Muni Update

October 26, 2020


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


Municipal Market Recap

Municipal prices started the week mixed, as prices on the front-end weakened, while prices on bonds maturing 10 years and longer were steady. On Tuesday municipal prices were mixed again, as the front-end was steady, while prices on bonds maturing 10 years and longer weakened. Municipal prices were steady across the curve daily for the rest of the week.

This trading week’s projected level of new issue offerings is $15.8B and coupled with secondary market offerings should provide market participants with several opportunities to fill their needs. The expected continued strong demand, due in part to continued, although reduced redemption activity from this summer, coupled with strong inflows into funds has contributed to demand outpacing supply for most of the year.

Investors in municipal bond funds put cash into funds for a third week in a  row, as evidenced by the latest tax-exempt weekly reporting funds data showing that funds experienced inflows of $607.029MM in the latest week, after experiencing inflows of $614.447MM the week prior. The four-week moving average was a positive $543.841MM, after being in the green at $516.803MM the week prior. Investors still facing low or negative rates overseas continue to find positive yielding U.S. assets attractive despite the recent outflows.

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%, 0.96%, and 1.74%, respectively. Overall, week-over-week the yields on the two-, 10-, and 30-year General Obligation (GO) bonds each rose two basis points (bps).

Last week the yields on the two-, 10-, and 30-year maturities were unchanged on the MMA Triple-A Scale from Thursday to Friday and they ended the week at 0.32%, 1.25%, and 1.88%, respectively. Overall, week-over-week the yield on the two-year GO bond rose three bps, while the yield on the 10-year GO bond rose four bps sand the yield on the 30-year GO bond rose five bps.

New Issue Volume is Forecasted to be $15.8B for the Week

Total new issue offerings for the trading week per IHS Markit Ipreo are estimated to be $15.8B. This week’s projected bond issuance is comprised of $12.3B in negotiated deals and $3.5B in competitive sales. The largest deal of the week will be the $1.8B offering of taxable GO refunding bonds from the Los Angeles Community College District on Thursday. The deal is rated Aaa by Moody’s Investors Service (Moody’s) and AA+ from Standard and Poor’s Global Ratings (S&P). Also, from California this week will be the $1.1B offering of Measure Q Series 2020C dedicated unlimited ad valorem property tax bonds from the Los Angeles Unified School District on Wednesday. The deal is rated Aa3 by Moody’s, AA+ by S&P, and AAA by Fitch Ratings (Fitch).

Other notable deals from California issuers this week include the $508.3MM offering from the California State Public Works Board of Series 2021A lease revenue refunding forward delivery bonds for various projects, also on Wednesday. The deal is rated Aa3 by Moody’s, A+ by S&P, and AA- by Fitch. On Tuesday the California Health Facilities Financing Authority plans to offer $450.0MM of Series 2020 taxable senior revenue bonds for the No Place Like Home program. The deal is rated Aa3 by Moody’s and AA- by S&P and Fitch.

Moving to the east coast, the New York City Transitional Finance Authority (NYC TFA) will hit the market with about $1.1B of future tax-secured subordinate bonds. The deal is comprised of $924.215MM of tax-exempt fixed-rate bonds and $200.0MM of taxable fixed-rates. The tax-exempts are set to price on Wednesday after a two-day retail order period. The TFA also plans to competitively sell the taxable fixed-rate bonds on Wednesday. On Thursday, the New York Metropolitan Transportation Authority (NY MTA) will be issuing about $258.0MM of climate bond certified Series 2020E transportation revenue refunding bonds. Staying in the transportation sector, the Dallas Area Rapid Transit is coming to market with $870.575MM of Series 2020D taxable senior lien sales tax revenue refunding bonds, also on Thursday. The deal is rated Aa2 by Moody’s and AAA by Fitch.


Municipal Bond Funds Posted Inflows for a Second Week in a Row

Investors in municipal bond put cash into funds for a second week, as tax-exempt weekly reporting funds experienced inflows of $607.029MM in the latest week, after experiencing inflows of $614.447MM the week prior. The four-week moving average was a positive $543.841MM, after being in the green at $516.803MM the week prior.

