Weekly Muni Snapshot | 22 February 2021
Municipal New Issuance: With Presidents Day holiday being this past Monday the negotiated new issue calendar was lower for week and totaled approximately $5.1 billion in pricings with the largest deals being mainly taxable issues. The largest deals of the week were $834 million Regional Transportation District of Colorado taxable and tax-exempt Climate and Certified Green bonds, followed by the $685 million City of Tucson Arizona COP taxable issue.
Municipal Secondary Trading: The third week of February saw secondary trading totaling $22.7 billion in volume down slightly from previous weeks due to the holiday shortened week. Secondary trading continues to be very light as investors focus on putting new money as well as reinvesting maturing and called bond proceeds to work and are finding more opportunities to do so in the new issue markets. According to the Bloomberg client bids-wanted totaled $3.2 billion for the week.
Municipal Spread: Municipal market performance weakened first time in a few months, as we saw a large increase in yields as the Bloomberg 10-year benchmark rose 17.7 basis points to 0.86%. With the rise in rates, we did see municipal bonds lag Treasuries as they are now yielding 62.56% of Treasuries up from 56.32% a week ago. We also saw the municipal bond curve steepen by 12 basis points to 144 basis points the largest steepening of the curve we have seen in past few months.
For the 15th straight week municipal bonds saw investors adding $2 billion in new cash extending the push into state and local tax-exempt and taxable debt which has driven their bonds to record high valuations. These new inflows mark the 4th largest on record and follows last week’s gains of $2.6 billion according to Refinitiv Lipper US Fund Flows. This increase of inflows coupled with reduced new issue supply has helped to push yields to their lowest in decades and keeping municipal bond returns to their most expensive on record compared to Treasuries with similar maturities.
Since March 2020 municipal bonds prices have risen to a point where the tax breaks investors seek in municipal bonds have been virtually eliminated. Reviewing the top rated 5-year municipal bonds they are currently yielding around 0.34% of treasuries which is about 40% of what they were a year ago. With the tax-exemption factored in that would come to about 0.45% which less than what treasuries are currently yielding. With the tax-advantage all but gone many money managers are now focusing on investing in taxable bonds as the after-tax returns provide better value for investors.
Municipal Supply: The negotiated calendar for this week will see an increase this week with around $8.5 billion currently scheduled to be priced. Although it is a large increase from prior weeks, it is mainly due to one large issue as the University of California will be issuing $3 billion in taxable and tax-exempt bonds. Other large issues include the New York City Municipal Water authority issue $523 million in revenue bonds where AmeriVet will be part of the syndicate. AmeriVet will also part of the syndicate for the New York City Housing Development Corp $393 million taxable and tax-exempt issue.