Muni Update

October 18, 2021


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


Municipal Market Recap

Municipal prices were steady across the curve on Tuesday and Wednesday. On Thursday municipal prices were mixed, as prices on the front-end were steady, while prices on bonds maturing 10 years and longer strengthened. On Friday municipal prices were steady across the curve.

This week, the projected level of new-issue offerings for the trading week are $9.49B 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 contributed to demand outpacing supply for the year. For October, this imbalance drops substantially, as redemption and maturity activity for the month is projected to just be $19.6B. Note, redemption activity for September was around $29.0B.

For funds latest reporting period, investors in municipal bond funds put cash into funds for a 32nd week in a row, as tax-exempt weekly reporting funds data showed that funds experienced inflows of $461.285MM in the latest week, after experiencing inflows of $36.870MM the week prior. The four-week moving average was positive at $614.112MM, after being in the green at $812.742B the week prior.

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 0.18%, 1.17%, and 1.68%, respectively. Overall, week-over-week the yield on the two-year general obligation (GO) bond was unchanged, while the yields on the 10- and 30-year GO bonds each fell one basis point (bp).

Last week the yields on the two-, 10-, and 30-year maturities on the MMA Triple-A Scale were also unchanged from Thursday to Friday and they ended the week at 0.19%, 1.33%, and 1.89%. Overall, week-over-week the yields on the two-, 10-, and 30 GO bonds each fell one bp.


New-Issue Volume is Forecasted to be $9.49B for the Trading Week

Total new-issue offerings for the trading week per IHS Markit Ipreo are estimated to be $9.49B. This week’s projected level of bond issuance is comprised of $7.59B in negotiated deals and $1.90B in competitive sales. The largest negotiated deal of the week will be the $874.830MM offering of sales tax and motor vehicle exercise tax improvement and refunding green bonds by the Central Puget Sound Regional Transit, Authority on Tuesday. The deal is rated Aa1 by Moody’s Investors Service (Moody’s) and AAA by Standard and Poor’s Global Ratings (S&P). Other notable negotiated offerings this week include but are not limited to the $600.0MM taxable corporate CUSIP bonds offered by the OhioHealth Corporation, also on Tuesday. The deal is rated Aa2 by Moody’s, and AA+ by S&P and Fitch Ratings (Fitch). The California Community Choice Financing Authority is set to price $564.315MM of climate certified green clean energy project revenue bonds, Series 2021A. The deal is rated A2 by Moody’s. On Wednesday, the Hudson Yards Infrastructure Corporation will price $451.985 of Hudson Yards Revenue Bonds, Fiscal 2022 (Green Bonds). The deal is rated Aa2 by Moody’s, AA- by S&P, and A+ by Fitch.

In the competitive arena the North Texas Municipal Water District is set to sell $201.835MM of water system revenue bonds on Monday at noon eastern. The deal is rated Aa1 by Moody’s and AAA by S&P. On Tuesday at 10:30 a.m. eastern, the Virginia Public School Authority is set to sell $150.330MM of school financing bonds (1997 Resolution), Series 2021C. The deal is rated Aa1 by Moody’s and AA+ by S&P and Fitch. On Wednesday at 11:30 a.m. eastern, Tulsa, Oklahoma is set to sell $102.950MM of GO bonds, Series 2021. The deal is rated Aa1 by Moody’s and AA by S&P.


Municipal Bond Funds Posted Inflows for a 32nd Week in a Row

Investors in municipal bond put cash into funds for a 32nd week in a row, as tax-exempt weekly reporting funds experienced inflows of $461.285MM in the latest week, after experiencing inflows of $36.870MM the week prior. The four-week moving average remained positive at $614.112MM after being in the green at $812.742MM the week prior.

