Muni Update

September 16, 2019



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


Municipal Market Recap

Municipal prices weakened daily across the curve through Friday. This daily weakness in prices resulted in municipal yields increasing daily. Issuance for the trading week is forecasted to be $10.32B, which is above last week’s revised level of $8.59B in issuance. This week’s level of projected new issue offerings is interesting, in that it is signaling that issuers aren’t worried about the Federal Open Market Committee’s (FOMCs) meeting coming this week, which many expect will result in a quarter point cut in interest rates. This week’s projected level of 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.

Investors in municipal bond funds put cash into funds for a 36th week, as weekly reporting funds experienced inflows of $929.944MM, after experiencing inflows of $820.1MM the week prior. The four-week moving average was a positive $1.211B, after being a positive $1.385B 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, 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 each rose 10 basis points (bps) from Thursday to Friday and they ended the week at 1.26%, 1.52%, and 2.13%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond rose 21 bps, while the yield on the 10-year GO bond rose 24 bps and the yield on the 30-year GO bonds rose 23 bps.

Last week the yields on the two- and 10-year maturities on the MMA Triple-A Scale each rose nine bps from Thursday to Friday and they ended the week at 1.27% and 1.68%, respectively. Meanwhile the yield on the 30-year maturity on the MMA Triple-A Scale rose eight bps from Thursday to Friday and ended the week at 2.31%. Overall, week-over-week the yield on the two-year GO bond rose 18 bps, while the yield on the 10-year GO bond rose 19 bps and the yield on the  30-year GO bond rose 20 bps.


New-Issue Volume is Forecasted to Be Just Over $10.32B for Trading Week

Total new issuance for the coming trading week per IHS Markit Ipreo is estimated to be $10.32B, which is above last week’s revised level of $8.59B in issuance. This week’s trading calendar features 23 deals of $100.0MM or larger in issuance, and only two of those deals are scheduled to come competitively. There are also nine deals that are either all or partially taxable.

The largest deal of the week will be the Greater Orlando Aviation Authority’s $1.11B of airport facilities revenue alternative minimum tax (AMT) bonds on Thursday. The deal is rated Aa3 by Moody’s Investors Service (Moody’s), AA- by Standard and Poor’s Global Ratings (S&P) and Fitch Ratings (Fitch), and AA by Kroll Bond Rating Agency (KBRG). Also on Thursday, the Bay Area Toll Authority plans to offer $964.59MM of bridge revenue taxable and subordinate revenue taxable bonds. Senior lien obligations will be rated Aa3 by Moody’s and AA by S&P and Fitch, while the subordinate bonds will be rated A1 by Moody’s and AA- by S&P and Fitch.

On Monday the San Diego Community College District plans to offer $659.435MM of GO taxable refunding bonds on Monday.  The deal is rated triple A by Moody’s and S&P.

The largest competitive deal of the week will be the $132.84MM of refunding revenue bonds offered by the Gwinnet County Water and Sewer Authority, Georgia on Monday. The deal is rated Triple A by Moody’s, S&P and Fitch.


Municipal Bond Funds Post Inflows for a 36th Week

Investors in municipal bond funds put cash into funds for a 36th week, as weekly reporting funds experienced inflows of $929.944MM in the latest week, after experiencing inflows of $820.1MM the week prior. The four-week moving average was a positive $1.211B, after being a positive $1.385B the week prior.

Long-term municipal bond funds had inflows of $692.700MM in the latest week after experiencing inflows of $267.661MM the week prior. Intermediate-term funds had inflows of $152.656MM after inflows of $455.942MM the week prior. National funds had inflows of $1.347B after experiencing inflows of $669.588MM the week prior. High-yield municipal funds reported inflows of $279.835MM in the latest week, after inflows of $184.802MM the week prior. Exchange traded funds reported inflows of inflows of $50.906MM after inflows of $44.376MM 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, both in size and structure 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 (3.0% of higher, if possible) with little to no drop-off in credit quality. We also encourage investors to continue to looking at credit clean-up of their portfolio in this current environment. Week-over-week, bank qualified spreads tightened across the curve, with the largest tightening occurring in the 30-year maturity, 22 bps.


