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Weekly Muni Snapshot | 10 August 2020

Municipal New Issuance: For the first week of August there was about $7.3 billion in negotiated issuance with the largest being a $995 million State of Hawaii taxable general obligation for the use of school improvements as well as university and college improvements. Long Island Power Authority brought the largest tax-exempt deal by issuing $507 million in revenue bonds they also issued $113 million in taxable revenue bonds. Rutgers University also issued $221 million in taxable bonds continuing the trend of colleges and universities issuing taxable debt.

Municipal Secondary Trading: Secondary trading for the first week on August was noticeably light as we only saw about $27.63 billion compared to $33.85 billion in secondary trading in the last week of July. Secondary trading volume should continue to be light as many traders will start to take their vacation time. Bids-wanted remained relatively unchanged with traders only seeing about $1.67 billion last week compared to seeing $1.95 billion the week prior.

Municipal Spreads: Yields in municipal bonds continue to fall as we inch closer to negative yields as the Bloomberg 2-year benchmark yield closed at an all-time low of 0.094% on Friday. The Bloomberg 10-year benchmark fell 8.9 basis points to an all-time low as well of 0.54%. It will be interesting to see what will happen once the 10-year hits 0.5% as it appears to be an indicator to see if investors will continue to pile money into municipal funds or pull back until yields return to nominal levels. With this nice rally municipal bonds lead treasuries for the first time since mid-July and are now consider rich versus treasuries as they are now yielding 98.938% of Treasuries compared to 105.40% a week ago. The yield curve once again flattened as the longer end fell by 10.3 basis points compared to the shorter end only falling by 3 basis points.

With municipal bonds continue to rally since their March free fall due to the coronavirus pandemic. Taxable municipal bonds have outpaced tax-exempt bonds by returning over 10% so far in 2020 and have outpaced tax-exempt municipals by 600 basis points and have beaten corporate credits who have only returned 8.7% this year. With the relative cheapness of taxable municipals verses corporates, this should draw in more crossover buyers and continue to contribute to further positive returns.

Since March, municipal bonds have experienced a long rally and record returns their yields still are higher than corporate bonds with similar ratings and duration. On a relative value basis taxable municipal bonds appear to return a higher yield when comparing to other risk options such as, tax-exempt municipals, corporates, and treasuries with 10-year maturities.

*Note AA Rated Bonds

Municipal Supply: Supply for the week will be up from the previous week and we are expected to see around $8.72 new issues on the negotiated side. The largest deal of the week will the $ 1.37 billion Los Angeles County Metropolitan Transportation authority green bonds, followed by a $1.2 billion Sand Diego Unified School District. There will be a $750 million New York and Presbyterian Hospital taxable deal. AmeriVet will also be part of the syndicate for the $461 million New York City Housing Development Corp.