Weekly Muni Snapshot | May 3, 2021
Municipal New Issuance: The negotiated calendar for the final week of April totaled a modest $4.6 billion with one deal making up almost a third of the total calendar. That deal was the $1.47 billion New Jersey Transportation Trust Fund Authority’s issue which consisted of 3 separate parts all of which were tax-exempt bonds. The financing was well-received as underwriters reduced yields from their original pricing levels as all 3 series were well oversubscribed. Another notable deal for the week was the $351 million Massachusetts Clean Water Trust issue which included green bonds as well as sustainability bonds, AmeriVet was a part of the syndicate on this issue.
Municipal Secondary Trading: Secondary trading for the final week totaled $26.1 billion, down significantly from the prior week’s total of $36.4 billion. Even as yields remain near their all-time low’s investors continue to find value in purchasing municipal bonds as 56% of this week’s trading came from customers buying bonds from dealers. According to Bloomberg, customers bids-wanted totaled roughly $3.1 billion for the week, above last week’s number of $2.3 billion.
Municipal Spread: For the first time in a few weeks municipal bond yields rose as the 10-year Bloomberg benchmark increased by 4.8 basis points to 0.973% from 0.925% a week ago but are still below last month’s 1.079% level. Although, yields rose for the week municipal bonds still outperformed Treasuries as the ratios for the benchmark 10-year is now yielding 59.95% compared to 59.30% from the prior week showing that although yields have been rising, investors still remain positive in owning municipal bonds versus other fixed income products especially in-light of President Biden’s proposed tax increases. With the rise in yields, we did see the municipal bond curve steepen to 155 basis points an increase of 1.5 basis points from the prior week.
Municipal bond mutual funds continue to see investors add new money into their funds with $1.64 billion coming in this week according to Refinitiv Lipper US Fund Flows data. This follows last week’s inflow of $1.89 billion gain and marks the 8th straight week of weekly gains. So far investors have added $33.6 billion to muni funds year-to-date a far cry from where we saw investors leave those same funds over a year ago.
With more and more Americans become vaccinated, many are planning on traveling this summer as they have been working and sheltering at home and unable to travel for over a year. With more and more people traveling by plane, airport bonds have seen the positive effects as trading and pricing levels are rallying back to pre-pandemic spread levels. Airport bonds were one of the hardest-hit sectors in 2020 the pandemic impacted global travel. At the height of the market downturn yield levels increased by as much as 350 basis points. Currently, general airport bonds 30-year bonds are trading at just 1.2% or about 30 basis points more than the market’s benchmark. In early April approximately 1.58 million passengers traveled through airports which are about 68% of the average during the same month in 2019. The increased passenger loads have helped to lift pricing evaluations for bonds of many of the larger airports. For example, Orlando, Florida Airport saw bonds maturing in 8 years saw yields drop to 1.2% from mid-March level of 1.84%.
Last month Moody’s gave a credit boost to the airport sector as they improved the outlook on outstanding debt to stable from negative citing stronger passenger levels and the impact of federal stimulus measures. Airports received an additional $8 billion from the American Rescue Plan, on top of the $12 billion they received back in 2020.
Municipal Supply: The first week of May we are expected to see roughly $6.9 billion in negotiated issuance with the largest deal being the $851 million North Texas Tollway Authority issue which will consist of second-tier refunding bonds and will include both taxable and tax-exempt bonds. Washington State Housing Finance Commission will be issuing $571 million in bonds to help make homeownership more affordable in their state. The next largest deal which AmeriVet will be a co-manager on will be the $440 million State of California Department of Water Resources which will include taxable bonds and tax-exempt bonds. With the 30-day visible supply up being $11 billion this should help demand for municipal bonds and many continue to seek a safe haven for the possibility of tax increases as well as municipals have been outperforming other fixed-income securities.