Muni Update

October 28, 2019



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


Municipal Market Recap

Municipal prices started the week weaker across the curve. On Tuesday prices were mixed, as the front-end was steady, while bonds maturing 10 years and longer weakened. For the rest of the week, municipal prices were steady on a daily basis. Issuance for the trading week is forecasted to be $7.69B, which is below last week’s revised total of $10.72B in new-issue paper that came to market, but still a good level considering the Federal Open Market Committee (FOMC) is set to meet this week. 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. On another note, the jump in new debt sales has created headwinds for the municipal-bond market, which delivered outsize returns at the start of the year because mutual funds flush with cash were competing for scarce new-issues. But with the pace since picking up, municipal bonds are lagging other fixed-income securities with a 6.9% return this year, compared with 7.3% for Treasurys or 13.0% for corporate debt, according to the Bloomberg Barclays indexes.

Investors in municipal bond funds put cash into funds for a 42nd week, as weekly reporting funds experienced inflows of $1.427B, after experiencing inflows of $1.203B the week prior. The four-week moving average was a positive $1.225B, after being a positive $1.277B 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 1.15%, 1.51%, and 2.10%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO bond rose three basis points (bps), while the yield on the 10-year GO bond rose four bps and the yield on the 30-year GO bond rose three bps.

Last week the yield on the two-year maturity on the MMA Triple-A Scale was unchanged from Thursday to Friday and ended the week at 1.18%. Meanwhile, the yields on the 10- and 30-year maturities on the MMA Triple-A Scale each rose one bp from Thursday to Friday and they ended the week at 1.61% and 2.24%, respectively. Overall, week-over-week the yield on the two-year GO bond rose two bps, while the yields on the 10- and 30-year GO bonds each rose four bps.


New-Issue Volume is Forecasted to Be $7.69B for Trading Week

Total new issuance coming trading week per IHS Markit Ipreo is estimated to be $7.69B, which is below last week’s revised total of $10.72B, but still a good level considering the FOMC is set to meet this week on October 30th and 31st. This week’s calendar consists of $5.71B in negotiated deals and $1.98B in competitive sales. There are 23 deals scheduled for $100.0MM in par or larger, with eight of those being competitive deals. Twelve of these $100.0MM or larger scheduled deals are either partially or completely taxable, continuing the new normal without advanced refundings.

The largest deal of the week will be the $872.097MM Broward County, Florida airport system revenue and revenue refunding bonds on Thursday. The deal will consists of three series, two featuring alternative minimum tax bonds (AMT) and the third comprised of taxable bonds. The deal is rated A1 by Moody’s Investors Service and A+ by Standard and Poor’s Global Ratings (S&P) and Fitch Ratings (Fitch).

The State of Wisconsin plans to offer $621.98MM of general fund annual appropriation refunding taxable bonds on Monday. The deal is expected to mature serially from 2021 through 2032. The deal is rated Aa2 by Moody’s and AA by Fitch. On Tuesday the Tobacco Securitization Authority of Southern California plans to offer $415.109MM of tobacco settlement asset-backed refunding bonds. The deal is expected to consist of three series and carries ratings from S&P as follows: the 2019A series maturing 2020 through 2029 will carry an A rating, the 2030 through 2039 maturities are rated A-, and the 2048 maturity is rated BBB+. In the series 2019B-1, the 2029 maturity is rated BBB+ and the 2048 maturity is rated BBB-. The Series 2019B-2 is not rated. Finally on Wednesday, the Lehigh County Authority plans to offer $416.84MM of hospital revenue bonds for the Lehigh Valley Hospital Network. The deal is rated A2 by Moody’s and A+ by S&P.

In the competitive arena, the State of New York is expected to sell three separate deals of taxable GO bonds totaling $915.75MM on Monday. The deals are rated Aa1 by Moody’s and AA+ by S&P and Fitch.


Municipal Bond Funds Post Inflows for a 42nd Week

Investors in municipal bond funds put cash into funds for a 42nd week, as weekly tax-exempt weekly reporting funds experienced inflows of $1.427B in the latest week, after experiencing inflows of $1.203B the week prior. This marks the fourth time in the past five weeks inflows have exceeded $1.0B. The four-week moving average was a positive $1.225B, after being a positive $1.277B the week prior.

