Weekly Muni Snapshot | 8 September 2020
Municipal New Issuance: The first week of September saw approximately $12 billion in negotiated issuance, the bulk of which came from 3 issues. The largest deal of the week was the $3.5 billion taxable State of Florida State Board of Administration Finance Corporation a deal that was upsized from $2.25 billion due to positive market conditions and strong investor demand. The State of California issued $2.6 billion in refunding debt which AmeriVet was a selling group member on. The New York Transportation Development Corporation issued $1.5 in revenue bonds for the Delta Airlines LaGuardia Airport Terminals C&D Redevelopment Projects. AmeriVet was also part of the underwriting group as a co-manager. All three issues saw huge demand, allowing the underwriters to increase the size of each issue as well as lowering the borrowing costs for each issuer.
Municipal Secondary Trading: Trading in the secondary markets was lighter than usual as investors and traders focused on the heavy slate of new issue deals going into the Labor Day weekend. Trading for the week totaled to roughly $25.7 billion compared to $30 billion the week prior. Bloomberg data reflected a lesser customer bids-wanted as many traders took off early for the Labor Day weekend holiday. Last week there was roughly $2.1 billion in bids-wanted compared to the week prior for $2.9 billion.
Municipal Spreads: Municipal bond yields rose slightly this week as the 10-year Bloomberg benchmark yield rose by 0.8 basis points to 0.813%. With the rise in municipal yields and the rally in the treasury markets the 10-year ratio is now 113.39 % compared to 111.18% a week ago, signaling that municipal bonds are continuing to be cheap from a relative value standpoint versus treasuries. With the pull back in yields we did see the yield curve steepen by 1.4 basis points to 146 basis points as long bond increased by 0.8 basis points while the short end remained unchanged.
Investors added roughly $139 million to municipal bond mutual funds marking the 17th straight week of market inflows as many investors continue to be bullish on the municipal market. If the Federal Reserve continues to keep its commitment to the Municipal Liquidity Facility, we expect cash inflows to continue, with consistent investment in the high yield funds as investors continue to seek more yield.
Last week, there was a slew of new debt issued by borrowers many of which that have struggled due to the economic slowdown caused by the pandemic. Underwriters experienced solid demand as many pricings were well over subscribed due to investors becoming more comfortable for riskier debt due to the record low rates. The Delta Airlines municipal backed issue saw its debt due in 2045 rise to over 5.8% from its initial price. The Chicago Transit Authority taxable issue also saw their long bonds increase in value from their initial offering price as they rose by over 9% from their initial offering. If the Federal Reserve continues to keep interest rates at or near their current levels we should continue to see the high yield sector and municipal bonds in general perform well going into the 4th quarter of the year.
Municipal Supply: With a holiday shortened week we are only expected to see roughly $6 billion in negotiated debt come the market. The largest issues of the week will be the State of Oregon Department of Transportation will also issue $807.2 million in debt. AmeriVet will be in the $100 million Department of Veterans Affairs of the State of California House Purchase as a Co-Senior.