Long-term municipal bond funds had inflows of $284.286MM in the latest week, after experiencing outflows of $343.991MM the week prior. Intermediate-term funds had inflows of $72.269MM after inflows of $223.059MM the week prior. National funds had inflows of $490.357MM after experiencing inflows of $125.426MM the week prior. High-yield municipal funds reported inflows of $44.780MM in the latest week, after outflows of $459.622MM the week prior. Exchange traded funds reported inflows of $132.692MM, after inflows of $143.779MM 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 gearing up for continued supply-demand imbalances this fall, though not as dramatic as 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 across the curve, as the one-, 10-, 15-, and 30-year maturities all widened, with the largest widening occurring in the 30-year maturity, 19 bps. Meanwhile the two-, three-, and five-year maturities all tightened, with the largest tightening occurring in the three-year maturity, 12 bps.


Daily Overview of the General Market for the Week Ending October 15th

On Tuesday municipals prices were steady, while the first of the trading week’s $8.36B in new-issue debt was offered. On the day, the yields on the two-, 10-, and 30-year GO bonds was unchanged, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed on Tuesday, while U.S. stocks seesawed through another choppy session to finish down, as investors eyed elevated commodity prices and other signs of inflation heading into corporate earnings season. The Dow was down 118 points or 0.3%, while the S&P was down 0.2% and the NASDAQ was down 0.1%. On the day, the yield on the two-year maturity rose three bps, while the yield on the 10-year maturity fell two bps and the yield on the 30-year maturity fell six bps. The 10-year municipal-to-Treasury ratio rose to 74.2% on Tuesday from last Friday’s level of 73.3%, while the 30-year municipal-to-Treasury ratio rose to 80.5% on Tuesday from last Friday’s level of 78.2%.

On Wednesday municipals prices were steady, as investors digested a number of new-issue offerings that saw strong demand which resulted in some of them being repriced to lower yields. Some of the deals priced on the day included the $386.155MM offering of state revolving fund revenue bonds by the Texas Water Development Board, the $272.83MM offering of turnpike revenue bonds by the Florida Department of Transportation, and $200.0MM of GO transportation sales tax bonds by Charleston County, South Carolina. 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, while US Stocks were mixed for the session, as investors digested new earnings data and a key inflation report. The Dow was essential unchanged, while the S&P was up 0.3% and the NASDAQ was up 0.7%. On the day, the yield on the two-year maturity rose two bps, while the yield on the 10-year maturity fell three bps and the yield on the 30-year maturity fell five bps. The 10-year municipal-to-Treasury ratio rose to 75.6% on Wednesday from Tuesday’s level of 74.2%, while the 30-year municipal-to-Treasury ratio rose to 82.4% on Wednesday from Tuesday’s level of 80.5%.

Last Thursday municipals prices were 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 unchanged, while the yields on the 10- and 30-year GO bonds each fell one bp, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices strengthened on Thursday, while U.S. stocks rose after a slew of earnings results from the big banks topped expectations, and new weekly jobless claims showed a larger-than-anticipated improvement to a pandemic-era low. The Dow was up 535 points or 1.6%, while the S&P and NASDAQ were both up 1.7%. 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 three bps. The 10-year municipal-to-Treasury ratio rose to 77.0% on Thursday from Wednesday’s level of 75.6%, while the 30-year municipal-to-Treasury ratio rose to 83.2% on Thursday from Wednesday’s level of 82.4%.

Last Friday municipal prices were steady as market participants looked ahead to the $9.49B in expected new-issue offerings in the upcoming trading 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 weakened on Friday, while U.S. stocks rose for the third day in a row. The Dow was up 382 points or 1.1%, while the S&P was up 0.8% and the NASDAQ was up 0.5%. On the day, the yield on the two-year maturity rose five bps, while the yield on the 10-year maturity rose seven bps and the yield on the 30-year maturity rose three bps. The 10-year municipal-to-Treasury ratio fell to 73.6% on Friday from Thursday’s level of 77.0%, while the 30-year municipal-to-Treasury ratio fell to 82.0% on Friday from Thursday’s level of 83.2%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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