Weekly Muni Snapshot | 16 November 2020
Municipal New Issuance: Last week’s negotiated calendar had expected to be approximately $4.1 billion but was reduced to $2.7 billion as some issuers may have decided to hold off issuing as the Veteran’s Day holiday fell on a Wednesday normally a big pricing day. The largest negotiated deals for the week were the $424.0 million State of Louisiana revenue bonds issued in 3 series of a Mandatory Tender structure followed by the California Earthquake Authorities $300 million taxable issue that AmeriVet participated a Co-Manager. The $3.2 billion Brightline Passenger Rail project is still listed as day to day as it is continuing to struggle to find the right investors to participate.
Municipal Secondary Trading: The 2nd week of November saw a decrease in secondary trading as banks and bond markets were closed on Wednesday for the Veterans day holiday. For the week we saw roughly $22.2 billion in trading down from $31.9 billion the week prior, with the majority of the trading coming from dealers selling to clients. Customer’s bids-wanted were also down for the week with $2.0 billion in bids-wanted compared to $4.15 billion the week prior.
Municipal Spread: Municipal bond spreads for the week saw increased volatility as many investors sold their municipal bonds after encouraging news regarding a coronavirus vaccine developed by Pfizer and BioNTech caused yields to rise as much as 4 basis points on the Bloomberg 10-year benchmark early on in the week then settling down to only fall by 0.4 basis points to 0.83%. Although, we did see a rise in rates, municipal bond ratios did improve verses treasuries as they are yielding 92.93% comparted to 100.49% a week ago. This was due to treasury yields rising much more than municipal bonds due to the “risk on” move as investors reduced their exposure out of the safe haven of bonds and into equities. One bond that we did see some benefit from the vaccine news was the Delta Airlines debt as we did see them trade as much as 2 points higher on the news. The municipal bond curve continues to flatten as the gap between the short end and the long end flattened by 0.3 basis point to 146 basis points, 1 month ago it was at 162 basis points.
Investors added roughly $1.2 billion to municipal-bond mutual funds during the week that ended Wednesday according to Refinitiv Lipper US Fund Flows data. This inflow reverses the previous weeks outflow of $954 million in the run up to the election results. One interesting note is that BlackRock’s largest municipal-bond ETF saw recorded $231.1 million of inflows on Thursday which was the largest level of new investment dollars since it was launched in 2007. This continuation of inflows continues to be a surprise to many as there are still several uncertainties coming from the uptick in coronavirus cases throughout the country as well as what new tax laws will be next year. Just to give some more clarity of how far we have come in regards to municipal bond flows, back in March when the coronavirus pandemic started municipal funds lost all most $30 billion in a few weeks.
Municipal Supply. This week’s negotiated calendar will have roughly $9.8 billion in new issues. The largest deal of the week will be $3.72 billion State of New Jersey Covid-19 General Obligation Emergency Bonds. The State of New Jersey issue will be closely watched by investors as it is their first deal since being downgraded as well as being one the largest deals to come in recent years. The Commonwealth of Massachusetts will be issuing $1.361 billion of refunding bonds which will include taxable bonds and tax-exempt bonds, AmeriVet will be part of the syndicate that will have Morgan Stanley as the lead manager. The State of Hawaii which was also recently downgraded will be issuing $242 million in revenue bonds in both taxable and tax-exempt bonds. With the increase in new cases of Coronavirus across the nation it will be interesting to see if we see any slowdown in new issuance like we had back in March and April.