Exchange traded funds reported inflows of $242.819MM after inflows of $21.505MM 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 tightened, with the largest tightening occurring in the three-year maturity, 21 bps.


Daily Overview of the General Market for the Week Ending October 11th

Last Monday prices on municipals were mixed, as market participants prepped for the $6.42B of new issue offerings scheduled to hit this week. 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 were unchanged, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys weakened, as U.S. stocks posted losses for the session as the U.S. – China trade war weighed on the economy. The Dow was down 0.36%, while the S&P was down 0.45% and the NASDAQ fell 0.33%. On the day, the yield on the two-year maturity rose six bps, while the yields on the 10- and 30-year maturities each rose four bps. The 10-year municipal-to-Treasury ratio fell to 84.6% on Monday from last Friday’s level of 86.8%, while the 30-year municipal-to-Treasury ratio fell to 93.2% Monday from last Friday’s level of 95.0%.

Last Tuesday prices on municipals strengthened, as a number of the deals were priced including the $252.0MM of green certificates of participation offering from the City and County of San Francisco, California and the $159.255MM Series 2019A public utility subordinate lien green revenue bonds and Series 2019B public utility subordinate lien revenue bonds for the district of Columbia’s Water and Sewer Authority (Authority). The Authority also priced $345.5MM of taxable bonds. On the day, the yield on the two-year GO bond fell four bps, while the yields on the 10- and 30-year GO bonds each three bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys also strengthened, as U.S. stocks posted losses for the session, as worries about trade tensions between the United States and China continued to weigh on the market. This contributed to the Dow finishing down 1.19%, while the S&P was down 1.56% and the NASDAQ was down 1.67%. On the day, the yield on the two-year maturity fell four bps, while the yield on the 10-year maturity fell two bps and the yield on the 30-year maturity fell one bp. The 10-year municipal-to-Treasury ratio fell to 83.8% on Tuesday from Monday’s level of 84.6%, while the 30-year municipal-to-Treasury ratio fell to 92.2% on Tuesday from Monday’s level of 93.2%.

Last Wednesday municipal prices were mixed, as once again a number of new issue offerings came to market, including a number of larger competitive offerings that were well received. On the day, the yields on the two- and 10-year GO bonds were steady, while the yield on the 30-year GO bonds rose one bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys weakened, as U.S. stocks posted gains on the session. The Dow was up 0.70%, while the S&P rose 0.91% and the NASDAQ rose 1.02%. On the day, the yields on the two- and 10-year maturities each rose five bps, while the yield on the 30-year maturity rose four bps. The 10-year municipal-to-Treasury ratio fell to 81.1% on Wednesday from Tuesday’s level of 83.8%, while the 30-year municipal-to-Treasury fell to 90.9% on Wednesday from Tuesday’s level of 92.2%.

Last Thursday prices on municipals were mixed, as issuers from New York, Florida, and Nebraska offered buyers notes, tax-exempt and taxable bonds, as the last of the week’s offerings came to market. On the day, the yield on the two-year GO was steady, 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.

U.S. Treasury prices also weakened, as stocks started the session more or less flat, but rose due to trade talk meetings with China and President Donald J. Trump’s proposed meeting with Chinese Vice Premier Liu He. The Dow was up 0.57%, while the S&P was up 0.64% and the NASDAQ rose 0.60%. On the day, the yield on the two-year GO bond rose six bps, while the yields on the 10- and 30-year maturities each rose eight bps. The 10-year municipal-to-Treasury fell to 79.0% on Thursday from Wednesday’s level of 81.1%, while the 30-year municipal-to-Treasury ratio fell to 88.9% on Thursday from Wednesday’s level of 90.9%.

On Friday prices on municipals weakened, as market participants were looking ahead to the coming holiday shortened trading week’s $12.37B in new long-term debt offerings. On the day, the yield on the two-year GO bond rose five bps, while the yields on the 10- and 30-year GO bonds each rose eight bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices also weakened, as U.S. stocks posted gains for the session, after U.S. President Donald Trump said the United States and China reached a preliminary trade agreement. The Dow was up 1.20%, while the S&P and the NASDAQ were up 1.09% and 1.34%, respectively. On the day, the yield on the two-year maturity rose seven bps, while the yield on the 10-year maturity rose nine bps and the yield on the 30-year maturity rose six bps. The 10-year municipal-to-Treasury ratio rose to 79.6% on Friday from Thursday’s level of 79.0%, while the 30-year municipal-to-Treasury ratio rose 90.1% on Friday from Thursday’s level of 88.9%.


Taxable Market






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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