Weekly Muni Snapshot | 29 June 2020
Municipal New Issuance: In the final full week of June the municipal market saw about $8.1 billion in new issues, an increase of what we initially expected of $6.1 billion as many deals were upsized do to demand. The largest deal of the week was the $1.4 billion Commonwealth of Massachusetts General Obligation taxable and tax-exempt deal that AmeriVet was a part of the selling group. The deal was originally supposed to be about $1.1 billion but with demand for the tax-exempt it was increased. Despite being increased they did cheapen the deal by 2-4 basis points on some of the maturities.
Municipal Secondary Trading: Secondary trading was down last week as we only saw about $27.41 billion in trades compared to $42.39 billion. We did see a slight drop in bid-wanted as we saw about $ 2.47 billion last week, compared to $2.90 billion the week before. With a holiday week coming up we should expect trading to be light this week.
Municipal Spreads: Municipal yields for the week remained relatively flat as the 10-year benchmark only rose about 1 basis-point to 0.855%. Although municipal bonds had very little movement this week, they lagged treasuries as many investors sold off on equities flocked to higher quality paper due to an increase of coronavirus hot spots all across the country. Municipals are now yielding around 133.80% of treasuries versus 121.72% a week ago. The municipal curve did flatten slightly by about 0.3 basis points to 144 basis points as the longer end remained relatively flat for the week.
For the seventh straight week was saw investors add to municipals funds as demand continues as many are seeking a safe haven from the stock market volatility. According to Refinitiv Lipper US Fund Flows we saw investors add $1.47 billion to municipal mutual funds fueling demand for bonds as in the coming months we should expect principal and interest payments to come coupled with new issue amounts being less than principal and interest payments we expect to see an increase in trading.
One thing that has been the talk to the town this year is taxable municipal bonds, as according to the Bloomberg Barclays Taxable Municipal Bond Index (BTMNTR Index) they have returned about 6.83% so far in 2020 and is outpacing tax-exempt returns by about 500 basis-points and have beaten AA- BBB Corporate credits. As taxable municipal bonds have tightened significantly this year, they are still cheap versus AA and A corporate bonds, as corporates have tightened significantly as the Federal Reserve has said they will start to purchase corporate debt. Since March taxable municipals have tightened only 63 basis-points while has corporate debt has tightened nearly by double that amount. As the thirst for taxable municipals has increase so has the issuances taxable bonds have accounted for over a third of its new issues for the month of June.
Municipal Supply: With a holiday shortened week, we are still expected to see about $7.0 billion of issuance from states and local governments. Roughly half of the issuance coming from 3 deals the $1.2 billion County of Los Angeles Note deal which will be run by JP Morgan, The Port Authority of New York and New Jersey will also issue $1.1 billion taxable notes deal run by Citigroup, and Massachusetts Building Authority will also issue $1.1 billion taxable refunding deal also run by Citigroup. Most of the deals will be priced early in the week, and will most likely wrap up by mid-week.