Municipal New Issuance:

Last week, US State and local governments were supposed to see about $9.4 billion of bonds, but with the coronavirus fears we only saw about $4.6 billion come to market with the largest deal coming from the State of California with $2 billion in bonds.

 

The State of California 10-year maturity was originally priced at 0.98 but was bumped to a 1.19 to adjust to the changes in MMD.  The 30-year bonds also had to adjust from a 2.23 to 2.42.

 

As we expected last week, we also saw several issuers postpone their deals as they are waiting to see where yields settle down in the coming weeks.  The most notable deals postponed were the Ohio Water Development Authority and the Illinois Finance Authority.

 

Municipal Secondary Trading:  Secondary trading in municipals was down as we saw investors sell more this week than purchase as the coronavirus continues to stifle the markets. We saw roughly $54 billion in trades, down from $67.2 billion a week prior.

 

We saw a surge in bid-wanted’s as investors started to raise cash which increased yields to the highest in recent years.  We saw investors offer $9.65 billion and increase of 45%.

Municipal Spreads:  Municipal spreads this week rose the most as the 10-year notes rose 68.9 basis points to 1.668%.  The massive sell-off on Thursday drove up 30-year yields by a record 51 basis points.  This sell-off was a dramatic about-face from what we have seen in the last couple of years as we saw investors take refuge in the stock market.  According to Bloomberg’s benchmark indexes the 30-year rose 1.38% on Monday and 2.32% on Thursday.  Spreads also continue to widen as many traders are questioning how long they would have to hold onto bonds which also drove volatility in the market.

The hardest hit were high yield funds with this dramatic reversal, as we saw the most recent Buckeye Tobacco settlement bonds trade on Thursday as little as $89.75 a 13% drop from the day ago.  Bonds backed by the highest quality were also hit as yields in the 10 year are now about 1.65%.

Ratios continued to increase as the 10-year is now yielding 189.33% of treasures, a reversal from a month ago as they were at 74.48% a month ago.  Spreads between short-term and long-term notes also rose sharply as it is now 1.21 up from 0.942 the previous week. Spreads for between the 1 year to 5 years also widened as it is now .81.

Municipal Supply: This week we will see roughly $6.04 billion in new issues, with New York State Urban Development Corp. selling $1.58 billion, Great Lakes Water Authority selling $706.7 million, Stanford Health Care with $524.4 million of a taxable deal, and Ohio Water Authority selling $450 million. This can all change as we have been seeing more and more issuers post-pone deal in lieu of the coronavirus outbreak as well as the volatility in the market.