Muni Update

October 5, 2020


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


Municipal Market Recap

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

This week’s projected level of new-issue offerings is $10.5B, coupled with the recent rise in secondary market offerings should provide market participants with several opportunities to fill their needs. The expected strong demand, due in part to continued, although reduced redemption activity from this summer, coupled with continued strong inflows until last week into funds had contributed to demand outpacing supply for the most of the year.

For September, municipal bond issuers flooded the primary market with deals in, as new-issue volume increased 26.3% to $47.28B, the highest issuance in the month on record, dating back to 1986. This marks the fourth month in a row in which monthly volume has exceeded $40.0B, an occurrence that did not even occur during the record-breaking volume year of 2017 when there was a total of $448.6B. There were 1,121 deals in September, which compares to $37.43B on 988 transactions in the same time of last year. The previous volume record for the month occurred in 2016 when the market saw $39.79B in the month.

Investors in municipal bond funds pulled cash out of funds for the first time since May, as tax-exempt weekly reporting funds experienced outflows of $774.747MM in the latest week, after experiencing inflows of $498.876MM the week prior. The four-week moving average was a positive $335.309MM, after being in the green at $563.837MM 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-year maturity on the MMD Triple-A Scale was unchanged from Thursday to Friday and they ended the week at 0.13%. Meanwhile the yields on the 10- and 30-year maturities on the MMD Triple-A Scale each rose one basis point (bp) from Thursday to Friday and they ended the week at 0.88% and 1.63%, 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 bond each rose five bps.

Last week the yields on the two-, 10-, and 30-year maturities on the MMA Triple-A Scale were steady from Thursday to Friday and they ended the week at 0.26%, 1.13%, and 1.75%, 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 three bps.


New-Issue Volume is Forecasted to be $10.5B for the Week

Total new-issue offerings for the trading week per IHS Markit Ipreo are estimated to be $10.5B. This week’s projected bond issuance is comprised of $7.4B in negotiated deals and $3.1B in competitive sales.

New York City (City) will sell about $1.1B of tax-exempt fixed rate GO bonds on Wednesday after a two-day retail order period. Proceeds from the deal will be used to fund capital projects and convert some of floating-rate debt to fixed-rate debt. Ahead of the sale, Moody’s Investors Service (Moody’s) cut the City’s GO rating Aa2 from Aa1, citing the ongoing economic effects of COVID-19. Moody’s also lowered the state’s GO rating to Aa2 from Aa1 last week. The City’s GOs are rated AA S&P Global Ratings (S&P) and Fitch Ratings (Fitch).

Last Friday, the Dormitory Authority of the State of New York (DASNY) announced they would competitively sell about $1.9B of state personal income tax revenue bonds in six offerings on Thursday. DASNY’s sales consist of $486.365MM of Series 2020A Bidding Group 2 PITs, $485.085MM of Series 2020A Bidding Group 5 PITs, $439.855MM of Series 2020A Bidding Group 3 PITs, $415.705MM of Series 2020A Bidding Group 4 PITs, Series 2020A $53.293MM of Bidding Group 1 bonds, and $48.155MM of Series 2020B taxable PITs. Also, from New York, the Rockefeller Foundation is coming to market with $700.0MM of taxable bonds. The deal will be priced on Thursday and the bonds are rated Triple-A by Moody’s and S&P. Proceeds will be used to fund the foundation’s charitable activities and operations.

Some taxable healthcare deals that are set for the upcoming week include Maryland’s Bon Secours Mercy Health’s $650.0MM offering of taxable corporate CUSIP refunding bonds to be priced on Wednesday. The deal is rated A+ by S&P and AA-by Fitch. The Virginia Small Business Financing Authority will be coming to market on Tuesday with a $377.0MM revenue bonds offering for the Obligated Group of National Senior Campuses Inc., for continuing care retirement communities projects.

Also, on tap, the City and County of San Francisco Public Utilities Commission plans to offer $665.0MM of water revenue refunding bonds on Wednesday. The deal is rated Aa2 by Moody’s and AA- by S&P. The Hampton Roads Transportation Accountability Commission, Virginia plans to offer $600.0MM of senior lien revenue bonds for the Hampton Roads transportation fund on Tuesday. The deal is rated Aa2 by Moody’s and AA by S&P.

In the airline sector, Hawaii plans to offer $575.0MM of airport system revenue bonds consisting of AMT and non-AMT tax-exempts, and taxable bonds on Wednesday. The deal is rated A1 by Moody’s and A+ by S&P. Also, Miami-Dade County is competitively selling $182.0MM of double-barreled aviation refunding GOs on Thursday.

In the competitive arena, North Carolina is selling $400.0MM of public improvement GOs for the Connect NC Program on Thursday. On Wednesday, the Maryland Department of Transportation plans to sell $300.0MM consolidated transportation revenue bonds. The deal is rated Aa1 by Moody’s, AAA by S&P and AA+ by Fitch. Proceeds will fund part of the capital projects including highways and certain other transportation activities.


Municipal Bond Funds Posted Outflows for the Week

Investors in municipal bond pulled cash out of funds for the first time since May, as tax-exempt weekly reporting funds experienced outflows of $774.747MM in the latest week, after experiencing inflows of $498.876MM the week prior. The four-week moving average was a still positive $335.309MM, after being in the green at $563.837MM the week prior.

