Municipal New Issuance:  Last week US State and local governments sold about $7.53 billion of bonds, with the most notable being the $829.4 billion California State University taxable deal, the $528.3 million New York City Water Finance Authority.  The New York City Water deal received enough demand that they increased the deal from $465 million to $528.3 million.

 

Municipal Secondary Trading: Trading in municipals dropped, as we saw institutional investors offered for sale $3.2 billion through bids-wanted lists this past week, down from $3.5 billion from the previous period. According to MSRB trading totaled roughly $31.5 billion, down from $51.5 billion the week prior.

 

According to Bloomberg institutional investors offered only $2.81 billion for sale via bid-wanted last week, down 12% from $3.2 billion from the prior week.

Municipal Spreads:   Last week Municipal bonds continued to lag treasuries as the 10-year yielded 76.515% of treasuries compared to 78.448% a week prior and 76.796% a month ago. Yields rose on the 10-yr benchmark notes to 1.237% an increase of 4.5 basis points.

 

The 10-year benchmark rose slightly to 1.21 up from a week prior of 1.18, but still down from a month ago of 1.36. With the low yield in the market investors are taking more risk and shifting their investments into high-yield municipals.  Since the beginning of 2020 investors have poured $713 million into high-yield municipal bond mutual funds, the second largest influx since 1992.

 

With the increase in the issuance of taxable municipals this has also caused yields in tax-exempt bonds to decrease even further as total issuance has been unable to keep up with demand.

Municipal Supply:  This week U.S state and local governments will sell roughly $9.6 billion in bonds next week with the most notable being the City of New York scheduled to sell $1.15 billion, the Grand Parkway Transportation Corp selling $1.51 billion and the State of Washington selling $800.4 million.

 

With the rally of treasuries this year, We have seen almost 35% of issuance being taxable bonds and we should continue to see this trend continue as municipalities cannot advance-refund their debt along with the low rates is giving the issuers a reason to use taxable municipal bonds.

 

With issuers continuing to issue taxable municipals one interesting thing to note is that out of the $143 billion of Build America bonds that is left outstanding, roughly 20% are currently callable in 2020.  If the issuers would choose to call these BAB’s, would add an additional $27 billion of supply this year.