Muni Update

September 14, 2020


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


Municipal Market Recap

Municipal prices were steady across the curve on Tuesday and Wednesday. On Thursday municipal prices were mixed, as prices on the front-end strengthened, while prices on bonds maturing ten years and longer weakened. On Friday municipal prices were steady again across the curve.

This week’s projected level of new-issue offerings is $9.8B and this level of new-issue supply should provide market participants with various opportunities. The expected strong demand, due in part to continued, although reduced redemption activity from this summer, coupled with continued strong inflows into funds will continue to push demand into outpacing supply.

Investors in municipal bond funds put cash into funds for an 18th week in a row, as tax-exempt weekly reporting funds experienced inflows of just $139.364MM in the latest week, after experiencing inflows of $139.364MM the week prior. The four-week moving average was a positive $998.105MM, after being in the green at $1.325B 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 yield on the two-year maturity on the MMD Triple-A Scale fell one basis point (bp) from Thursday to Friday and ended the week at 0.15%. Meanwhile, the yields on the 10- and 30-year maturities on the MMD Triple-A Scale were unchanged from Thursday to Friday and they ended the week at 0.83% and 1.57%, respectively. Overall, week-over-week the yield on the two-year GO bond fell one bp, while the yield on the 10-year GO bond rose two bps and the yield on the 30-year GO bonds rose one bp.

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 0.24%, 1.10%, and 1.72%, respectively. Overall, week-over-week the yield on the two-year GO bond fell one bp, while the yields on the 10- and 30-year GO bonds were unchanged week-over-week.


New-Issue Volume is Forecasted to be $9.8B for the Week

Total new-issue offerings for the holiday-shortened trading week per IHS Markit Ipreo are estimated to be $9.8B. This week’s projected bond issuance is comprised of $5.9B in negotiated deals and $3.9B in competitive sales. Kicking off the week will be $1.3B in offerings from the New York City Transitional Finance Authority (NYC TFA) of future tax-secured subordinate bonds. The deals are comprised of $1.1B of tax-exempt fixed rate bonds on Tuesday, after a one-day retail order period. The proceeds from the sale will be used to fund capital projects and convert certain floating rate debt to fixed rate debt. Also, on Tuesday the NYC TFA will competitively sell $173.0MM of taxable bonds. The deals are rated Aa1 by Moody’s Investors Service (Moody’s), and triple-A by both Standard and Poor’s Global Ratings (S&P) and Fitch Ratings (Fitch).

The New York Metropolitan Transportation Authority (NYMTA) will also be selling bonds competitively when it offers $900.0MM of Series 2020D transportation revenue climate bond certified green bonds in three offerings of $300.0MM each. The bonds are rated A3 by Moody’s, A+ by S&P, and AA+ by Fitch. Also, from New York on Tuesday, the Mount Sinai Obligated Group plans to offer $400.0MM of corporate CUSIP taxable bonds. The deal is rated A3 by Moody’s and A- by S&P.

Other notable deals this week include an offering on Thursday from Houston, Texas of $620.0MM of Series 2020C taxable airport system subordinate lien revenue refunding bonds. Also, on Thursday, the Illinois Finance Authority plans to offer $428.0MM of revenue bonds for the OSF Healthcare System. Sharp Healthcare of California will be coming to market with $341.0MM of taxable corporate CUSIP bonds on Thursday. On Wednesday, Brown University will offer $370 million of taxable bonds.

In the competitive arena, the Commonwealth of Pennsylvania is selling $470.0MM of GO bonds on Wednesday. The deal is rated Aa3 by Moody’s, A+ by S&P and AA- by Fitch.


Municipal Bond Funds Posted Inflows for a 18th Week in a Row

Investors in municipal bond funds put cash into funds for an 18th week in a row, as tax-exempt weekly reporting funds experienced inflows of only $139.364MM in the latest week, after experiencing inflows of $139.364MM the week prior. The four-week moving average was a positive $998.105MM, after being in the green at $1.325B the week prior.

Long-term municipal bond funds had inflows of $323.049MM in the latest week, after experiencing outflows of $238.420MM the week prior. Intermediate-term funds had inflows of $160.658MM after inflows of $101.882MM the week prior. National funds had inflows of $907.011MM after experiencing inflows of $156.953MM the week prior. High-yield municipal funds reported outflows of $88.169MM in the latest week, after outflows of $145.115MM the week prior. Exchange traded funds reported inflows of $255.920MM, after outflows of $457.679MM 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 last week selling picked up 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 maturing in just under 10 years, due in part to the lower tax rates from tax reform, attractive spreads and lower costs of funds currently.

We encourage participants 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, as the one-year maturity tightened, one bp. Meanwhile the week-over-week spreads on the two-, three-, five-, 10-, 15- ,and 30-year maturities all widened, with the largest widening occurring in the 15-year maturity, 13 bps.


Daily Overview of the General Market for the Week Ending September 11th

Last Tuesday municipals prices were steady, as the first of the holiday-shortened trading week’s $7.1B in new issue long-term debt was offered. 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 were mixed, as U.S. Stock prices fell for the session. The Dow finished down 632 points, or 2.3%. The S&P also was down 2.8%, and the NASDAQ was down 4.1%. On the day, the yield on the two-year maturity was changed, while the yields on the 10- and 30-year maturities each fell three bps. The 10-year municipal-to-Treasury ratio rose to 120.3% on Tuesday from last Friday’s level of 115.3%, while the 30-year municipal-to-Treasury ratio rose to 109.8% on Tuesday from last Friday’s level of 107.5%.

Last Wednesday municipals prices were steady, as a number of high-grade issuers from Maryland, Minnesota, and Nevada sold competitively relative to benchmarks, while in the negotiated space the San Francisco Public Utilities Commission sold $300.0MM-plus of green and non-green bonds, theta were repriced to lower yields. 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 the session higher. The Dow finished up 439 points or 1.6%, while the S&P was up 2.0% and the NASDAQ was up 2.7%. 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 116.9% on Wednesday from Tuesday’s level of 120.3%, while the 30-year municipal-to-Treasury ratio fell to 108.3% on Wednesday from Tuesday’s level of 109.8%.

Last Thursday municipals prices were mixed, as the last of holiday-shortened trading week’s new issue offerings came to market, including negotiated deals from issuers in Oregon, Texas, and Georgia. On the day, the yield on the two-year GO bond fell two bps, 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.

U.S. Treasury prices were also mixed last Thursday, as U.S. Stocks rose on the open only to reverse course and fell in the afternoon and close the session down. The Dow finished down 406 points or 1.5%, while the S&P was down 1.8% and the NASDAQ was down 2.0%. 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 two bps. The 10-year municipal-to-Treasury ratio rose to 123.5% on Thursday from Wednesday’s level of 116.9%, while the 30-year municipal-to-Treasury ratio rose to 110.5% on Thursday from Wednesday’s level of 108.3%.

Last Friday prices on municipals were steady, as market participants started looking ahead to the $9.8B 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 strengthened on Friday, while as U.S. stocks were mixed for the session. The Dow finished up 131 points, or 0.5%, while the S&P barely moved on the day and the NASDAQ was down 0.6%. On the day, the yields on the two-, 10- and 30-year maturities each fell one bp. The 10-year municipal-to-Treasury ratio rose to 125.4% on Friday from Thursday’s level of 123.5%, while the 30-year municipal-to-Treasury rose to 111.3% on Friday from Thursday’s level of 110.5%.






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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