Municipal New Issuance: The negotiated new Issue calendar for the first week of February had just over $ 5.8 billion in negotiated issuance. The two largest deals for the week in which AmeriVet was part of the Syndicate were the $1.1 billion Nassau County Interim Finance Authority taxable and tax-exempt sales tax secured bonds, and the $990 million New York City Transitional Finance Authority. Both Issues did see large demand as yields tighten slightly on the shorter end even as municipal bond yields rose for the week.

Municipal Secondary Trading: Secondary trading for the week totaled to around $27.6 billion for the first week of February, just around what we have been averaging for the past few weeks as many were focused on the new issue calendar due to scarcity of new bonds. According the Bloomberg, client bids-wanted totaled to around $2.88 billion for the week.

Municipal Spread: Municipal bond spreads for the week remained relatively unchanged for the week as the 10- year Bloomberg benchmark yield rising by only .5 basis points to .705%. Despite this small rise in yields municipal bonds continue to improve compared to Treasuries, as the 10-year municipal bonds are now yielding 60.36% of Treasuries making municipal bonds the most expensive compared to Treasuries since 2001 when they started to keep track of muni ratios. The municipal bond curve did steep this week by 1.6 basis points to 135 basis points.

For the 13^th straight week municipal bond mutual funds saw inflows showing that there is still a demand for municipal bond even as they have become more expensive than Treasury bonds of the same maturity. We saw about $1.58 billion on inflows increasing the 13-week streak of increase to $28.9 billion as well as adding $14.1 billion to those funds’ year to date.

 

States in local governments have had a tumultuous 2020 as they have had to run up debt to cover their budget deficits due to the pandemic related shutdowns. Many states and cities have had to turn to the municipal-bond market to soften the blow from the lack of tax collection. This surge in issuance contributed to a record-setting year in debt sales and according to Municipal Market Analytics at least one quarter of the states and local government sales over $100 million included some element of deficit financing in the second half of 2020.

 

With the severe economic slowdown last year as well as steep drop-in interest rates it has made issuing more debt a better option than cutting spending due to the pandemic. New Jersey did that by issuing $3.7 billion of bonds to east the tax-revenue shortfalls, and Illinois tapped the Federal Reserve emergency credit line. Fortunately, the budget deficits haven’t been as severe as many have anticipated but with these low interest rates coupled with the Democrats controlling Congress, states and cities are likely to get increase aid in the next stimulus package.

Municipal Supply: The municipal bond calendar continues to be light for second week of February with only about $5.6 billion in negotiated sales with over half of the issuance being taxable. The two largest deals for the week will be the $716 million taxable Tennessee State School Bond authority issue, followed by the $507 million New York City Industrial Development Agency. With 30-day visible supply still being very light we should still expect to see large demand for new bonds regardless of the price.