Muni Update

October 4, 2021


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


Municipal Market Recap

Municipal prices were mixed on Monday, as prices in the front-end were steady, while prices on bonds maturing 10 years and longer weakened. On Tuesday municipal prices weakened across the curve. On Wednesday and Thursday municipal prices were mixed again. On Wednesday price action was a repeat of Monday’s, as prices on bonds in the front-end were steady, while prices on bonds maturing 10 years and longer weakened. On Thursday prices on bonds in the front-end and long end of the curve were steady, while intermediate maturities weakened. On Friday municipal prices were steady.

This week, the projected level of new-issue offerings for the trading week are $9.14B 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 strong 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 30th week in a row, as tax-exempt weekly reporting funds data showed that funds experienced inflows of $408.056MM in the latest week, after experiencing inflows of $1.550B the week prior. The four-week moving average was a positive at $1.075B, after being in the green at $1.234B the week prior.

Last week the yields on the two-, 10-, and 30-year maturities on MMD Triple-A Scale were unchanged from Thursday to Friday and they ended the week at 0.17%, 1.14%, and 1.67%, 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 14 bps and the yield on the 30-year GO bond rose 8 bps.

Last week the yields on the two-, 10-, and 30-year maturities on the MMA Triple-A Scale were unchanged from Thursday to Friday and they ended the week at 0.18%, 1.31%, and 1.88%, respectively. Overall, week-over-week the yield on the two-year GO bond rose 6 bps, while the yields on the 10-and 30-year GO bonds each rose 10 bps.


New-Issue Volume is Forecasted to be $9.14B for the Trading Week

Total new-issue offerings for the trading week per IHS Markit Ipreo are estimated to be $9.14B. This week’s projected level of bond issuance is comprised of $8.20B in negotiated deals and $940.0MM in competitive sales. The largest deal of the week will be the $1.49B offering of taxable special obligation revenue bonds, Series 2021B, by the Alabama Federal Aid Highway Finance Authority on Wednesday. The deal is rated Aa2 by Moody’s Investors Service (Moody’s) and AAA by Standard and Poor’s Global Ratings (S&P).

On Tuesday, the Riverside County Transportation Commission, California, is set to price $490.845MM of toll revenue senior lien refunding bonds (RCTC 91 Express Lanes), Series B-1 and Series C, consisting of $408.315MM, Series 21B-1 and $82.53MM, Series 2021C. The deal is rated A- by S&P and BBB by Fitch Ratings (Fitch). Also on Tuesday, the Tri-County Metropolitan Transportation District of Oregon is set to price $396.7MM of taxable senior lien payroll tax revenue refunding sustainability bonds, Series 2021B and exempt senior lien payroll tax revenue sustainability bonds, Series 2021A. The deals are rated Triple-A by Moody’s, S&P and Kroll Bond Rating Agency (KBRA). Finally on Tuesday, the Metropolitan Government of Nashville and Davidson County, Tennessee, is set to price $352.94MM of water and sewer revenue green bonds, Series 2021 and $240.635MM of federally water and sewer revenue refunding green bonds, Series 2021B. The deals are rated Aa2 by Moody’s and AA by S&P.

On Wednesday the San Diego Unified School District will price $575.0MM of tax-exempt bonds in four series. In addition, the San Diego Unified School District is also set to price $431.18MM of 2021 taxable GO refunding green bonds (dedicated unlimited ad valorem property tax bonds; election of 2012, Series ZR-1).  The Omaha Public Power District, Nebraska, is set to price $428.94MM of electric system revenue bonds, 2021 Series A and 2021 Series B, consisting of $373.12 million, Series 2021A and $55.82 million, Series 2021B. The deals are rated Aa2 by Moody’s. The School District of Philadelphia is set to $312.94MM of GO green bonds, Series A of 2021, and Series B of 2021, consisting of $263.58 million of Series A, insured by Pennsylvania State Aid Intercept Program, and $49.36MM of Series B. Finally, on Wednesday, the State Public Works Board of the State of California is set to price $294.67MM of forward delivery lease revenue refunding bonds, 2022 Series C. The deal is rated Aa3 by Moody’s, A+ by S&P, and AA- by Fitch.

On Thursday, the Central Texas Regional Mobility Authority is set to price $342.555MM of taxable senior lien revenue refunding bonds, Series 2021E and $311.83MM of senior lien revenue refunding bonds, Series 2021D. The deals are rated A3 by Moody’s and A- by S&P. Also on Thursday Lee County, Florida, is set to price $207.515MM of airport revenue bonds, Series 2021B (Alternative Minimum Tax). The deal is rated A2 by Moody’s and A by S&P and A+ by KBRA.

In the competitive arena on Wednesday the State of Rhode Island is set to sell $90.5MM of GO bonds consolidated capital development loan of 2021, Series E at 10:15 a.m. eastern and $44.5MM of taxable GO bonds consolidated capital development loan of 2021, Series F at 10:45 a.m. The deals are rated Aa2 by Moody’s, and AA by S&P and Fitch.


Municipal Bond Funds Posted Inflows for a 30th Week in a Row

Investors in municipal bond put cash into funds for a 30th week in a row, as tax-exempt weekly reporting funds experienced inflows of $408.056MM in the latest week, after experiencing inflows of $1.550B the week prior. The four-week moving average remained positive at $1.075B, after being in the green at $1.234B the week prior.

