Muni Update

September 13, 2021


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


Municipal Market Recap

Municipal prices were mixed on Tuesday, as prices on bonds maturing in the front-end were steady, while prices on bonds maturing 10 years and longer weakened. Municipal prices were steady on a daily basis for the rest of the week.

This week, the projected level of new-issue offerings for the trading week are $10.67B and coupled with bank qualified (BQ) and general market (GM) offerings in the secondary market should offer market participants 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, as well as inflows into funds both of which continue to be strong and contributed to demand outpacing supply for the year. For September this imbalance has eased somewhat, as redemption activity for the month is projected to only be $29.0B, which is half of the amount that was redeemed in August.

For funds latest reporting period, investors in municipal bond funds put cash into funds for a 27th week in a row, as tax-exempt weekly reporting funds data showed that funds experienced inflows of $1.086B in the latest week, after experiencing inflows of $1.044B the week prior. The four-week moving average was a positive at $1.456B, after being in the green at $1.653B 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 ended the week at 0.11%, 0.94%, and 1.53%, 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 one basis point (bp).

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 0.09%, 1.17%, and 1.73%, respectively. Overall, week-over-week the yield on the two-year GO bond was unchanged, while the yields on the 10- and 30-yer GO bonds each rose one bp.


New-Issue Volume is Forecasted to be $10.67B for the Trading Week

Total new-issue offerings for the trading week per IHS Markit Ipreo are estimated to be $10.67B. This week’s projected level of bond issuance is comprised of $8.83B in negotiated deals and $1.84B in competitive sales. The largest deal of the week will be the $2.092B offering of GO bonds, in two series by the State of California. The deal is set to price for retail on Monday and is rated Aa2 by Moody’s Investors Service (Moody’s), AA- by Standard and Poor’s Global Ratings (S&P), and AA by Fitch Ratings (Fitch). Other notable large deals scheduled for this week include but are not limited to the Black Belt Energy Gas District offering of $805.325MM gas project revenue bonds, 2021 Series B. The deal will price on Wednesday and is rated A2 by Moody’s. Providence St. Joseph Health Obligated Group will offer $775.0MM of taxable bonds, Series 2021A on Tuesday. The deal is rated Aa3 by Moody’s and AA-by S&P and Fitch. The Long Island Power Authority is set to price $737.74MM of electric system general revenue bonds, Series 2021, consisting of $368.25MM of Series 21A, $175.0MM of mandatory tender bonds, Series 21B, and $194.49MM of taxable Series 21C on also on Tuesday. The deal is rated A2 by Moody’s and A by S&P and Fitch. Also on Tuesday, the New York City Municipal Water Finance Authority will offer $633.0MM of water and sewer system second general resolution revenue bonds, Fiscal 2022 Series BB, consisting of; $545.0MM, Series BB-1, and $88.0MM, Series BB-2. The deal is rated Aa1 by Moody’s and AA+ by S&P and Fitch. The North Texas Higher Education Authority, Incorporated, is set to price $478.0MM of taxable student loan asset-backed notes, Series 2021-1, consisting of $118.0MM Series A-1A that and $350.0MM of Series A-1B, rated AA+ by S&P and $10.0MM Series 21-1B rated AA by S&P. Finally, the State of Illinois plans to offer $400.0MM of Build Illinois sales tax revenue bonds, junior obligation taxable Series B and junior obligation tax-exempt refunding Series C bonds on Wednesday.

In the competitive arena some of the larger deals include the Massachusetts School Building Authority’ offering of $344.335MM of taxable subordinated dedicated sales tax refunding bonds, 2021 Series A at 10 a.m. eastern on Tuesday. The deal is rated Aa3 by Moody’s, AA by S&P, and AA+ by Fitch. Hennepin County, Minnesota, is set to sell $100.0MM of GO bonds, Series 2021A at 11:30 a.m. Tuesday. The deal is rated Triple-A by S&P and Fitch. The City of Austin, Texas, is set to sell five competitive offerings on Tuesday and they include a $20.38MM of certificates of obligation, taxable series 2021 taxable, a $29.425MM offering of public property finance contractual obligations, Series 2021, a $36.535MM offering of certificates of obligation, Series 2021, a $83.655MM offering of public improvement and refunding bonds, Taxable Series 2021 and finally a $163.095MM offering of public improvement and refunding bonds, Series 2021.


