Muni Update

September 20, 2021


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


Municipal Market Recap

Municipal prices started the week stead across the curve. On Tuesday municipal prices were mixed, as prices on bonds in the front-end and long end of the curve were steady, while prices on intermediate maturities strengthened. On Wednesday and Thursday municipal prices were once again steady across the curve. On Friday municipal prices were mixed, as prices in the front-end were steady, while prices on bonds maturing 10 years and longer weakened.

This week, the projected level of new-issue offerings for the trading week are $9.92B 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 28th week in a row, as tax-exempt weekly reporting funds data showed that funds experienced inflows of $1.256B in the latest week, after experiencing inflows of $1.086B the week prior. The four-week moving average was a positive at $1.313B, after being in the green at $1.456B the week prior.

Last week the yield on the two-year maturity on MMD Triple-A Scale was unchanged from Thursday to Friday and it ended the week at 0.11%. 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 0.94% and 1.54%, respectively. Overall, week-over-week the yields on the two- and 10-year general obligation (GO) bonds were unchanged, while the yield on the 30-year GO bond rose one bp.

Last week the yield on the two-year maturity on the MMA Triple-A Scale was unchanged from Thursday to Friday and ended the week at 0.09%. Meanwhile, the yields on the 10- and 30-year maturities on the MMA Triple-A Scale each rose one bp from Thursday to Friday and they ended the week at 1.17% and 1.74%, respectively. Overall, week-over-week the yields on the two- and 10-year GO bonds were unchanged, while the yield on the 30-year GO bond rose one bp.


New-Issue Volume is Forecasted to be $9.92B for the Trading Week

Total new-issue offerings for the trading week per IHS Markit Ipreo are estimated to be $9.92B. This week’s projected level of bond issuance is comprised of $7.51B in negotiated deals and $2.41B in competitive sales. The largest negotiated deal of the week will be the $880.54MM offering of payroll mobility tax senior lien bonds in three series by the Triborough Bridge and Tunnel Authority on Tuesday. The deal is rated AA+ by Standard and Poor’s Global Ratings (S&P), Fitch Ratings (Fitch), and Kroll Bond Rating Agency (KBRA). Also on Tuesday, the New Jersey Health Care Facilities Financing Authority is set to price $746.27MM of revenue bonds, the RWJ Barnabas Health Obligated Group Issue, Series 2021A. The deal is rated Aa3 by Moody’s Investors Service (Moody’s) and AA- by S&P.

Other notable negotiated deals this week include the $750.215MM offering of subordinate revenue bonds, 2021 Series D (Private Activity/AMT) by the Department of Airports of Los Angeles, California. The deal is rated Aa3 by Moody’s, A+ by S&P and AA- by Fitch. Orange County Transportation Authority is set to price on $663.12MM of bond anticipation notes I-405 Improvement Project, Series 2021. Ohio State University is set to price on $600.0MM of general receipts bonds (Multiyear Debt Issuance Program II), Series 2021 A (Green Bonds). The deal is rated Aa1 by Moody’s, and AA by S&P and Fitch. The California Housing Finance Agency is set to price on Thursday $497.547MM of municipal certificates, Series 2021-2 Class A Certificates (social certificates). The deal is rated AA+ by S&P. The New York State Housing Finance Authority is set to price $165.185MM of affordable housing revenue bonds, 2021 Series G (sustainability bonds) and 2021 Series H Refunding Bonds (social bonds). The offerings are rated Aa2 by Moody’s. The Turnpike Authority of Kentucky is set to price $157.285MM of economic development road revenue refunding bond (Revitalization Projects), 2021 Series A, 2021 Series B (federally taxable), and a 2022 Series A (forward delivery) on Tuesday. The offerings are rated Aa3 by Moody’s and AA- by KBRA.  The Cypress-Fairbanks Independent School District is set to price $91.96MM of unlimited tax refunding bonds, Taxable Series 2021B, (Permanent School Fund Guarantee Program) also on Tuesday.

In the competitive arena the Commonwealth of Massachusetts plans to offer three deals on Tuesday. The first will be a $385.0MM offering of GO bonds consolidated loan of 2021 Series C at 10 a.m. The offering is rated Aa1 by Moody’s and AA+ by Fitch. The second is a nonrated offering of $350.0MM GO bonds consolidated loan of 2021 Series D at 10:30 a.m.  The last will be $226.215MM offering of GO refunding bonds, 2021 Series A at 11 a.m. Also rated Aa1 by Moody’s and AA+ by Fitch. On Wednesday, the Miami-Dade County School District is set to sell $450.0MM of tax anticipation notes, Series 2021 at 10 a.m. On Thursday, the New York State Thruway Authority is set to sell $259.49MM of general revenue bonds Series O Maturity Group 1 at 10:15 a.m. Also, on Thursday, the New York State Thruway Authority will sell $287.455MM of general revenue bonds Series O Bonds Maturity Group 2 at 10:45 a.m. Both deals are rated A1 by Moody’s and A by S&P.


