Muni Update

September 27, 2021



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


Municipal Market Recap

Municipal prices were steady across the curve on a daily basis through Wednesday. Also on Wednesday, the Federal Open Market Committee (FOMC) ended its two-day meeting and voted unanimously to keep its overnight target rate range unchanged at 0.00-0.25% and continue purchasing at least $120.0B in securities per month. On Thursday and Friday municipal prices weakened across the curve.

This week, the projected level of new-issue offerings for the last trading week of the quarter are $11.398B and coupled with bank qualified (BQ) and general market (GM) offerings in the secondary market should offer market participants numerous 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 eased somewhat, as redemption activity for the month was projected to only be $29.0B, which was 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 29th week in a row, as tax-exempt weekly reporting funds data showed that funds experienced inflows of $1.550B in the latest week, after experiencing inflows of $1.256B the week prior. The four-week moving average was a positive at $1.234B, after being in the green at $1.313B the week prior.

Last week the yield on the two-year maturity on MMD Triple-A Scale rose one basis point (bp) from Thursday to Friday and ended the week at 0.14%. Meanwhile, the yields on the 10- and 30-year maturities on the MMD Triple-A Scale each rose three bps from Thursday to Friday and they ended the week at 1.00% and 1.59%, respectively. Overall, week-over-week the yield on the two-year general obligation (GO) bond rose three bps, while the yield on the 10-year GO bond rose six bps and the yield on the 30-year GO bond rose five bps.

Last week the yield on the two-year maturity on the MMA Triple-A Scale rose one bp from Thursday to Friday and ended the week at 0.129%. Meanwhile, the yields on the 10- and 30-year maturities on the MMA Triple-A Scale each rose two bps from Thursday to Friday and they ended the week at 1.21% and 1.78%, respectively. Overall, week-over-week 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.


New-Issue Volume is Forecasted to be $11.398B for the Trading Week

Total new-issue offerings for the trading week per IHS Markit Ipreo are estimated to be $11.398B. This week’s projected level of bond issuance is comprised of $9.434B in negotiated deals and $1.964B in competitive sales. The largest deal of the week will be the $1.9B offerings of taxable GO bonds and taxable GO refunding bonds by the State of Hawaii on Wednesday. The offerings are rated Aa2 by Moody’s Investor Service (Moody’s), AA+ by Standard and Poor’s Global Ratings (S&P) and AA by Fitch Ratings (Fitch). Right behind Hawaii’s offerings will be the $1.843B offering of enhanced tobacco settlement asset-backed bonds, Series 2021B (federally taxable) bonds, by the Golden State Tobacco Securitization Corporation on Thursday. The deal is rated Aa3 by Moody’s, A+ by S&P and AA- by Fitch.

Out of California the California Housing Finance Agency is set to price $497.548MM of municipal certificates, Series 2021-2 Class X certificates (social certificates), evidencing beneficial interests in credit enhanced custody receipts, serial 2035. Riverside County Infrastructure Financing Authority, California is set offer $452.42MM of taxable lease revenue refunding bonds, Series 2021B, on Tuesday. On Wednesday Corona, California, is set to price $276.84MM of 2021 taxable pension obligation bonds.

Other notable deals this week include the $430.36MM of state water implementation revenue fund revenue bonds, Series 2021 (Master Trust), by the Texas Water Development Board on Thursday. The deal is rated Triple-A by S&P and Fitch. The Municipal Electric Authority of Georgia (MEAG) is set to price $196.04MM, consisting of $137.52MM of project one subordinated bonds, Series 2021A, and $58.52MM of general resolution projects subordinated bonds, Series 2021A.  MEAG will also offer on Thursday $132.575MM of Taxable Series 2021B, consisting of $104.58MM of project one subordinated bonds, taxable series 2021B, and $27.995MM of general resolution projects subordinated bonds, Series 2021B. Also on Thursday, the Department of Transportation of Maryland is set to price $196.32MM of forward delivery consolidated transportation bonds, refunding series 2022A and refunding series 2022B (forward delivery), consisting of $52.565MM of Series 2022A and $143.755MM of Series 2022B. The offerings are rated Aa1 by Moody’s, Tripe-A by S&P and AA+ by Fitch.

In the competitive arena the Washington Suburban Sanitary District, Maryland, is set to sell $350.0MM comprised of consolidated public improvement bonds of 2021 and consolidated public improvement bonds of 2021 (second series) (green bonds) at 10:30 a.m. eastern on Tuesday. On Wednesday the Maryland Department of Transportation will sell $295.0MM of consolidated transportation bonds, Series 2021A at 10:30 a.m., and $138.415MM of consolidated transportation bonds, refunding series 2021B at 11 a.m. Both deals are rated Aa1 by Moody’s, Triple-A by S&P and AA+ by Fitch. On Thursday New Castle County, Delaware, is set to sell $87.305MM of GO bonds, Series 2021A at 10:45 a.m., and $206.7MM of GO bonds, Series 2021B (federally taxable) at 11:15 a.m. The deals are rated Triple-A by Moody’s, S&P and Fitch. Also on Thursday, Greenville County is set to sell $152.43MM of GO bonds, Series 2021B at 11 a.m.