Long-term municipal bond funds had outflows of $940.623MM in the latest week, after experiencing outflows of $33.146MM the week prior. Intermediate-term funds had outflows of $237.022MM after outflows of $14.928MM the week prior. National funds had outflows of $667.853MM after experiencing inflows of $434.978MM the week prior. High-yield municipal funds reported outflows of $56.759MM in the latest week, after inflows of $57.127MM the week prior. Exchange traded funds reported outflows of $113.764MM, after inflows of $123.617MM the week prior.


Demand in the Bank Qualified (BQ) Market Remains Strong

BQ participants continue to be focused on the new-issue paper this week, as buyers continue to outpace sellers, although customer selling has picked up recently resulting in more secondary market offerings to fill needs. 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 portfolio’s and look to replace weaker credits at this time. Week-over-week, bank qualified spreads were mixed. The spreads on the one- and two-year maturities were unchanged, while the spreads on the three-, five-, 10-, 15-, and 30-year maturities all tightened, with the largest tightening occurring in the 10-year maturities, 11 bps.


Daily Overview of the General Market for the Week Ending October 2nd

Last Monday municipal prices were steady, as a few new issues of the week’s projected $8.7B in new issue offerings came to market. 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 weakened on Monday, as U.S. stock prices rose for the session on hopes of another stimulus deal out of Washington. The Dow finished up 410 points or 1.5%, and the S&P was up 1.6% and the NASDAQ was up 1.9%. On the day, the yields on the two- and 30-year maturities each rose two bps, while the yield on the 10-year maturity rose one bp. The 10-year municipal-to-Treasury ratio fell to 123.9% on Monday from Friday’s level of 125.8%, while the 30-year municipal-to-Treasury fell to 111.3% on Monday from Friday’s level of 112.9%.

Last Tuesday municipals prices were steady, as several new issue offerings came to market including the pricing and subsequent lower repricing of Atlanta’s $364.935MM of airport general revenue refunding bonds comprised of $239.38MM of Series 2020A bonds not subject to the alternative minimum tax (AMT) and the $125.555MM of Series 2020B AMT bonds. The other major deal that was priced and repriced lower on Tuesday was the $249.55MM of Puerto Rico Housing Finance Authority’s capital fund modernization program refunding bonds for Puerto Rico public housing projects.  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 strengthened on Tuesday, as U.S. stock prices fell for the session. The Dow finished down 131 points or 0.5%, the S&P was also down 0.5%, and the NASDAQ was down 0.3%. On the day, the yield on the two-year maturity fell three bps, while the yields on the 10- and 30-year maturities each fell one bp. The 10-year municipal-to-Treasury ratio rose to 125.8% on Tuesday from Monday’s level of 123.9%, while the 30-year municipal-to-Treasury ratio rose to 112.1% on Tuesday from Monday’s level of 111.3%.

Last Wednesday municipals prices were mixed, as a variety of issuers came to market, including a negotiated offering of $372.255MM Philadelphia, Pennsylvania airport revenue and revenue refunding bonds, and in the competitive arena the Massachusetts School Building Authority sold $389.46MM of Series 2020C taxable senior dedicated sales tax refunding bonds. 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 rose four bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys weakened on Wednesday, as U.S. stocks prices rose for the session on better-than-expected economic data and hopes that another push on stimulus negotiations might lead to a deal. The Dow finished up 329 points or 1.2%, while the S&P was up 0.8% 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 rose three bps and the yield on the 30-year maturity rose five bps. The 10-year municipal-to-Treasury ratio bumped up to 126.1% on Wednesday from Tuesday’s level of 125.8%, while the 30-year municipal-to-Treasury ratio fell to 111.0% on Wednesday from Tuesday’s level of 112.1%.

Last Thursday municipals prices were once again steady cross the curve, as the last of trading week’s new issue offerings came to market, including a $602.07MM offering of Salt River Project Electric System Revenue 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 were mixed last Thursday, as U.S. Stocks posted gains for the session. The Dow finished up 35 points or 0.1%, while the S&P was up 0.5% and the NASDAQ was up 1.4%. On the day, the yield on the two-year maturity rose one bp, while the yields on 10- and 30-year maturities each fell one bp. The 10-year municipal-to-Treasury ratio rose to 127.9% on Thursday from Wednesday’s level of 126.1%, while the 30-year municipal-to-Treasury ratio rose to 111.7% on Thursday from Wednesday’s level of 111.0%.

Last Friday prices on municipals were mixed, as market participants started looking ahead to the $10.5B in expected new issue offerings next week. 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 one bp, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were also mixed on Friday, as U.S. stocks fell for the session. The Dow finished down 134 or 0.5%, while the S&P was down 1.0% and the NASDAQ was down 2.2%. On the day, the yield on the two-year maturity fell one bp, while the yield on the 10-year maturity rose two bps and the yield on the 30-year maturity rose three bps. The 10-year municipal-to-Treasury ratio fell to 124.3% on Friday from Thursday’s level of 127.9%, while the 30-year municipal-to-Treasury fell to 110.1% on Friday from Thursday’s level of 111.7%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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