Municipal Bond Funds Posted Inflows for a 27th Week in a Row

Investors in municipal bond put cash into funds for a 27th week in a row, as tax-exempt weekly reporting funds experienced inflows of $1.086B in the latest week, after experiencing inflows of $1.044B the week prior. The four-week moving average remained positive at $1.456B, after being in the green at $1.653B the week prior.

Long-term municipal bond funds had inflows of $690.739MM in the latest week, after experiencing inflows of $708.865MM the week prior. Intermediate-term funds had inflows of $138.236MM after inflows of $123.485MM the week prior. National funds had inflows of $993.942MM after experiencing inflows of $989.093MM the week prior. High-yield municipal funds reported inflows of $144.825MM in the latest week, after inflows of $395.757MM the week prior. Exchange traded funds reported inflows of $202.246MM, after inflows of $163.243MM 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 with wider spreads (15+ years), 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 one- and two-year maturities were unchanged, while the spreads on the three-, five-, 10-, 15-, and 30-year maturities all widened, with the largest widening occurring in the 15-year maturity, 12 bps.


Daily Overview of the General Market for the Week Ending September 10th

On Tuesday municipals prices were mixed and outperformed U.S. Treasurys for the session, as the first of the holiday-shortened trading week’s $5.99B in new-issue debt was offered. 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 one bp, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys weakened on Tuesday, while U.S. stock prices were mixed for the session. The Dow was down 269 points or 0.8%, while the S&P was down 0.3% and the NASDAQ was barley up at 0.07%. On the day, the yield on the two-year maturity rose one bp, while the yields on the 10- and 30-year maturities each rose five bps. The 10-year municipal-to-Treasury ratio fell to 68.1% on Tuesday from last Friday’s level of 69.9%, while the 30-year municipal-to-Treasury ratio fell to 76.9% on Tuesday, from last Friday’s level of 78.4%.

On Wednesday municipals prices were steady, as investors digested a few new-issue offerings to include the nonrated $230.95MM offering of essential housing social revenue bonds by the CDCDA and the rated $85.68MM offering of taxable water and sewer bonds from Henrico County, Virginia to name a few. On the day, the yields on the two- 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 U.S. stocks fell for the session, as rising COVID-19 infection rates have momentarily upended expectations about growth. The Dow was down 69 points or 0.2%, while the S&P was down 0.1% and the NASDAQ was down 0.6%. On the day, the yield on the two-year maturity was unchanged, while the yield on the 10-year maturity fell three bps and the yield on the 30-year maturity fell four bps. The 10-year municipal-to-Treasury ratio rose to 69.6% on Wednesday from Tuesday’s level of 68.1%, while the 30-year municipal-to-Treasury ratio rose to 78.5% on Wednesday from Tuesday’s level of 76.9%.

Last Thursday municipals prices were once again steady across the curve, as the last of the week’s new-issue offerings came to market. On the day, the yields on the two-, 10- and 30-year GOs bond were unchanged, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were mixed on Thursday, while U.S. stocks traded down for the session. The Dow was down 152 points or 0.4%, while the S&P was down 0.5% and the NASDAQ was down 0.3%. On the day, the yield on the two-year maturity rose one bp, while the yields on 10- and 30-year maturities each fell five bps. The 10-year municipal-to-Treasury ratio rose to 72.3% on Thursday from Wednesday’s level of 69.6%, while the 30-year municipal-to-Treasury ratio rose to 80.5% on Thursday from Wednesday’s level of 78.5%.

Last Friday municipal prices were steady, as market participants looked ahead to $10.67B 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 were mixed, while U.S. stocks once again fell for the session, as investors grow more cautious about the COVID-19 pandemic’s impact on the economy. The Dow fell 75 points or 0.2%, while the S&P was down 0.03% and the NASDAQ was down 0.2%. On the day, the yield on the two-year maturity was unchanged, while the yield on the 10-year maturity rose five bps and the yield on the 30-year maturity rose four bps. The 10-year municipal-to-Treasury ratio fell to 69.6% on Friday from Thursday’s level of 72.3%, while the 30-year municipal-to-Treasury ratio fell to 78.9% on Friday from Thursday’s level of 80.5%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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