Muni Update

September 21, 2020



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


Municipal Market Recap

On Monday municipal prices started the week steady across the curve ahead of the Federal Open Market Committees (FOMC) meeting scheduled for Tuesday and Wednesday. The market would be keeping an eye on the FOMC’s Summary of Economic Projections, or dot plot. The last dot plot released in June showed no FOMC participants expected rates to rise before 2022 and only two saw them rising then. On Tuesday and Wednesday municipal prices remined steady across the curve. Also on Wednesday, the FOMC ended its meeting and announced that it was keeping the target range for the federal funds rate at zero to 0.25% and said it “expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the committee’s assessments of maximum employment and inflation has risen to 2% and is on track to moderately exceed 2% for some time.” Municipal prices remained steady across the curve for the rest of the week.

This week’s projected level of new issue offerings is $12.6B, 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 19th week in a row, as tax-exempt weekly reporting funds experienced inflows of just $611.910MM in the latest week, after experiencing inflows of $1.005B the week prior. The four-week moving average was a positive $693.105MM, after being in the green at $998.105B 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-, 10- and 30-year maturities on the MMD Triple-A Scale were unchanged from Thursday to Friday and they ended the week at 0.13%, 0.84% and 1.58%, respectively. Overall, week-over-week the yields on the two-, 10- and 30-year maturities were unchanged.

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 yields on the two-, 10- and 30-year GO bonds were unchanged week-over-week.


New Issue Volume is Forecasted to be Almost $12.6B for the Week

Total new issue offerings for the holiday-shortened trading week per IHS Markit Ipreo is estimated to be $12.6B. This week’s projected bond issuance is comprised of $10.4B in negotiated deals and $2.2B in competitive sales. The biggest deal of the week will be Chicago’s $1.2B offering of general airport senior lien bonds for O’Hare International Airport. The deal is rated A by both Standard and Poor’s Global Ratings (S&P) and Fitch Ratings (Fitch), and A+ by Kroll Bond Rating Agency (KBRA). The deal is scheduled to price on Thursday and consists of $511.4MM of Series 2020A exempt revenue refunding bonds not subject to the alternative minimum tax (AMT), $143.47MM of Series 2020B exempt non-AMT private activity revenue refunding bonds, $60.125MM of Series 2020C exempt non-AMT revenue refunding bonds, $65.62MM of Series 2020E exempt non-AMT revenue bonds and $462.63MM of Series 2020D taxable revenue refunding bonds.

On Tuesday the Texas Water Development Board plans to offer $600.0MM of Master Trust State Water Implementation Revenue Fund for Texas revenue bonds. The deal is rated triple-A by S&P and Fitch.

On Wednesday Portland International Airport, Oregon, plans to offer $348.72MM of Series 27A Alternative Minimum Tax (AMT) and Series 27B taxable revenue bonds. The deal is rated A+ by S&P. Also, on Wednesday the Sports and Exhibition Authority of Pittsburg and Allegheny County, Pennsylvania, plans to offer $112.45MM of regional asset district sale tax revenue refunding bonds. The deal is rated A1 by Moody’s and A+ by S&P.

On Thursday the New York City Industrial Development Agency is heading into the market with a $924.0MM deal for Yankee Stadium. The deal consists of $807.4MM of Series 2020A tax-exempt bonds and the $116.13MM of Series 2020B taxable PILOT revenue refunding bonds. The deal will be insured by Assured Guaranty Municipal Corp. The deal is rated A2 by Moody’s Investors Service (Moody’s) and Triple-A by S&P and AA+ by KBRA.

Also, this week the City of Philadelphia, Pennsylvania plans to offer $372.0MM of airport revenue and refunding bonds. The deal consists of $178.765MM of Series 2020A non-AMT private activity revenue refunding bonds, $37.525MM million of Series 2020B non-AMT governmental revenue bonds and $155.965MM of Series 2020C AMT private activity revenue and refunding bonds. The deal is rated A2 by Moody’s and A by S&P.

In the competitive arena, Florida rules. On Tuesday, Miami-Dade County is selling $531.715MM of special obligation bonds in three offerings. The deals consist of $340.0MM of Series 2020B taxable capital asset acquisition bonds, $114.96MM of Series 2020C exempt non-AMT capital asset acquisition bonds and $76.755MM of taxable capital asset acquisition refunding bonds. Also, the Miami-Dade County School District is selling $475.0MM of tax anticipation notes (TANs) on Thursday.


