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AmeriVet Weekly Muni Snapshot

Municipal New Issuance: The second week of May had a total volume of roughly $12.3 billion, a larger than average volume we have seen this year. Although, it was a higher level of issuance, about half of the issuance was from six issuers and the largest being over $3 billion. The most notable deals for the week were the $3.1 billion Louisiana State Local Government Environmental Facilities and Community Development Authority Taxable issue for Louisiana Utilities Restoration Corporation Project. The Dormitory Authority of New York issued two deals last week which AmeriVet was a Co-Manager on, one of which being the $820 million issue for the Northwell Health Obligated Group. Dormitory Authority of New York also issued $732 million for their school district finance program. AmeriVet was also a Co-Manager on the $628 million Virginia College Building Authority which consisted of both taxable and tax-exempt bonds.

Municipal Secondary Trading: We continue to see a higher-than-normal average of secondary trading this week with roughly $54.3 billion in trades last week alone. Many traders are still having a cause for some concern as inflation is still high and with the CPI number coming in higher than expected but lower than the prior months number. With a higher volume of secondary trades last week, we are still seeing high number of client bids wanted with clients putting up roughly $9.67 billion up for the bid according to Bloomberg, with Wednesday pulling in a record number of bids-wanted of $2.5 billion alone.

Municipal Spread: Yields continued their upward trend last week with the 10-year rising by 8.8 basis points to 2.92%, a level that we have not seen since January 2014. One interesting note is that rates on one-year municipals hit 2% last week, the first time since March 2020, and from a low yield of almost close to zero last year. With yields on the rise, municipal bonds once again lagged Treasuries with 10-year notes now yielding 99.52% of Treasuries, the prior week those ratios were at 90.51%, and a month earlier the 10-year ratio was at 91.52%. We did see the municipal bond curve steepen last week with a gap between short-term and long-term securities steepen by 5.3 basis points to 94 basis points.

Outflows continue to plague the mutual bond funds as investors for the thirteenth straight week pulled money out of those funds to the sum of $2.4 billion. This outflow follows the prior weeks out flow of $2.6 billion. Investors have pulled almost $60 billion from municipal funds year-to-date. Although, mutual funds are seeing record outflows, municipal ETFs have been seeing better days as the saw an inflow of $1.9 billion last week.

With the first half of 2022 almost over, municipal yields have struggled sending yields to levels we have not seen in a over a year. Since the start of the year, the market has lost almost 10% of its value, while Treasuries have lost only about 8.5% according to Bloomberg index data. This Is the largest loss municipals have had and the third losing year since 2000, when the two others had lost just about 2.5%. Municipal bond ratios having reached a high point with the 10- year ratio hitting 101.05%, the most since November 2020, a sign that many have been waiting for as municipals are not considered cheap on a relative basis compared to Treasuries. Even though ratios are at their highest in nearly 20 months, we still have not reached the bottom as this should continue until the Fed gets a hold on inflation and bring inflation back down to 2%. With the Fed expected to raise rates a few more times, we can be in for the wild ride for the rest of 2022.

Municipal Supply: This week’s negotiated calendar will be light once again with only $5.2 billion expected to price with the bulk of the issuance coming from just three issuers. The largest issuers this week will be the $1.7 billion State of Illinois refunding issue. Princeton University will be issuing $600 million in taxable and tax-exempt bonds with the taxable portion using a corporate cusip. Many issuers continue to be in a holding pattern until the market get a hold on rates and until the market settles down to levels that can sustain proper buying levels.