Weekly Muni Snapshot | 1 March 2021
Municipal New Issuance: The negotiated calendar for the final week of February had approximately $8.1 billion of new issuance with the largest deals being the $2.5 University of California which consisted of multiple series of taxable and tax-exempt bonds followed by the $537 million San Diego County Regional Transportation Commission Sales Tax Revenue bonds. AmeriVet participated in a number of syndicates this week which included the $523 million New York City Municipal Water Authority as well as the $393 New York City taxable and tax-exempt issues. Both issues saw robust demand as underwriters were able to keep the original pricings even the treasury and municipal bond markets experience a strong correction sending rates higher on a year-to-date basis.
Municipal Secondary Trading: The final week of February saw a pick-up in secondary trading volume to $31.6 billion, the most active week we have seen this year. This large increase in trading volume was driven by the increase in treasury market yields and the corresponding cuts in MMD scale as many investors took advantage of the market’s volatility. According to the Bloomberg client bids-wanted totaled $3.97 billion for the week just above what the average bids-wanted we have seen this past year.
Municipal Spread: For the second straight week we saw yields rise as the Bloomberg benchmark 10-year notes rose an astounding 26.2 basis points for the week to 1.12%. This is one of the largest one-week increase in rates we have seen since last April when the COVID-19 virus wreaked havoc on the economy and the municipal market . With the increase in yields we did see a steepening of the yield (the spread between 1-30-year maturities) curve as it widened by 21.7 basis points to 166 basis points up from 149 one week ago. Even with this strong upward movement in overall rates municipal bond ratios continue to remain expensive relative to Treasuries as they are now 80.24% of Treasuries, compared to 64.15% a week ago and 68.24% a month ago.
According to Refinitiv Lipper US Fund Flows data municipal bond funds added about $38 million for the week as investors pulled back in adding to those funds just as markets had their steepest sell off since last April. Even with these modest gains, the largest funds such as BlackRock’s I-shares National Muni Bond ETF saw $221.4 million in outflows while Vanguard’s guard’s Tax-Exempt Bond Index ETF had $82 million in outflows for the week.
The municipal bond market had a rough February something not seen since last April as overall returns were down 1.36% this month, and roughly 0.73% for the year. While this is disappointing the worst, we have seen for the same two-month period was in 2018 where the market fell by 1.53%. This loss equates to roughly a loss of 75 basis points year-to-date performance.
This pull back had been anticipated, as we had observed muni-treasury ratios had hovered around the mid -30% which portfolio managers and investors knew was not sustainable in the long run, we were well overdue for a correction as we saw Treasury yields rise while municipal bonds yield increased in sympathy with the move in taxable rates.
Municipal Supply: The negotiated calendar for the first week on March will once again be very light with only $5.6 billion in negotiated sales. The largest deal scheduled to price is the $1.2 billion the New York City General Obligation issue, AmeriVet will be part of the syndicate for the issue. The next largest deals for the week will be mainly taxable issuance, The Bay Area Toll Authority of San Francisco Bay Area will be issuing $726 million in taxable and tax-exempt bonds, while the University of Chicago plans to issue $690.0 million in taxable bonds using a corporate CUSIP. Those issues are followed by the State of Ohio issuing $564 million in tax-exempt as well as a series of taxable bonds. One interesting note is that we will see a modest increase in supply, as the 30-day visible supply is now $12.1 billion comparted to $10.5 billion last week.