Municipal Bond Funds Posted Inflows for a 19th Week in a Row

Investors in municipal bond funds put cash into funds for an 19th week in a row, as tax-exempt weekly reporting funds experienced inflows of only $611.960MM in the latest week, after experiencing inflows of $1.005B the week prior. The four-week moving average was a positive $693.105MM, after being in the green at $998.105MM the week prior.

Long-term municipal bond funds had inflows of $64.307MM in the latest week, after experiencing outflows of $323.049MM the week prior. Intermediate-term funds had inflows of $116.210MM after inflows of $160.658MM the week prior. National funds had inflows of $545.570MM after experiencing inflows of $907.011MM the week prior. High-yield municipal funds reported inflows of $60.885MM in the latest week, after outflows of $88.169MM the week prior. Exchange traded funds reported inflows of $110.173MM, after inflows of $255.920MM 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 is starting to pick as we head into quarter-end 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 tightened, with the largest tightening occurring in the five-year maturity, 16 basis points (bps).


Daily Overview of the General Market for the Week Ending September 18th

Last Monday municipal prices were steady, as a few new issues of the week’s projected $9.8B 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. Treasuries were mixed on Monday, as U.S. stock prices rose for the session. The Dow finished up 328 points or 1.2%, and the S&P was up 1.3% and the NASDAQ rose 1.9%. On the day, the yields on the two- and 10-year maturities each rose one bp, while the yield on the 30-year maturity was unchanged. The 10-year municipal-to-Treasury ratio fell to 123.5% on Monday from Friday’s level of 125.4%, while the 30-year municipal-to-Treasury was unchanged on Monday from Friday’s level of 111.3%.

Last Tuesday municipals prices were steady once again, as several new issue offerings came to market including two large New York issuers, as the first of the week’s large offerings were greeted by eager buyers. 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. Treasuries were mixed, as U.S. Stock prices were basically flat to slightly up for the session. The Dow and the S&P finished with the day little changed, while the NASDAQ rose 1.2%. On the day, the yields on the two- and 10-year maturities were unchanged, while the yield on the 30-year maturity rose one bp. The 10-year municipal-to-Treasury ratio was unchanged on Tuesday from Monday’s level of 123.5%, while the 30-year municipal-to-Treasury ratio fell to 110.5% on Tuesday from Monday’s level of 111.3%.

Last Wednesday municipals prices were steady, as a variety of issuers came to market, including a $469.46MM competitive sale of GO bonds by the Commonwealth of Pennsylvania. 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. Treasuries were mixed on Wednesday, as were U.S. stocks for the session. The Dow finished up 37 points or 0.1%, while the S&P was down 0.5% and the NASDAQ was down 1.3%. On the day, the yield on the two-year maturity was unchanged, while the yield on the 10-year maturity rose one bp and the yield on the 30-year maturity rose two bps. The 10-year municipal-to-Treasury ratio fell to 121.7% on Wednesday from Tuesday’s level of 123.5%, while the 30-year municipal-to-Treasury ratio fell to 109.0% on Wednesday from Tuesday’s level of 110.5%.

Last Thursday municipals prices were once gain steady cross the curve, as the last of trading week’s new issue offerings came to market, including deals for Houston Airports, an Illinois Finance Authority healthcare deal and two larger competitive deals from the City and County of San Francisco, California, to name a few. 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 fell for the session. The Dow finished down 130 points or 0.5%, while the S&P was down 0.8% and the NASDAQ was down 1.3%. On the day, the yield on the two-year maturity fell one bp, while the yield on the 10-year maturity was steady and the yield on the 30-year maturity fell two bps. The 10-year municipal-to-Treasury ratio was unchanged on Thursday from Wednesday’s level of 121.7%, while the 30-year municipal-to-Treasury ratio rose to 110.5% on Thursday from Wednesday’s level of 109.0%.

Last Friday prices on municipals were steady, as market participants started looking ahead to the $12.6B in expected new issue offerings next week. On the day, as it was for the week 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 weakened on Friday, as U.S. stocks fell for the session. The Dow finished down 244 points, or 0.9%, while the S&P and the NASDAQ were both down 1.1%. On the day, the yields on the two- and 10-year maturities each rose one bp, while the 30-year maturity rose two bps. The 10-year municipal-to-Treasury ratio fell to 120.0% on Friday from Thursday’s level of 121.7%, while the 30-year municipal-to-Treasury fell to 109.0% on Friday from Thursday’s level of 110.5%.






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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