Long-term municipal bond funds had inflows of $77.576MM in the latest week, after experiencing inflows of $1.054B the week prior. Intermediate-term funds had inflows of $106.188MM after inflows of $212.343MM the week prior. National funds had inflows of $357.439MM after experiencing inflows of $1.381B the week prior. High-yield municipal funds reported outflows of $102.940MM in the latest week, after inflows of $407.551MM the week prior. Exchange traded funds reported inflows of $154.991MM, after inflows of $196.300MM 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’s and look for opportunities along the curve to take advantage of the strong bid-side from the retail sector on the short end of the curve (<10 years). Also now is the time to clean-up odd lots in the portfolio (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 spreads on the 1-, 10-, 15-, and 30-year maturities all tightened, with the largest tightening occurring in the 30-year maturity at 5 bps. Meanwhile the spreads on two-, three-, and five-year maturities all widened, with the largest widening occurring in the three-year maturity, 5 bps.


Daily Overview of the General Market for the Week Ending October 1st

On Monday municipals prices were mixed and continued the selloff that started last Friday especially in the 10-year area of the curve, while the first of the trading week’s $11.398B in new-issue debt was offered. On the day, the yield on the 2-year GO bond was unchanged, while the yield on the 10-year GO bond rose four bps and the yield on the 30-year GO bond rose one bp, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed on Monday, as were U.S. stocks, as investors closely monitored developments in Washington, D.C., as lawmakers rushed to try and avert a government shutdown and advance a bevy of new measures. The Dow was up 72 points or 0.2%, while the S&P was down 0.3% and the NASDAQ was down 0.5%. On the day, the yield on the two-year maturity rose two bps, while the yield on the 10-year maturity rose one bp and the yield on the 30-year maturity was unchanged. The 10-year municipal-to-Treasury ratio rose to 70.3% on Monday from last Friday’s level of 68.0%, while the 30-year municipal-to-Treasury ratio rose to 80.4% on Monday from last Friday’s level of 79.9%.

On Tuesday municipals prices weakened, as a number of diverse negotiated and competitive offerings were priced into ample demand. On the day, the yield on the two-year GO bond rose three bps while the yield on the 10-year GO bond rose seven bps and the yield on the 30-year GO bond rose five bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed, while U.S. stocks fell for the session, with technology stocks leading the way lower, as investors eyed a swift rise in U.S. Treasury yields. The Dow was down 569 points or 1.6%, while the S&P was down 2.0% and the NASDAQ was down 2.8%. On the day, the yield on the two-year maturity was unchanged, while the yield on the 10-year maturity rose six bps and the yield on the 30-year maturity rose nine bps. The 10-year municipal-to-Treasury ratio rose to 72.1% on Tuesday from Monday’s level of 70.3%, while the 30-year municipal-to-Treasury fell to 79.3% on Tuesday, from Monday’s level of 80.4%.

On Wednesday municipals prices were once again mixed, as investors digested a number of new-issue offerings that saw price adjustments including the $1.883B offering of taxable GO bonds and taxable GO refunding bonds in multiple series, by the State of Hawaii, the largest deal of the week, and the $231.93MM offering of water and wastewater revenue bonds, Series 2021C by the City of Philadelphia to name a few. On the day, the yield on the two-year GO bond was unchanged, while the yields on the 10- and 30-year GO bond each rose two bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed on Wednesday, as were U.S. stocks for the session. The Dow was up 91 points or 0.3%, while the S&P was up 0.2% and the NASDAQ was down 0.2%. On the day, the yield on the two-year maturity fell one bp, while the yields on the 10- and 30-year maturities each rose one bp. The 10-year municipal-to-Treasury ratio rose to 72.9% on Wednesday from Tuesday’s level of 72.1%, while the 30-year municipal-to-Treasury ratio rose to 79.9% on Wednesday from Tuesday’s level of 79.3%.

Last Thursday municipals prices were mixed again, as the last of the week’s new-issue offerings came to market. On the day, the yields on the 2- and 30-year GOs bond 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.

U.S. Treasury prices strengthened on Thursday, while U.S. stocks fell in the final session of September and the third quarter. The Dow was down 547 points or 1.6%, while the S&P was down 1.2% and the NASDAQ was down 0.4%. On the day, the yield on the two-year maturity fell two bps, while the yield on the 10-year maturity fell three bps and the yield on the 30-year maturity fell one bp. The 10-year municipal-to-Treasury ratio rose to 75.0% on Thursday from Wednesday’s level of 72.9%, while the 30-year municipal-to-Treasury ratio rose to 80.3% on Thursday from Wednesday’s level of 79.9%.

Last Friday municipal prices were steady while market participants continued to digest balances from new-issue offerings that were priced earlier in the week, as well as looking ahead to the $9.14B in expected new-issue offerings in the upcoming trading week. On the day, the yields on the 2-, 10-, and 30-year GO bond were unchanged, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices strengthened on Friday, while U.S. stocks started off the new month and quarter with gains for the session. The Dow rose 484 points or 1.4%, while the S&P was up 1.2% and the NASDAQ was up 0.8%. On the day, the yield on the two-year maturity fell one bp, while the yields on the 10- and 30-year maturities each fell four bps. The 10-year municipal-to-Treasury ratio rose to 77.0% on Friday from Thursday’s level of 75.0%, while the 30-year municipal-to-Treasury ratio rose to 81.7% on Friday from Thursday’s level of 80.3%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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