Municipal Bond Funds Posted Inflows for a 29th Week in a Row

Investors in municipal bond put cash into funds for a 29th week in a row, as tax-exempt weekly reporting funds experienced inflows of $1.550B in the latest week, after experiencing inflows of $1.256B the week prior. The four-week moving average remained positive at $1.234B, after being in the green at $1.313B the week prior.

Long-term municipal bond funds had inflows of $1.054B in the latest week, after experiencing inflows of $967.879MM the week prior. Intermediate-term funds had inflows of $212.343MM after inflows of $178.449MM the week prior. National funds had inflows of $1.381B after experiencing inflows of $1.178B the week prior. High-yield municipal funds reported inflows of $408.551MM in the latest week, after inflows of $337.970MM the week prior. Exchange traded funds reported inflows of $196.300MM, after inflows of $380.373MM 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 two-year maturities widened, with the largest widening occurring in the one-year maturity, six bps. Meanwhile the spreads on three-, five-, 10-, 15-, and 30-year maturities all tightened, with the largest tightening occurring in the five-, 10- and 15-year maturity, three bps each.


Daily Overview of the General Market for the Week Ending September 24th

On Monday municipals prices were steady, as the first of the trading week’s $9.92B 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 were mixed on Monday, while U.S. stocks fell for the session, as investors nervously eyed the potential ripple effects of the default of a major Chinese real estate company and the ongoing debates over the debt limit in Washington. The Dow was down 614 points or 1.8%, while the S&P was down 1.7% and the NASDAQ was down 2.2%. On the day, the yield on the two-year maturity was unchanged, while the yields on the 10- and 30-year maturities each fell six bps. The 10-year municipal-to-Treasury ratio rose to 71.8% on Monday from last Friday’s level of 68.6%, while the 30-year municipal-to-Treasury ratio rose to 83.2% on Monday from last Friday’s level of 80.6%.

On Tuesday municipals prices were steady, as close to $3.0B of diverse negotiated and competitive offerings were priced into ample demand. 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 Tuesday, as were U.S. stock prices for the session, as the FOMC started its two-day meeting. The Dow was down 51 points or 0.2%, while the S&P was barely down at 0.08% and the NASDAQ was up 0.2%. On the day, the yield on the two-year maturity fell one bp, while the yield on the 10-year maturity rose two bps and the yield on the 30-year maturity rose one bp. The 10-year municipal-to-Treasury ratio fell to 70.7% on Tuesday from Monday’s level of 71.8%, while the 30-year municipal-to-Treasury ratio fell to 82.8% on Tuesday, from Monday’s level of 83.2%.

On Wednesday municipals prices were once again steady, as investors digested the FOMC leaving interest rates unchanged and noted that the tapering process may begin sooner rather than later. On the issuance front, a number of new-issue offerings came to market and were well received, as demand continues to be strong. 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, as investors contemplated the Federal Reserve’s latest monetary policy decision, after a volatile start to the week. The Dow was up 339 points or 1.0%, while the S&P and the NASDAQ were also up 1.0%. On the day, the yield on the two-year maturity rose three 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 rose to 71.2% on Wednesday from Tuesday’s level of 70.7%, while the 30-year municipal-to-Treasury ratio rose to 83.7% on Wednesday from Tuesday’s level of 82.8%.

Last Thursday municipals prices weakened across the curve, as the last of the week’s new-issue offerings came to market. On the day, the yields on the two- and 30-year GOs bond each rose two bps, while the yield on the 10-year GO bond rose three bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices also weakened on Thursday, while U.S. stocks rose for the session. The Dow was up 507 points or 1.5%, while the S&P was up 1.2% and the NASDAQ was up 1.0%. On the day, the yields on the two-year maturity rose two bps, while the yield on 10-year maturity rose nine bps and the yield on the 30-year maturity rose eight bps. The 10-year municipal-to-Treasury ratio fell to 68.8% on Thursday from Wednesday’s level of 71.2%, while the 30-year municipal-to-Treasury ratio fell to 81.3% on Thursday from Wednesday’s level of 83.7%.

Last Friday municipal prices weakened, as market participants looked ahead to $11.398B in expected new-issue offerings in the upcoming trading week. On the day, the yield on the two-year GO bond rose one bp, while the yields on the 10- and 30-year GO bonds each rose three bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices were also weaker on Friday, while U.S. stocks ended a choppy session higher, to extend gains, as investors looked past regulatory concerns in China and focused on optimism over the U.S. economic recovery. The Dow rose 33 points or 0.1%, while the S&P was up 0.2% and the NASDAQ was barely up, with a 0.03% gain. On the day, the yield on the two-year maturity rose two bps, while the yield on the 10-year maturity rose six bps and the yield on the 30-year maturity rose seven bps. The 10-year municipal-to-Treasury ratio fell to 68.0% on Friday from Thursday’s level of 68.8%, while the 30-year municipal-to-Treasury ratio fell to 79.9% on Friday from Thursday’s level of 81.3%.





Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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