Weekly Muni Snapshot | June 1, 2021
Municipal New Issuance: The negotiated calendar for the final week of May was very light again as we approached the Memorial Day holiday weekend. The calendar totaled just slightly over $6 billion, with the largest deal being the $784 million Washington DC Metropolitan Area Transit Authority green bonds. The next largest deal for the week was the $266 million University of Nebraska revenue bonds.
Municipal Secondary Trading: Heading into the Memorial Day weekend holiday, secondary trading was very light with approximately $21.4 billion in secondary trading for the week with about 58% of those trades being clients buying. Most of the trading was done at the beginning of the week. As with secondary trading, client bids-wanted were light as well. According to Bloomberg clients put out just $2.23 billion for the bid which was down from the previous week’s total of $2.70 billion.
Municipal Spread: Municipal bond prices improved slightly for the week, as the 10-year Bloomberg benchmark fell by just 1.8 basis points to 0.973%. With the small drop in yields, municipal bonds did outperform Treasuries again for the week as bonds maturing in 10 years are now yielding 60.96% of treasures besting a week ago of 61.1% but modestly higher than a month ago where the ratio stood at 58.26%. With the drop in yields, we did see the municipal bond curve flatten by 4.2 basis points to 148 basis points.
For the 12th straight week, investors invested new cash to municipal-bond mutual funds by adding about $1.47 billion across intermediate, high grade and high yield funds according to Refinitiv Lipper US Fund Flows data. This follows the previous week’s inflow of $725 million to those funds. Year-to-date fund inflows total over $34 billion which continues to show that investors still have an appetite for tax-exempt bonds even as yields are near their all-time lows. The prospects for an improving economy and the prospects for higher income and capital gains taxes are helping to drive that demand.
Since the beginning of 2021 municipal bond dealers’ have increased inventory positions as they have slowly gained confidence in the stability and investor demand for municipal bonds. Market makers and hedge funds that trade bonds have been adding more bonds into their inventory as they have supported the strong investor’s appetite for municipal bonds. In recent months dealers have been adding more credit risk to their holdings as investors have been clamoring for bonds as supply has been very scarce. Demand for bonds is expected to remain elevated as roughly $122 billion of principal is maturing between June and August and will be returned to investors for re-investment. With the 30-day visible supply being just $10.7 billion we expect to see demand outpace supply. This confidence in the municipal bond markets has been slowly building up since the Federal Reserve intervened to prevent a liquidity crisis which helped close any potential deficits for states and cities.
Municipal Supply: We will have a very light negotiated calendar this week due to the Memorial Day holiday on Monday. We are only expected to see a volume of just $4 billion with the largest being the $649 million Metropolitan Washing Airport refunding bonds. The Michigan State Housing Development Authority will be issuing $311 million in revenue bonds that will consist of non-amt bonds as well as taxable bonds. The current 30-day visible supply currently stands at just $7.79 billion which is the lowest since February, which could drive up demand for new bonds as well as move yields even lower.