Long-term municipal bond funds had outflows of $97.084MM in the latest week, after experiencing inflows of $170.662MM the week prior. Intermediate-term funds had inflows of $61.102MM after inflows of $14.194MM the week prior. National funds had inflows of $584.010MM after experiencing inflows of $652.176MM the week prior. High-yield municipal funds reported inflows of $21.399MM in the latest week, after outflows of $85.651MM the week prior. Exchange traded municipal funds reported outflows of $1116.503MM, after inflows of $191.893MM the week prior.


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 week should provide BQ market participants with 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 last few months, which started on June 1st. 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-, two-, three-, and five-year maturities all widened, with the largest widening occurring in the one-year maturity, seven bps. Meanwhile the spreads on the 10-, 15-, and 30-year maturities all tightened, with the largest tightening occurring in the 15- and 30-year maturities, four bps each.


Daily Overview of the General Market for the Week Ending October 23rd

Last Monday municipals prices were mixed, as the first of the trading week’s $16.4B in new issue long-term debt was offered. On the day, the yield on the two-year GO bond rose 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 last Monday, as U.S. Stock prices fell for the session. The Dow finished down 410 points, or 1.4%. The S&P was also down 1.6%, and the NASDAQ was down 1.7%. On the day, the yields on the two- and 10-year maturities each rose two bps, while the yield on the 30-year maturity rose three bps. The 10-year municipal-to-Treasury ratio fell to 120.5% on Monday from last Friday’s level of 123.7%, while the 30-year municipal-to-Treasury ratio fell to 111.0% on Monday from Last Friday’s level of 113.2%.

Last Tuesday municipals prices were mixed, as several deals came to market including offerings from Illinois, Wisconsin, Nevada, and Washington in the competitive arena. 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 rose two bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were also mixed, as U.S. stock prices rose for the session. The Dow finished up 113 points, or 0.4%, while the S&P was up 0.5% and the NASDAQ was up 0.3%. On the day, the yield on the two-year maturity fell 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 118.5% on Tuesday from Monday’s level of 120.5%, while the 30-year municipal-to-Treasury ratio fell to 108.8% on Tuesday from Monday’s level of 111.0%.

Last Wednesday municipals prices were steady, as the State of California sold $1.1B of various purpose GO bonds in three offerings in the competitive arena and several large healthcare deals hit the market, as this week’s supply surge continued unabated. On the day, the yields on the two-, 10-, and 30-year GO bonds were steady, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed on Wednesday, as U.S. stocks finished slightly down for the session. The Dow finished down 98 points or 0.3%, while the S&P was down 0.2% and the NASDAQ was also down 0.3%. On the day, the yield on the two-year maturity was unchanged, while the yields on the 10- and 30-year maturities each rose two bps. The 10-year municipal-to-Treasury ratio fell to 115.7% on Wednesday from Tuesday’s level of 118.5%, while the 30-year municipal-to-Treasury ratio fell to 107.4% on Wednesday from Tuesday’s level of 108.8%.

Last Thursday municipals prices were steady, as the last of the trading week’s new issue offerings came to market, including the Alabama Public School and College Authority’s $1.4B of Series 2020A tax-exempt and Series 2020B and C taxable capital improvement and refunding social bonds. 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 last Thursday, as U.S. stocks rose for the session. The Dow finished up 153 points or 0.5%. The S&P was also up 0.5% and the NASDAQ was up 0.2%. On the day, the yield on the two-year maturity rose two bps, while the yield on the 10-year maturity rose four bps and the yield on the 30-year maturity rose five bps. The 10-year municipal-to-Treasury ratio fell to 110.3% on Thursday from Wednesday’s level of 115.7%, while the 30-year municipal-to-Treasury ratio fell to 104.2% on Thursday from Wednesday’s level of 107.4%.

Last Friday prices on municipals were steady, as market participants started looking ahead to the $15.8B in expected new issue offerings next week. On the day, the yields on the two-, 10-, and 30-year GO bond were unchanged, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were mixed on Friday, as was U.S. stocks price action for the session. The Dow finished down 20 points, or 0.1%, while the S&P was up 0.3% and the NASDAQ was up 0.4%. On the day, the yield on the two-year maturity rose two bps, while the yield on the 10-year maturity fell two bps and the yield on the 30-year maturity fell three bps. The 10-year municipal-to-Treasury ratio rose to 112.9% on Friday from Thursday’s level of 110.3%, while the 30-year municipal-to-Treasury rose to 106.1% on Friday from Thursday’s level of 104.2%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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