Muni Update

September 23, 2019


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


Municipal Market Recap

Municipal prices weakened across the curve on Monday and Tuesday. On Wednesday municipal prices strengthened across the curve, as the Federal Open Market Committee (FOMC) voted to cut the fed funds target range 25 basis points (bps) to 1.75% to 2.0%. On Thursday and Friday municipal prices once again strengthened across the curve. Issuance for the trading week is forecasted to be $5.57B. This week’s projected 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 37th week, as weekly reporting funds experienced inflows of $209.318MM, after experiencing inflows of $929.944MM the week prior. The four-week moving average was a positive $873.824MMB, after being a positive $1.211B 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 fell one bp from Thursday to Friday and they ended the week at 1.25%, 1.47%, and 2.07%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond fell one bp, while the yield on the 10-year GO bond fell five bps and the yield on the 30-year GO bonds fell six bps.

Last week the yield on the two-year maturity on the MMA Triple-A Scale fell one bp from Thursday to Friday and ended the week at 1.23%. Meanwhile the yields on the 10- and 30-year maturities on the MMA Triple-A Scale each fell two bps from Thursday to Friday and they ended the week at 1.61% and 2.24%, respectively. Overall, week-over-week the yield on the two-year GO bond fell four bps, while the yields on the 10- and 30-year GO bonds each fell seven bps.


New-Issue Volume is Forecasted to Be Just Over $5.57B for Trading Week

Total new issuance for the coming trading week per IHS Markit Ipreo is estimated to be $5.57B. This week’s trading calendar contains 17 deals that are $100.0MM or larger in par, with five of those being taxable.

The largest deal of the week will come from the Texas Water Development Board, which plans to offer $876.935MM of state water implementation revenue fund master trust taxable bonds on Tuesday. The deal is rated triple A by Standard and Poor’s Global Ratings (S&P) and Fitch Ratings (Fitch). The New Jersey’s Transportation Trust Fund Authority plans to offer $800.0MM of program bonds on Tuesday. The deal is rated Baa1 by Moody’s Investors Service (Moody’s), BBB+ by S&P, and A- by Fitch.  Also on Tuesday, Providence St. Joseph Health plans to offer $650.0MM of taxable refunding corporate CUSIP bonds on Tuesday. The deal is rated Aa3 by Moody’s and AA- by S&P.

The largest competitive deal of the week will also be on Tuesday. The Evergreen School District No. 114, Washington, plans to offer $177.30MM of unlimited taxable GO bonds on Tuesday.


Municipal Bond Funds Post Inflows for a 37th Week

Investors in municipal bond funds put cash into funds for a 37th week, as weekly reporting funds experienced inflows of $209.318MM in the latest week, after experiencing inflows of $929.944MM the week prior. This the third week in a row and the fourth time in the past 12 weeks where inflows have been less than $1.0B. It is also the smallest inflow over the past 12 weeks. The four-week moving average was a positive $873.824MM, after being a positive $1.211B the week prior.

Long-term municipal bond funds had inflows of $153.446MM in the latest week after experiencing inflows of $664.394MM the week prior. Intermediate-term funds had outflows of $2.442MM after inflows of $183.983MM in the week prior. National funds had inflows of $250.220MM after experiencing inflows of $767.718MM the week prior. High-yield municipal funds reported outflows of $171.913MM in the latest week, after inflows of $264.965MM the week prior week.


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 look at credit clean-up of their portfolio in this current environment. Week-over-week, bank qualified spreads widened across the curve, with the largest widening occurring in the five- and 30-year maturities, 28 bps each.


Daily Overview of the General Market for the Week Ending September 20th

Last Monday prices on municipals weakened, as the first of the week’s major deals came to market, including the Gwinnett County Water and Sewerage Authority’s competitive offering of $132.84MM Series 2019 revenue refunding bonds. On the day, the yields on the two-, 10-, and 30-year GO bonds each rose three bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys strengthened, as U.S. stocks posted losses for the session. The Dow, S&P, and NASDAQ all fell on the day, 0.52%, 0.31%, and 0.28%, respectively. On the day, the yield on the two-year maturity fell five bps, while the yields on the 10- and 30-year maturities each fell six bps. The 10-year municipal-to-Treasury ratio rose to 84.2% on Monday from last Friday’s level of 80.0%, while the 30-year municipal-to-Treasury ratio rose to 93.5% Monday from last Friday’s level of 89.9%.

Last Tuesday prices on municipals weakened again, as just a few deals came to market ahead of the FOMCs pending decision on interest rates. On the day, the yields on the two- and 30-year GO bonds each rose one bp, while the yield on the 10-year GO bond rose two bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys strengthened, as U.S. stocks posted minimal gains for the session. The Dow was up 0.12%, while the S&P was up 0.26% and the NASDAQ was up 0.40%. The Fed kicked off its two-day meeting which is expected to end with a 25 bp rate cut, as well as provide a refreshed set of economic projections and a dot-plotted path for 2019 and 2020. The yield on the two-year maturity fell two bps, 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 86.7% on Tuesday from Monday’s level of 84.2%, while the 30-year municipal-to-Treasury ratio rose to 95.6% on Tuesday from Monday’s level of 93.5%.

Last Wednesday municipal prices strengthened, as a number of deals priced before the FOMC voted to cut the fed funds target range 25 bps to 1.75% to 2.0%, as uncertainties offset the prospects for sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2.0% objective. 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 fell six bps, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed, as were results for U.S. stocks for the session. U.S. stocks were primarily negative for the first half of the day, but reversed course after the FOMC’s announcement. The Dow rose 0.13%, while the S&P was rose 0.03% and the NASDAQ was down 0.11%. On the day, the yield on the two-year maturity rose five bps, while the yield on the 10-year maturity fell one bp and the yield on the 30-year maturity fell two bps. The 10-year municipal-to-Treasury ratio fell to 83.9% on Wednesday from Tuesday’s level of 86.7%, while the 30-year municipal-to-Treasury fell to 93.8% on Wednesday from Tuesday’s level of 95.6%.

Last Thursday prices on municipals strengthened again, as the last of the week’s offerings came to market, including some large transportation offerings that were easily digested, as demand continues to outpace supply. 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 fell three bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices also strengthened, as U.S. stocks were mixed for the session. The Dow fell 0.19%, while the S&P was relatively unchanged and the NASDAQ rose slightly, 0.07%. On the day, the yields on the two- and 30-year maturities each fell three bps, while the yield on the 10-year maturity fell one bp. The 10-year municipal-to-Treasury ratio fell to 82.7% on Thursday from Wednesday’s level of 83.9%, while the 30-year municipal-to-Treasury ratio slipped to 93.7% on Thursday from Wednesday’s level of 93.8%.

On Friday prices on municipals strengthened for a third day, as market participants were looking ahead to the coming trading week’s $5.57B in new long-term debt offerings. On the day, the yields on the two-, 10-, and 30-year GO bonds each fell one bp, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices also finished the day stronger, as U.S. stocks posted losses for the session. The Dow was down 0.59%, while the S&P and the NASDAQ fell, 0.49% and 0.80%, respectively. On the day, the yields on the two-, 10-, and 30-year maturities each fell five bps. The 10-year municipal-to-Treasury ratio rose to 84.5% on Friday from Thursday’s level of 82.7%, while the 30-year municipal-to-Treasury ratio rose 95.4% on Friday from Thursday’s level of 93.7%.


Taxable Market






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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