Muni Update

September 9, 2019


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


Municipal Market Recap

Municipal prices were steady through Wednesday. On Thursday prices weakened across the curve. On Friday prices were once again steady across the curve. Issuance for the trading week is forecasted to be $10.07B, which is well above last week’s revised level of $3.93B in issuance. This week’s level of projected new issue offerings, 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 35th week, as weekly reporting funds experienced inflows of $820.1MM, after experiencing inflows of $1.536B the week prior. The four-week moving average was a positive $1.385B, after being a positive $1.769B 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. The ICE BofAML Municipal Bond Index returned 1.58% in August. It was the 9th consecutive month of positive returns for the index. Year-to-date (YTD) the index has returned 7.86%, which is more than the full-year total returns than any of the last four years

Last week the yields on the two-, 10-, and 30-year maturities on the MMD Triple-A Scale were all unchanged from Thursday to Friday and they ended the week at 1.05%, 1.28%, and 1.90%, respectively. Overall, week-over-week the yield on the two-year General Obligation (GO) bond rose four basis points (bps), while the yields on the 10- and 30-year GO bonds each rose six bps.

Last week the yields on the two-, 10-, and 30-year maturities on the MMA Triple-A Scale were all unchanged from Thursday to Friday and they ended the week at 1.09%, 1.49% and 2.11%, respectively. Overall, week-over-week the yield on the two-year GO bond two bps, while the yields on the 10- and 30-year GO bonds each rose three bps.


New-Issue Volume is Forecasted to Be Just Over $10.07B for Trading Week

Total new issuance for the coming trading week per IHS Markit Ipreo is estimated to be $10.07B, which is well above last week’s revised level of $3.93B in issuance. This week’s trading calendar is comprised of $7.63B in negotiated offerings and $2.44B in competitive offerings.

First up will be two competitive deals totaling $714.90MM from the State of Washington. The larger of the two deals will be a $490.405MM various purpose GO offering and it will be followed by a $224.495MM motor vehicle fuel tax and vehicle related fees GO bond offering, both deal will be priced on Tuesday. The deals are rated Aaa by Moody’s Investors Service (Moody’s) and AA+ by Standard and Poor’s Global Ratings (S&P) and Fitch Ratings (Fitch).

Also on Tuesday, Mecklenburg County, North Carolina plans to offer on a competitive basis $200.0MM of GO public improvement bonds, which are rated Triple-A by Moody’s, S&P, and Fitch. Frederick County, Maryland, also rated Triple-A by Moody’s, S&P, and Fitch also plans to hit the market on Tuesday, with a competitive offering of $118.320MM of GO public facilities bonds.

In the negotiated market, the largest deal of the week will be the Parish of St. John the Baptist, Louisiana’s $600.0MM revenue refunding non-alternative minimum tax (Non-AMT) bonds for the Marathon Oil Corporation Project on Thursday. The deal is rated Baa3 by Moody’s and BBB by S&P and Fitch so it is expected to attract a number of market participants who are looking for yield.

Back to Tuesday, Broward County, Florida plans to offer $468.95MM of port facilities revenue bonds, featuring AMT and non-AMT bonds. Finally, Rutgers University plans to price $330.0MM of federally-taxable GO bonds on Friday. The 100-year bond is due May 1, 2119 and will initially be rated Aa3 by Moody’s and A+ by S&P.


Municipal Bond Funds Post Inflows for a 35th Week

Investors in municipal bond funds put cash into funds for a 35th week, as weekly reporting funds experienced inflows of $820.1MM in the latest week, after experiencing inflows of $1.536B the week prior. The four-week moving average was a positive $1.385B, after being a positive $1.769B the week prior.

Long-term municipal bond funds had inflows of $$267.661MM in the latest week after experiencing inflows of $1.213B the week prior. Intermediate-term funds had inflows of $455.942MM after inflows of $152.656MM the week prior. National funds had inflows of $669.588MM after experiencing inflows of $1.347B the week prior. High-yield municipal funds reported inflows of $184.802MM in the latest week, after inflows of $410.496MM the week prior. Exchange traded funds reported inflows of inflows of $44.376MM after inflows of $291.351MM the week prior.


