Weekly Muni Snapshot | 21 December 2020
Municipal New Issuance: New issue supply remained strong into the third week of December and it will most likely be the last week of any significant size of negotiated issuance. We saw roughly $8 billion in negotiated sales for the week, the largest deals for the week were the $1.5 billion New York City General Obligation taxable issue, followed by the $800 million State of Connecticut G.O. issue which AmeriVet was a Co-Manager on. The Illinois Finance Authority also issued this week with $500 million in in tax-exempt green bonds which saw strong investor demand from both retail and institutional buyers. AmeriVet was also part of the syndicate for the New York City Health & Hospital $310 million tax-exempt issue, strong demand for the issue which allowed underwriters to lower rates across the scale. The State of Illinois decided to access the Federal Reserve bank for $2 billion loan at more favorable rates than the open market would have allowed for. This in all likelihood, will be the last State and Local government to tap the Municipal Liquidity Facility, as the program ends on December 31. One caveat being if the NY MTA gets the $4.5 billion of potential federal funds to help balance their 2021 budget.
Municipal Secondary Trading: Trading volume for the final full week of 2020 totaled approximately $29.4 billion down from the week prior of $36.70 billion. The majority of the trading was client buying with roughly 52% of that being from institutional investors. According to Bloomberg client bids-wanted totaled to about $3.7 billion which was up from the prior week of $2.9 billion.
Municipal Spread: Municipal yields for the week were relatively unchanged with the Bloomberg 10-year benchmark yield only rising by 0.5 basis points while the 30-year benchmark yield remained unchanged keeping the municipal bond curve constant from the prior week. Municipal bond performance continued to improve compared to Treasuries by having another strong week. When compared to Treasuries bonds maturing in 10 years are now yielding 72.98% of treasuries compared to 76.17% a week ago and 88.98% a month earlier as well.
Many investors along with investors had feared the worst for state and local governments as the pandemic has had a significant financial impact to many municipalities, but it has not as bad as many had predicted. Larger states such as California, New York and Connecticut revealed that they would have an increase in tax revenues via the stock market returns and being than expected tax receipts. California revealed this week that they were poised to see a windfall of around $26 billion. California said in May they would have a two-year $54 billion budget gap but have readjusted that figure to only $5 billion for 2021. The Stat of New York collected about $985 million in their first quarter of their fiscal year due to a record year for Wall Street.
Municipal bonds also benefited greatly this year due to low interest rates as investors have remained confident that the effects of the pandemic would lessen and business would return to normal. Some of the larger states like California, Michigan, and Pennsylvania are borrowing well below 1% in 10 years and some of the higher yielding states like Illinois are borrowing at 2.76% which is where high-grade borrowers borrowed two years ago.
Municipal Supply: The negotiated calendar for the week will be very light with only about $252.7 million coming to the market because of the Christmas Holiday coming at the end of the week many of the larger issuers will look to come into the market in the first few weeks of January 2021. The largest issue on the calendar for the week will be the $150 million Rancho Water District.