Weekly Muni Snapshot | 17 August 2020

Municipal New Issuance: For the second week of August there was approximately $7.0 billion in negotiated new issues with the largest being the $1.35 billion Los Angeles County Metropolitan Transportation Authority green bonds, followed by a $773 million San Diego Unified School District. Lehigh University also brought a $170 million taxable bond deal using a corporate cusip. The LA Metro financing was their largest deal ever as they took advantage of the historically low rates, despite the system having record lows in ridership. The issue was very well received as it was repriced after its initial sale as investors’ confidence continues due to the Federal Reserve’s market interventions which is helping to prevent a liquidity crisis.

Municipal Secondary Trading: Municipal yields rose last week investors took advantage of the large new issue calendar as underwriters priced deals to attract a broad range both retail and institutional interest. Trading for the week was down as the secondary trade volume was only about $25.7 billion compared to $27.63 billion the prior week. With yields rising last week we did see an increase in bids- wanted from investors. According to Bloomberg Investors put roughly $3.4 billion up for the bid last week compared to $1.97 billion in the first week of August.

Municipal Spreads: Municipal spreads for the week widen as yields as the 10-year tested 0.50% for the first time, but pulled back before they reached those levels. 10 year yields at a 0.50% appears to be the current resistance level for many investors are willing to put money to work for top-rated bonds. Although, yields rose for the week they still fared better than treasuries as the 10-year Bloomberg Benchmark 10-year is now yielding 90.59% of treasuries compared 98.938% a week ago. The 10-year benchmark notes did rise by 8.6 basis points to 0.645%. With the rise in yields we also noted the municipal bond curve steepened by 2.9 basis points to 128 basis points as the long end rose by 7.8 basis points compared to only 4.9 basis points on the short end.

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With the 10- year yields hitting their lowest in decades, the valuation on municipal bonds have finally surged back to their pre-pandemic highs versus treasuries. Yields on AAA 10-year bonds have dropped to 87.5% verses treasuries last week, which is the lowest since March 2^nd.The following week the pandemic forced massive shutdowns which sent ratios to a record high of 365% on March 23^rd. Even with the rise in yields municipal investors continued to pour money into municipal bond funds as investors added about $2.3 billion into those funds marking the 14^th straight week on inflows.

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