Long-term municipal bond funds had inflows of $1.219B in the latest week after experiencing inflows of $985.537MM the week prior. Intermediate-term funds had inflows of $111.414MM after inflows of $57.958MM the week prior. National funds had inflows of $1.225B after experiencing inflows of $1.074B the week prior. High-yield municipal funds reported inflows of $355.095MM in the latest week, after inflows of $320.969MM the week prior week. Exchange traded funds reported inflows of $222.255MM after inflows of $109.3211MM 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-, and five-year maturities tightened, with the largest tightening occurring in the three- and five-year maturity, 12 bps. Meanwhile, the 10-, 15-, and 30-year maturities widened three bps each.


Daily Overview of the General Market for the Week Ending October 25th

Last Monday prices on municipals weakened, as market participants prepped for the almost $12.0B of new-issue offerings scheduled to hit this week. On the day, the yields on the two- and 10-year GO bonds each rose three bps, while the yield on the 30-year GO bond rose two bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys weakened, as U.S. stocks posted gains for the session on sparse economic news and low volumes, but positive headlines on U.S. – China trade relations. The Dow was up 0.21%, while the S&P was up 0.69% and the NASDAQ rose 0.91%. On the day, the yields on the two- and 10-year maturities each rose four bps, while the yield on the 30-year maturity rose three bps. The 10-year municipal-to-Treasury slipped to 83.3% on Monday from last Friday’s level of 83.5%, while the 30-year municipal-to-Treasury ratio slipped to 91.7% Monday from last Friday’s level of 92.0%.

Last Tuesday prices on municipals were mixed, as a number of the deals were priced including large note issues from Massachusetts and the Chicago Public Schools.  All offerings were easily absorbed, with tighter spreads on some deals. 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 one bp, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were stronger, as U.S. stocks posted minimal losses the session, as big banks on the front lines of America’s economy reported mostly upbeat results on Tuesday. The Dow finished down 0.56%, while the S&P was down 0.36% and the NASDAQ was down 0.72%. On the day, the yields on the two-, 10-, and 30-year maturities each fell two bps. The 10-year municipal-to-Treasury ratio rose to 84.8% on Tuesday from Monday’s level of 83.3%, while the 30-year municipal-to-Treasury ratio rose to 92.9% on Tuesday from last Monday’s level of 91.7%.

Last Wednesday municipal prices were steady across the curve, as a number of offerings came to market, including some large negotiated offerings that were pricing into a stable yield environment. On the day, the yields on the two-, 10-, and 30-year GOs 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 minimal gains for the session. The Dow was up 0.17%, while the S&P was up 0.28% and the NASDAQ was up 0.19%. On the day, the yield on the two-year maturity fell two bps, while the yields on the 10- and 30-year maturities each fell one bp. The 10-year municipal-to-Treasury ratio rose to 85.3% on Wednesday from Tuesday’s level of 84.8%, while the 30-year municipal-to-Treasury rose to 93.3% on Wednesday from Tuesday’s level of 92.9%.

Last Thursday prices on municipals were steady, as the last of the week’s offering came to market. On the day, the yields on the two-, 10-, and 30-year GO bonds were steady, according to the final read of MMD Triple-A Scale.

U.S. Treasury prices were mixed, as was U.S. stocks prices for the session. The Dow was down 0.11%, while the S&P and NASDAQ rose 0.19% and 0.81%, respectively. On the day, the yields on the two- and 10-year maturities were unchanged, while the yield on the 30-year maturity rose one bp. The 10-year municipal-to-Treasury was unchanged on Thursday from Wednesday’s level of 85.3%, while the 30-year municipal-to-Treasury ratio fell to 92.9% on Thursday from Wednesday’s level of 93.3%.

On Friday prices on municipals were steady across the curve, as market participants were looking ahead to the coming trading week’s $7.69B 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 gains on hopes for progress on the phase one trade deal between the United States and China, putting the S&P 500 on track for a new all-time high. The S&P climbed above its record closing high on July 26th around midday. The S&P finished the day up 0.41%. The Dow was up 0.57%, or 152 points, still some almost 390 points below its all-time closing high, while the NASDAQ was up 0.70% and more than 1.0% below its closing record. On the day, the yield on the two-year maturity rose five bps, while the yields on the 10- and 30-year maturities each rose three bps. The 10-year municipal-to-Treasury ratio fell to 83.9% on Friday from Thursday’s level of 85.3%, while the 30-year municipal-to-Treasury ratio fell to 91.7% on Friday from Thursday’s level of 92.9%.


Taxable Market






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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