Weekly Muni Snapshot | 25 January 2021
Municipal New Issuance: With the MLK holiday shortened week the negotiated municipal bond calendar had a decent size of $7.3 billion in issuance with the bulk of the size coming from two issues. Most of investor’s focus was directed on the two largest deals of the week, the $1.5 billion New Jersey Turnpike issuance that was broken up into a taxable piece of $950.0 million and the $550.0 million tax-exempt piece. The $1.3 billion New York & New Jersey Port Authority was the second largest issue and both pricings saw strong demand from investors. The New Jersey Turnpike taxable portion garnered the most attention as many investors seen positive new cash flows to begin the year and have seen driving overall demand for bonds as the calendar to begin 2021 has been light for the past few weeks. The taxable portion saw its bonds tighten by a few basis points from its initial offering and looks to trade even tighter from its initial trades.
Municipal Secondary Trading: For the third week of January, we saw about $20.7 billion in secondary trading with 55% of trades being dealer to client trading. With supply continuing to be low we expect to see continued demand from investors buying in the secondary market as well. Customer bids-wanted were down the week due to Martin Luther King Holiday, with only $2.25 billion in bids-wanted, the previous week we saw $2.9 billion in volume.
Municipal Spread: Municipal bond spreads for the week remained relatively unchanged as the Bloomberg 10-year muni benchmark yield only fell by 2 basis points to 0.747, breaking the 2-week streak of falling yields. With the small drop in yield municipals did improve compared to treasuries as they are now 68.85% of Treasuries compared to 70.75% a week prior. With the drop in yields the municipal bond curve did flatten by 1.9 basis points to 137 basis points, reversing course of where we had a steepening of the curve for the start of the new year.
New York MTA bonds have had wild ride these past 10 months with the Coronavirus pandemic wreaking havoc on the MTA’s finances as ridership dipped dramatically sending yields soaring to new highs not seen in years. Although the MTA is painting a grim picture and in dire need of additional federal aid, investors are continuing to hope that MTA ridership will rebound over the next 2 years and return to having a positive operational profile as it had prior to the pandemic. In December. Congress approved $4 billion in federal aid to help the MTA balance its 2021 budget but even with that level of support it was still far short of the $15 billion they need in order to not have significant service cuts. Judging by the way MTA bonds have been rallying in recent months and it is expected that they will get that federal aid that is greatly needed.
For the State of New York Governor Cuomo is expected to receive $6 billion in additional aid of which he will direct $5.2 billion to the MTA and along with President Biden’s municipal relief plan it is expected to give $20 billion to transit systems with the MTA is expected to get additional aid. Even with this additional funding they will still be short of what is needed to fill the budgetary gap but investors are still optimistic that they with this funding and improved ridership operations at the MTA will continue to recover.
Municipal Supply: The municipal bond calendar will again be very light this week with only $5.6 billion coming in the way of negotiated issuance with three deals making up almost half of the issuance. The main deals of the week will be $1 billion Texas Municipal Gas Acquisition and Supply Corp followed by the $664 million City of Los Angeles Department of Airports refunding bonds along with $560 million for the City of Chicago Board of Education issue. With the forward calendar being a manageable $10.5 billion we should continue to see investor demand to continue to drive positive price performance for bonds in both the secondary and primary markets. Back in November the forward calendar had around $16 billion coming in the next 30 days, and with only $10.5 billion in visible supply that is a significant drop off in issuance.