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Weekly Muni Snapshot | May 17, 2021

Municipal New Issuance: The second week of May saw a negotiated calendar with roughly $5.2 billion in new issues, down from the prior week’s amount of $6.7 billion. The largest deal of the week was the $730 million Washington State Energy Norwest Electric Revenue bonds., which consisted of 5 different series of bonds. The next largest deal was the Dormitory Authority of the State of New York which issued $450 million in revenue bonds including four series of tax-exempt bonds and one series of taxable debt.

Municipal Secondary Trading: Secondary trading volume for the totaled approximately $26.9 billion, with most of the trading coming from investors purchasing from dealers. Investors continue to find value in the secondary market bonds as 56% of the trades came from investors buying from dealers. According to Bloomberg, customers bids-wanted totaled roughly $3.67 billion for the week slightly above the weekly average we have seen this year.

Municipal Spread: Yields rose slightly this week in sympathy to a weaker Treasury market, but investors are continuing to support aggressive pricing and trading levels for tax-exempt bonds. The Bloomberg 10-year muni benchmark yield rose by 4.6 basis points to 0.991% up from the prior week of 0.945%. With yields rising this week, municipals did underperform Treasuries as 10-year municipal bonds are now yielding 60.649%, compared to 59.85% a week ago. One interesting note is that the ratio on 30-year municipal bonds hit a record low on Thursday which was 68.4% of Treasuries, indicating that municipal bond valuations are at a record high against Treasuries.

For the 10th straight week, municipal bond mutual funds saw investors add to those funds according to Refinitiv Lipper US Fund Flows Data. Investors added about $750 million of new cash into intermediate, long-term, and high yield funds during the week ended Wednesday. This is a continuing sign that many investors are still finding value in tax-exempt bonds as the prospects for a recovering economy and higher taxes even though drive their interest even as valuations are at or near their all-time highs.

Since April 2020, municipals have performed strongly compared to Treasuries as the muni-to-US Treasury ratio has been at or near their all-time lows showing that municipal bonds are still favorable compared to Treasuries even as yields are at or near all-time lows. This goes for not just AAA rated bonds but also for AA and A rated tax-backed and revenue back bonds compared to their corporate bond counterparts. As of this week, A rated tax-exempt revenue bonds compared to A rated corporate bonds on the longer end of the curve currently hold the least relative value with a current ratio of 55% which is about 20 ratios below average.

*as of 5/12/21

Municipal Supply: This week we will see a slight increase in negotiated issuance from last week. The Negotiated calendar is expected to be roughly $6.7 billion, with the largest deal of the week being the $700 million State of Connecticut’s multiple series of debt issuance, AmeriVet is a co-manager on the issue. The next two largest deals for the week include the $500 million State of Colorado COP issue and the $317 City of Phoenix, AZ Civic Improvement bonds.