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Weekly Muni Snapshot | August 23, 2021

Municipal New Issuance: Last week’s negotiated calendar total volume was $10.7 billion as many issuers wanted to take advantage of the historically low level of rates as the possibility that rates will increase as the Fed has indicated it will begin tapering asset purchases sooner than expected. The largest deal of the week which saw strong interest among investors and traders was the $1.2 billion New York State Liberty Development Corporation Green Bond issue. The next largest deal of the week was the $1.0 billion New York City General Obligation which AmeriVet was part of the syndicate. In addition, NYC also issued $250 million of taxable securities via a competitive bid which saw aggressive bids from multiple syndicates. One interesting note regarding New York City GO bonds is that bonds maturing in 2031 with a 5% coupon sold at a yield of 1.16% or just 27 basis points over MMD scale which is significantly tighter than when they issued in August 2020. The 10-year bond sold at a 73-basis point spread with a yield of 1.45%, showing how rates have tightened during this past year.

Municipal Secondary Trading: Secondary trading for the week totaled $19.64 billion and with August and the summer winding down we expect to see lighter volume again this week as traders and investors take off the last few weeks of the month. Although trading volume was light, customers did put out $2.6 billion in bonds for the bid this week which is up from the prior week’s total of $2.03 billion.

Municipal Spread: Municipal bonds had a very quiet week as the 10-year benchmark fell by 0.4 basis points to 0.908% down from 0.912% a week ago.  Even with this modest movement in rates, the municipal bond curve flattened slightly to 145 basis points, a flattening. With municipals prices remaining stagnant for the week, the sector did underperform compared to Treasury’s as the ratio is now yielding 72.408% of Treasuries compared to 71.36% a week ago.

Investors continue to pour money into municipal-bond funds as those funds saw a weekly cash inflow of $1.83 billion with $389 million going to high yield funds, this marks the 24th straight weekly gain according to Refinitiv Lipper US Fund Flows Data. Investors have added $64.6 billion to municipal bond funds year-to-date, the most on record compared to prior years totals. Nuveen this week said it will close its high-yield municipal bond fund to new investors due to massive influx of cash, as the pace of new debt sales has not kept up with investor demand. High-yield funds have struggled to find value as rates have remained low and credit spreads have dramatically tightened as more investors compete for new bonds. Year-to-date investors have added nearly $17 billion to high yield funds but with the closing of Nuveen’s fund and Invesco closing theirs earlier this year, new money to high yield funds should slow down once again.

With the influx of cash and the level of the Federal Government stimulus program many money managers have struggled to find bonds to buy, and the scarcity of supply could last for a few more years if new issue debt issuance continues to lag demand. According to Bloomberg data, 21% of outstanding debt expecting to mature or be called in 2024 and that will increase to 31% in 2026. In addition, bond holders will look to reinvest their principal and interest payments and we expect demand will continue to outpace new sales of debt. With the federal infrastructure bill almost in place that should help drive new issue debt sales, but it is still unclear as to if it will be enough to keep up with demand.

Municipal Supply: As we enter the final full week of August and the summer, the municipal negotiated calendar’s expected volume will total approximately $6.25 billion as many issuers are anticipating that many investors will be on vacation lessening demand, and they should wait until September to issue. There will only be one borrower that will issue over $500 million in debt this week that being the Pennsylvania Turnpike Commission which is expected to issue $600 million in refunding bonds. AmeriVet will be participating in one deal this week and it will be the $200 million New York City Housing Development Corporation Revenue bonds term bonds due in 2051.