Daily Overview of the General Market for the Week Ending September 13th

Last Monday prices on municipals weakened, as market participants prepped for the $10.07B of new issue offerings scheduled for the trading week. On the day, the yield on the two-year GO bond rose two 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, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were weaker, as the broadly-positive sentiment from trading late last week carried over into this morning, but stocks soon gave up their gains, as all three major indexes were negative at one point. The session, however did finish mixed, as the Dow inched higher 0.1%, while the S&P and the NASDAQ both stayed in negative territory. On the day, the yield on the two-year maturity rose five bps, while the yield on the 10-year maturity rose eight bps and the yield on the 30-year maturity rose nine bps. The 10-year municipal-to-Treasury ratio fell to 81.0% on Monday from last Friday’s level of 82.6%, while the 30-year municipal-to-Treasury ratio fell to 91.5% Monday from last Friday’s level of 94.1%.

Last Tuesday prices on municipals weakened again, as over $3.5B of new issue offerings hitting the market; $1.5B coming from competitive sales and $2.0B coming from negotiated deals. On the day, the yield on the two-year GO bond rose three bps, 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 also weakened, as U.S. stocks posted mixed results on the session. The Dow and S&P rose 0.28% and 0.03%, respectively, while the NASDAQ fell 0.04%. The yields on the two- and 10-year maturities each rose nine bps, while the yield on the 30-year maturity rose eight bps. The 10-year municipal-to-Treasury ratio fell to 79.1% on Tuesday from Monday’s level of 81.0%, while the 30-year municipal-to-Treasury ratio fell to 90.0% on Tuesday from Monday’s level of 91.5%.

Last Wednesday municipal prices were once again weaker, as more supply hit the market from both negotiated and competitive offerings. Market participants got to choose from a number of deals from issuers in California, New York, Pennsylvania, Florida, and Louisiana. On the day, the yields on the two-, 10-, and 30-year GO bonds each rose five bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed, as U.S. stocks posted gained for the session, as they were helped by China waiving import tariffs on more than a dozen US goods starting September 17th and are slated to last for a year. The Dow rose 0.85%, while the S&P rose 0.72% and the NASDAQ was up 1.06%. 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 three bps. The 10-year municipal-to-Treasury ratio rose to 80.6% on Wednesday from Tuesday’s level of 79.1%, while the 30-year municipal-to-Treasury rose to 91.0% on Wednesday from Tuesday’s level of 90.0%.

Last Thursday prices on municipals weakened, as the last of the week’s offerings came to market and were easily digested, as demand continues to outpace supply. On the day, the yields on the two-, 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 mixed, as U.S. stocks rallied sharply, after U.S. and Chinese officials said they will resume trade talks in October. The Dow rose 1.41%, while the S&P rose 1.30% and the NASDAQ was up 1.75%. On the day, the yields on the two- and 10-year maturities each rose four bps, while the yield on the 30-year maturity was unchanged. The 10-year municipal-to-Treasury ratio fell to 79.3% on Thursday from Wednesday’s level of 80.6%, while the 30-year municipal-to-Treasury ratio bumped up 91.4% on Thursday from Wednesday’s level of 91.0%.

On Friday prices on municipals weakened for a fifth day, as market participants were looking ahead to the coming trading week’s $10.32B in new long-term debt offerings. On the day, the yields on the two-, 10-, and 30-year GO bonds each rose 10 bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices also finished the day weaker, as U.S. stocks posted mixed results for the session. The Dow rose 0.14%, while the S&P and the NASDAQ fell, 0.07% and 0.22%, respectively. On the day, the yield on the two-year maturity rose seven bps, while the yield on the 10-year maturity rose 11 bps and the yield on the 30-year maturity rose 15 bps. The 10-year municipal-to-Treasury ratio rose to 80.0% on Friday from Thursday’s level of 79.3%, while the 30-year municipal-to-Treasury ratio fell to 89.9% on Friday from Thursday’s level of 91.4%.


Taxable Market






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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