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 utilize extension swaps, especially given the strong bids for short paper by retail investors in high tax states, as a way roll out the curve for more yield (3.0% of higher, if possible) with little to no drop-off in credit quality. We also encourage investors to continue to looking at credit clean-up of their portfolio in this current environment. Week-over-week, bank qualified spreads were mixed, as the spreads on one-, two-, three-, five-, and 15-year maturities all widened, with the largest widening occurring in the one-year maturity, nine bps. Meanwhile, the spreads on 10- and 30-year maturities were unchanged, week-over-week.


Daily Overview of the General Market for the Week Ending September 6th

Last Tuesday prices on municipals were steady, as market participants prepped for the $7.6B of new issue long-term debt offerings and a $1.0B short-term offering scheduled for the week. 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 stronger, as U.S. stocks posted losses for the session. The Dow fell 1.08%, while the S&P 500 fell 0.69% and the NASDAQ fell 1.11%. The yields on the two- and 10-year maturities each fell three, while the yield on the 30-year maturity fell one bp. The 10-year municipal-to-Treasury ratio rose to 83.0% on Tuesday from last Friday’s level of 81.3%, while the 30-year municipal-to-Treasury ratio rose to 94.4% on Tuesday from last Friday’s level of 93.9%.

Last Wednesday municipal prices were once again steady, as a number of new issue offerings, including a $1.0B note sale came to market, and participants snapped up the paper. On the day, the yields on the two-, 10-, and 30-year maturities were unchanged, according to the final read of the MMD Triple-A Scale.

Prices on U.S. Treasurys were mixed, as U.S. stocks gained for the session. The Dow rose 0.91%, while the S&P rose 1.08% and the NASDAQ was up 1.30%. On the day, the yield on the two-year maturity fell four bps, while the yield on the 10-year maturity was steady and the yield on the 30-year maturity rose two bps. The 10-year municipal-to-Treasury ratio was unchanged on Wednesday from Tuesday’s level of 83.0%, while the 30-year municipal-to-Treasury fell to 93.4% on Wednesday from Tuesday’s level of 94.4%.

Last Thursday prices on municipals weakened, as the last of the week’s offerings, including some big GO deals came to market and were easily digested, as demand continues to outpace supply. On the day, the yield on the two-year GO bond rose four bps, while the yields on the 10- and 30-year GO bonds each rose six bps, according to the final read of the MMD Triple-A Scale.

U.S. Treasury prices also weakened, as U.S. stocks rallied sharply, after U.S. and Chinese officials said they will resume trade talks in October. The Dow rose 1.41%, while the S&P rose 1.30% and the NASDAQ was up 1.75%. On the day, the yield on the two-year maturity rose 12 bps, while the yield on the 10-year maturity rose 10 bps and the yield on the 30-year maturity rose nine bps. The 10-year municipal-to-Treasury ratio fell to 81.5% on Thursday from Wednesday’s level of 83.0%, while the 30-year municipal-to-Treasury ratio fell to 92.2% on Thursday from Wednesday’s level of 93.4%.

On Friday prices on municipals were steady, as market participants were looking ahead to the coming trading week’s $10.07B in new long-term debt offerings. 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.

U.S. Treasury prices finished the day stronger, as U.S. stocks posted mixed results for the session. The Dow rose 0.26% and the S&P rose 0.09%, while the NASDAQ fell 0.17%. 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 four bps. The 10-year municipal-to-Treasury ratio rose to 82.6% on Friday from Thursday’s level of 81.5%, while the 30-year municipal-to-Treasury ratio rose to 94.1% on Friday from Thursday’s level of 92.2%.


Taxable Market






Dennis Porcaro

Senior Vice President, Investment Strategies

Vining Sparks IBG, LP

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