Municipal New Issuance: Last week, the negotiated calendar had roughly $14.62 billion in new issues. The largest issues for the week were the $1.8 billion taxable Los Angeles California Community College District, followed by a $1.0 billion Los Angles California Unified School district tax-exempt issue. New York City Transitional Finance Authority issued a three-part deal totaling approximately $919.0 million, AmeriVet was part of the underwriting syndicate. AmeriVet acted as a Co-manager on the California State Public Works Board $502 million revenue bonds which was unique as it featured a forward delivery settlement of October 2021. Each of the largest deals for the week saw robust demand, as this allowed underwriters to lower yields by multiple basis points are reducing overall debt service for each issuer. Most issues saw large demand due to investors anticipating that the first of November will see light issuance due to it being election week.

Municipal Secondary Trading: The final week of trading for the month of October saw about $31.94 billion in secondary trading volume, down from the week prior of $38.87 billion as many investors decided to wait until after the election to make their investing decisions. We did see an increase of bids-wanted from investors as according to Bloomberg there was roughly $4.15 billion in bids-wanted that traded compared to $3.58 billion the week prior.

Municipal Spread: Municipal bond spreads for the week tightened reversing any losses the market experienced from the prior week, as yields on the Bloomberg benchmark 10-year fell by 1.4 basis points to 0.941%. The yields on the Bloomberg benchmark 30-year fell as well by 1.9 basis points to 1.78%. The Bloomberg 2-year benchmark yield rise by 2.3 basis points to 0.198% which help flatten the yield curve by 4.2 basis points to 159 basis points for the week. This dip in yields on the longer end municipal bonds was fueled partially by the drop in equities and with many moving to flight to quality in safer fixed income securities. Municipal bonds improved for the week as the 10 year is now yielding 107.54% compared to 113.15% the week prior.

For the fourth straight week investors added about $582 million to municipal-bond mutual funds according to Refinitiv Lipper US Fund Flows data, this follows the previous weeks inflow of $607 million. Over the course of the last 25 weeks we have only seen 1 week of outflows which was in the last week of September indicating investors are still seeing the relative value in municipal bond returns.

 

Since the beginning of the year we have been noting the increase of taxable municipal bond issuance, due to municipalities inability to advance refund their debt along with persistent low interest rates have allowed issuers to forego traditional tax-exempt route in favor for taxable bonds and still achieve significant debt service savings. Year to date the new-issue market for taxable bonds is roughly doubled that of what 2019 had and we are still expected to see more supply by the end the year. We have seen roughly $163 billion this year in taxable issuance that is including debt that were sold as a taxable corporate-backed municipal bond i.e. Colleges and Universities.

 

To round out of the rest of the year, we are expecting to see almost one-third of issuance be taxable bonds marking the largest volume of taxable municipal bond issuance since 2010 when Build America Bond issuance led to a record issuance of $149 billion. If we continue to see record low yields, we should expect issuers to continue to be more comfortable issuing taxable bonds, we should another record year for taxable issuance in 2021.

Another reason as to why may issuers are willing to issue taxable bonds is because they continue to be cheap compared to AA corporates of the same tenor. And with record low yields many investors are looking for a bargain. Since the beginning of September spreads of taxable municipal bonds and corporate bonds have gone in opposite directions with municipal taxable bonds widening by 16 basis points, while corporate bonds have tightened in that same period.

Municipal Supply. The first week of the month will have a very light calendar as many issuers will be waiting until after the election to issue. We are expected to see roughly around $475 million with the largest deal being the $130 million Maine Turnpike Authority Revenue bonds followed by a $ 96 million the City of Grand Island Nebraska Combined Utilities Revenue Refunding Bonds Taxable issue.