Municipal Bond Funds Posted Inflows for a 28th Week in a Row

Investors in municipal bond put cash into funds for a 28th week in a row, as tax-exempt weekly reporting funds experienced inflows of $1.256B in the latest week, after experiencing inflows of $1.086B the week prior. The four-week moving average remained positive at $1.313B, after being in the green at $1.456B the week prior.

Long-term municipal bond funds had inflows of $967.897MM in the latest week, after experiencing inflows of $690.739MM the week prior. Intermediate-term funds had inflows of $178.449MM after inflows of $138.236MM the week prior. National funds had inflows of $1.178B after experiencing inflows of $993.942MM the week prior. High-yield municipal funds reported inflows of $337.970MM in the latest week, after inflows of $144.825MM the week prior. Exchange traded funds reported inflows of $380.373MM, after inflows of $202.246MM 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 15-year maturities were unchanged, while the spreads on the two, three-, five- and 10-year maturities all tightened, with the largest tightening occurring in the five -year maturity, four bps. Meanwhile, the week-over-week spread on the 30-year maturity widened, three bps.


Daily Overview of the General Market for the Week Ending September 17th

On Monday municipals prices were steady, as the first of the trading week’s $10.67B in new-issue 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 strengthened on Monday, while U.S. stocks were mixed, as the Down and S&P ended a five-session losing streak. The Dow was up 262 points or 0.8%, while the S&P was up 0.2% and the NASDAQ was barley down at 0.07%. On the day, the yields on the two- and 10-year maturities each fell two bps, while the yield on the 30-year maturity fell three bps. The 10-year municipal-to-Treasury ratio rose to 70.7% on Monday from last Friday’s level of 69.6%, while the 30-year municipal-to-Treasury ratio rose to 80.1% on Monday from last Friday’s level of 78.9%.

On Tuesday municipals prices were mixed, as large new-issue offering repriced to lower yields even as U.S. Treasurys rallied. The State of California priced $2.0B of GO bonds for institutions with small bumps from its Monday retail scales. The New York City Municipal Water Finance Authority repriced to lower yields (two to four bps) it $631.555MM offering of water and sewer system second general resolution revenue bonds, while the Long Island Power Authority also repriced to lower yields (seven to 12 bps) its $536.765MM offering of electric system general revenue bonds in two tranches. On the day, the yields on the two- and 30-year GO bonds were unchanged, while the yield on the 10-year GO bond fell one bp, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed on Tuesday, while U.S. stock prices ended the session lower, as traders digested a new print on consumer inflation, which showed a slightly slower increase in prices last month. The Dow was down 292 points or 0.8%, while the S&P was down 0.6% and the NASDAQ was down 0.5%. On the day, the yield on the two-year maturity was unchanged, while the yield on the 10-year maturity fell five bps and the yield on the 30-year maturity fell six bps. The 10-year municipal-to-Treasury ratio rose to 72.7% on Tuesday from Monday’s level of 70.7%, while the 30-year municipal-to-Treasury ratio rose to 82.7% on Tuesday, from Monday’s level of 80.1%.

On Wednesday municipals prices were steady, and continued to remain relatively range bound, as investors digested a number of new-issue offerings include $143.0MM offering of GO bonds from the State of Illinois and a $216.0MM offering of GO bonds from the State of Texas. 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 on Wednesday, while U.S. stocks rose for the session, after dropping a day earlier, with a surge in oil prices helping fuel a risk-on move in the markets. The Dow was up 237 points or 0.7%, while the S&P was up 0.9% and the NASDAQ was up 0.8%. On the day, the yield on the two-year maturity was unchanged, while the yield on the 10-year maturity rose three bps and the yield on the 30-year maturity rose two bps. The 10-year municipal-to-Treasury ratio fell to 71.0% on Wednesday from Tuesday’s level of 72.7%, while the 30-year municipal-to-Treasury ratio fell to 81.8% on Wednesday from Tuesday’s level of 82.7%.

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 weakened on Thursday, while U.S. stocks were barely mixed for the session. The Dow was down 63 points or 0.2%, while the S&P was also down 0.2% and the NASDAQ was up 0.1%. On the day, the yield on the two-year maturity rose two bps, while the yield on 10-year maturity rose three bps and the yield on the 30-year maturity rose one bp. The 10-year municipal-to-Treasury ratio fell to 69.4% on Thursday from Wednesday’s level of 71.0%, while the 30-year municipal-to-Treasury ratio fell to 81.4% on Thursday from Wednesday’s level of 81.8%.

Last Friday municipal prices were mixed, as market participants looked ahead to $9.92B in expected new-issue offerings in the upcoming trading week. 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.

U.S. Treasury prices also were mixed on Friday, while U.S. stocks fell for the session. The Dow fell 166 points or 0.5%, while the S&P and the NASDAQ were both down 0.9%. On the day, the yield on the two-year maturity was unchanged, while the yields on the 10- and 30-year maturities each rose three bps. The 10-year municipal-to-Treasury ratio fell to 68.6% on Friday from Thursday’s level of 69.4%, while the 30-year municipal-to-Treasury ratio fell to 80.6% on Friday from Thursday’s level of 81.4%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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