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Weekly Muni Snapshot | Apr 5, 2021

Municipal New Issuance: The negotiated calendar for last week was very light due to the Good Friday and Easter Holiday shortened week as many traders and investors took off for spring break. The total issuance was roughly $3.7 billion with about a third of the issuance coming from 3 issues. The three largest deals for the week were the $437 million taxable Golden State Tobacco Securitization deal which issued bonds maturing solely in 2038, followed by the $341 Washington State Convention Center issue, and by the $330 million San Antonio Electric and Gas Revenue bond financing. Another issue of note was the $250 million Pennsylvania Turnpike revenue bond deal. The Golden State Tobacco was interesting as a recent report theorized that cigarettes would become nearly completely gone in the next few decades. Despite the articles report, investors still showed strong interest in the issue as bonds are trading up over ½ a point in the secondary market.

Municipal Secondary Trading: With a shortened holiday week secondary trading was relatively light as many market participants took the week off. Secondary trading for the week totaled roughly $20 billion in volume with the majority of that activity being investors buying. According to Bloomberg, client’s bids-wanted totaled approximately $2.19 billion for the week down from the prior week of $3.13 billion.

Municipal Spread: Municipal bonds remained relatively unchanged for the week as the Bloomberg 10-year benchmark held firm at 1.071%. The short end of the curve saw yields fall by falling by .02 basis points while the long end of the curve fell by .01 basis point to 1.793%. Solid investor demand along with a more stable Treasury market helped overall performance for the week. With this modest move the municipal bond curve remained steady at 165 basis points. Although, municipal bonds remained mostly unchanged for the week ratios did improve when compared to Treasuries as they are now yielding 63.90% compared to 65.46 a week ago versus 79.14% just one month ago.

Last week President Joe Biden unveiled his $2.25 trillion infrastructure plan which would raise the business income tax to 28% from 21% which if enacted will partially rolled the cuts that were signed into law by then President Trump back in 2017. With those changes municipal bonds became less attractive for banks and insurance companies as the tax decrease made buying taxable bonds a better value for their portfolios. Banks reduced their tax-exempt holdings by more than $100 billion through September 2019 and property and casualty insurers reduced their exposure by $39 billion since the end of 2017.

Even without the new increase in taxes municipal bonds have outperformed this year only losing 0.3% compared to a negative return of 4% that Treasuries have had this year. Th is due in part as a result of the $350 billion of aid the Biden administration has provided to states and local governments. President Biden has proposed an increase in taxes to the highest-earning individuals which should increase demand for tax-exempt municipal bonds. It is still unclear how much lower municipal bond yields can go as they are near all-time historical lows and are yielding around 62% of Treasuries. This is not far off the two-decade low we hit back in February which signals that municipals are unusually expensive compared to other fixed income securities.

Municipal Supply: The negotiated calendar for this week will pick up as we are expected to see roughly $6.3 billion in issuance. The largest deal of the week will the $1.3 billion taxable Novant Health Obligated Group Series 2021A bonds that will be using a corporate CUSIP. The next largest deal of the week will be the $674 million Iowa Tobacco Settlement Authority bonds consisting of refunding bonds as well as tax-exempt and taxable bonds. Miami-Dade County Water and Sewer System will be issuing $622 million in revenue bonds and Massachusetts Bay Transportation Authority will issue $598 million in refunding bonds.