Muni Update

September 28, 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. On Tuesday municipal process were mixed, as the front- and long-end were steady, while intermediate maturities strengthened. For the rest of the week, municipal prices were steady on a daily basis across the curve.

This week’s projected level of new issue offerings is $8.7B, coupled with the recent rise in secondary market offerings should provide market participants with several opportunities to fill their needs. The expected strong demand, due in part to continued, although reduced redemption activity from this summer, coupled with continued strong inflows into funds is expected to continue to push demand into outpacing supply for the rest of the year.

Investors in municipal bond funds put cash into funds for an 20th week in a row, as tax-exempt weekly reporting funds experienced inflows of just $498.876MM in the latest week, after experiencing inflows of $611.960MM the week prior. The four-week moving average was a positive $563.837MM, after being in the green at $693.105MM 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%, 0.83% ,and 1.58%, respectively. Overall, week-over-week the yields on the two- and 30-year General Obligation (GO) bonds were unchanged, while the yield on the 10-year GO bond fell one basis point (bp).

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 on the MMA scale, for a second week in a row.


New-Issue Volume is Forecasted to be $8.7B for the Week

Total new issue offerings for the trading week per IHS Markit Ipreo are estimated to be $8.7B. This week’s projected bond issuance is comprised of $7.4B in negotiated deals and $1.3B in competitive sales. One of the largest deals of the week will come from the PeaceHealth Obligated Group, Oregon, when it offers $745.0MM of corporate CUSIP taxable bonds on Thursday. Staying with healthcare, on Wednesday, the Orlando Health Obligated Group, Florida, will be coming to market with $518.0MM of corporate CUSIP taxable bonds.

Other healthcare deals on tap include the Missouri Health and Educational Facilities Authority’s $366.0MM of revenue bonds for Mercy Health to be priced on Tuesday. The Children’s Hospital Medical Center, Ohio, will offer $200.0MM of taxable bonds for the Cincinnati Children’s Hospital Medical Center to be priced  on Tuesday; and the University of Mississippi Medical Center will offer $158.0MM of taxable revenue bonds for capital improvement and refinancing project for the Medical Center Educational Building Corporation, to be priced on Wednesday.

Other notable deals this week include the North Texas Tollway Authority’s planned offering of $518.0MM its Series 2020B taxable first tier revenue refunding bonds on Thursday. The State of Louisiana is set to offer $435.0MM of refunding bonds on Wednesday. Another deal of interest coming this week will be the Puerto Rico Housing Finance Authority’s offering of $249.0MM of capital fund modernization program refunding bonds for Puerto Rico public housing projects on Tuesday. Finally, Atlanta will be in the market on Tuesday with $366.0MM of airport general revenue refunding bonds.

In the competitive arena, the Massachusetts School Building Authority will sell $395.0MM of Series 2020C taxable senior dedicated sales tax refunding bonds on Wednesday.


Municipal Bond Funds Posted Inflows for a 20th Week in a Row

Investors in municipal bond funds put cash into funds for an 20th week in a row, as tax-exempt weekly reporting funds experienced inflows of $498.876MM in the latest week, after experiencing inflows of $611.960MM the week prior. The four-week moving average was a positive $563.837MM, after being in the green at $693.105MM the week prior.

Long-term municipal bond funds had outflows of $33.146MM in the latest week, after experiencing outflows of $64.307MM the week prior. Intermediate-term funds had outflows of $14.928MM after inflows of $116.210MM the week prior. National funds had inflows of $434.978MM after experiencing inflows of $545.570MM the week prior. High-yield municipal funds reported inflows of $57.127MM in the latest week, after inflows of $60.885MM the week prior. Exchange traded funds reported inflows of $123.617MM, after inflows of $110.173MM 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, due in part to the lower tax rates from tax reform, attractive spreads and lower costs of funds currently.

We encourage participants to continue 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 were mixed. The spread on the one-year maturity was unchanged, while the spread on the two-year maturity widened by one bp. The spreads on the three-, five-, 10-, 15-, and 30-year maturities all tightened, with the largest tightening occurring in the three- and five-year maturities, five bps each.


Daily Overview of the General Market for the Week Ending September 25th

Last Monday municipal prices were steady for an eighth day in a row, as a few new issues of the week’s projected $12.6B 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. Treasurys were mixed on Monday, as U.S. stock prices fell at the opening and continued to fall until a late day rally helped reduced some of days losses for the session. The Dow finished down 510 points or 1.8%, and the S&P was down 1.2% and the NASDAQ was down 0.1%. On the day, the yield on the two-year maturity was unchanged, while the yields on the 10- and 30-year maturities each fell two bps. The 10-year municipal-to-Treasury ratio rose to 123.5% on Monday from Friday’s level of 120.0%, while the 30-year municipal-to-Treasury rose to 110.5% on Monday from Friday’s level of 109.0%.

Last Tuesday municipals prices were mixed, as several new-issue offerings came to market including the retail pricing of the NYC Municipal Water Finance Authority’s $563.525MM of Fiscal 2021 Series AA tax-exempt fixed-rate water and sewer system second general resolution revenue bonds ahead of Wednesday’s institutional offering. On the day, the yields on the two- and 30-year GO bonds were unchanged, while the yield on the 10-year maturity fell one bp, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed also, as U.S. Stock prices finished in the green for the session. The Dow was up 141 points or 0.5%, while the S&P was up 1.1% and the NASDAQ was up 1.7%. On the day, the yields on the two- and 30-year maturities each fell one bp, while the yield on the 10-year maturity was unchanged. The 10-year municipal-to-Treasury ratio fell to 122.1% on Tuesday from Monday’s level of 123.5%, while the 30-year municipal-to-Treasury ratio rose to 111.3% on Tuesday from Monday’s level of 110.5%.

Last Wednesday municipals prices were steady, as a variety of issuers came to market, including large deals from New York, Texas and Wisconsin. 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. Treasurys were mixed on Wednesday, as were U.S. stocks fell for the session. The Dow finished down 525 points or 1.9%, while the S&P was down 2.4% and the NASDAQ was down 3.0%. On the day, the yield on the two-year maturity rose one bp, while the yields on the 10- and 30-year maturities were steady. The 10- and 30-year municipal-to-Treasury ratios were unchanged on Wednesday from Tuesday’s level of 122.1% and 111.3%, respectively.

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 a $1.2B offering of general airport senior lien bonds for O’Hare International Airport and a $475.0MM offering of tax anticipation notes from the Miami-Dade County School District, Florida 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 seesawed up and down throughout the session to finally close up for the day. The Dow finished up 52 points or 0.2%, while the S&P was up 0.3% and the NASDAQ was up 0.4%. On the day, the yield on the two-year maturity was unchanged, 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 123.9% on Thursday from Wednesday’s level of 122.1%, while the 30-year municipal-to-Treasury ratio rose to 112.9% on Thursday from Wednesday’s level of 111.3%.

Last Friday prices on municipals were steady, as market participants started looking ahead to the $8.7B in expected new-issue offerings next week. On the day, 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 were mixed on Friday, as U.S. stocks rose for the session. The Dow finished up 358 points, or 1.3%, while the S&P was up 1.6% and the NASDAQ was up 2.3%. On the day, the yield on the two-year maturity fell two bps, while the yield on the 10-year maturity fell one bp and the yield on the 30-year maturity was unchanged. The 10-year municipal-to-Treasury ratio rose to 125.8% on Friday from Thursday’s level of 123.9%, while the 30-year municipal-to-Treasury was unchanged on Friday from Thursday’s level of 112.9%.






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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