Weekly Muni Snapshot | 27 July 2020
Municipal New Issuance: New Issuance for the week totaled approximately $7.9 billion in debt with the largest deal being the $500 million State of Mississippi taxable bond deal used for advanced refunding purposes. Dallas Fort Worth International Airport issued tax-exempt bonds that totaled $459.5 million in current refunding notes. Auburn University also continued the recent trend of colleges and universities of issuing both new money and refunding bonds by issuing $300 million in taxable debt. All three deals were well received and were trading well in the secondary.
Municipal Secondary Trading: Secondary trading was down last week as traders and portfolio managers were waiting to see if the Republican stimulus proposal will continue to assist states and local governments offset the loss of tax revenues. For the week trading volume totaled roughly $28.7 billion i compared to over $47 billion the week prior. We did see a slight increase in bids-wanted last week, as institutional investors put roughly $2.4 billion up for the bid compared to $2.3 billion the week prior.
Municipal Spreads: Municipal performance continued to improve last week as the Bloomberg 10-year benchmark yield fell 4.5 basis points to 0.70%. This is the second week of improvement as yields continue to fall even as many states and municipalities continue to say they will have significant budget shortfalls. Even with this rally the, 10-year tax exempt benchmark under-performed treasuries last week as municipals are yielding 120.07% of the comparable 10-year treasury benchmark compared to 118.82% a week ago. We did see the municipal curve flatten slightly by 2 basis points to 135 basis points due to the Bloomberg 30-year benchmark falling by 5.7 basis points while the Bloomberg 2-year benchmark fell by only 3.7 basis points.
Municipal bond mutual funds had inflows for the 11th straight week as they added $2.1 billion this week. This weekly inflow marked the first time that net flows for the year turned positive since March where investors pulled over $25 billion from those funds amid the coronavirus pandemic. Since the record outflows the Federal reserve had to intervene to prevent a liquidity crisis among municipal investors which has sparked a rally.
As we get closer to September the one question on every parent’s minds as well as students is, will the colleges and universities hold in-person instruction. Having students on campus have a significant impact on the local communities as those rely heavily on restaurants, bars and retail stores which have been greatly impacted from the coronavirus pandemic. Many cities and counties that house large universities are seeing higher rates of unemployment due to the lack of students being back on campus, with some seeing the unemployment rate being a full percentage point higher than the average unemployment in the state. For instance, Arizona’s unemployment is about 10% the county where Northern Arizona University campus is on is at 11%. As a result of the COVID-19 issues, many colleges and universities have scaled back or delayed their reopening’s as they review and plan for multiple class options. These changes have led many higher education bonds to price and trade at wider spreads and bonds in where these facilities are located are trading wider spreads as well.
Municipal Supply: For the final week of July we expect to see a lower amount of issuance on the negotiated side. The negotiated calendar has a slate of approximately $6.8 billion in new debt compared to the $7.9 billion, we saw a week ago. The largest deals of the week will be the Dallas Fort Worth International Airport $1.4 billion of taxable revenue refunding bonds. The authority also did a tax-exempt deal last week so it would interesting to see if they can have a repeat of performance on demand on their tax-exempt bonds. The State of California Department of Water Resources is also scheduled to sell $1.1 billion of taxable and tax-exempt debt. The City of Phoenix Arizona Excise Tax Revenue will also issue about $405 million in debt.