Post on 07-Mar-2021
Municipal Market Update
***INSTITUTIONAL USE ONLY***
Ramirez Municipal Strategy
Page 1 March 1, 2021
Markets last week took direction from Treasuries, which sold off sharply on inflation fears as economic data surprised to the upside, fiscal stim-ulus appears assured, and there was no significant negative catalyst on the Covid front. Yields rose across the curve led by the 5yr which rose +15.6 bps to 0.73%. The 10yr yield rose +6.9 bps on the week to end at 1.40% -- after breaching 1.50% resistance and trading as high as 1.61% on Thursday, the highest yield in about a year. Auctions were also very poorly received, particularly the 7yr. The Treasury index lost -0.30% on the week and is down -2.75% YTD.
Equities were pummeled on rising rates, particularly on Thursday as the 10yr breached 1.5%. DJIA -1.78% wk to 30,932 (+1.06%YTD); S&P -2.45% wk to 3,811 (+1.47% YTD); NASD -4.92% wk to 13,192 (+2.36% YTD).
Fed Chair Powell testified on Wed before Congressional committees and calmed markets temporarily, saying that rising rates would not alter monetary policy. The sell-off in both rates and equity markets resumed Thursday-Friday as investors expect inflation to overshoot Fed targets and result in Fed monetary policy turning hawkish sooner and more aggressively. Investors also negatively reacted to BOE chief economist Andy Haldane warning that inflation is a “sleeping tiger” and that it has been “stirred from its slumber.”
US Covid-19 deaths surpassed 500k, a grim milestone. The FDA approved J&J’s one-dose vaccine, adding a third vaccine to the US arsenal.
Economic data was favorable and generally beat expectations. Weekly jobless claims declined to 730k from 861k in the prior week; Jan dura-ble goods was up +3.4% m/m (exp +1.1% m/m); new home sales was 923k (856k exp); Univ of MI sentiment was 76.8 (76.5 exp); and Jan personal income, bolstered by the Dec stimulus, rose +10% m/m (+9.5% exp). 4Q GDP was +4.1% q/q, slightly missing expectations of 4.2% q/q.
Munis sold off violently in sympathy with Treasuries and woefully underperformed despite a manageable issuance of $10.3 bil., of which $7.34 bil., or only 72% of which was tax-exempt. The S&P Main Muni Index lost -1.05% on the week and turned negative for the year (-0.80% YTD) as MMD was cut between +6 bps (1yr) and 28 bps (30yr), steeping 2s30s by +21 bps to 161 bps, the steepest since Nov, 2017. Retail investors are of course taking notice of negative total returns as aggregate fund flows on the week decelerated sharply to essentially zero ($38 mil.) after posting several multi-billion dollar weeks of inflows (+$15.125 bil. YTD).
Last week’s $10.3 bil. new issue calendar was led by issues from Univ of California, San Diego Co Regl, and Indianapolis Bond Bank. With the exclusion of the shorter maturities of Univ of California (repricing lowered spreads 2022-26 by 5-10bps), spreads were raised in many of the negotiated deals by anywhere from +2 to +19 bps. Secondary market activity, indicated by bid-wanted and trading flows, was also active at about +10% above average.
Tax-exempts underperformed Treasuries across the curve by an average of +19.8 ratios, including about +16 ratios in both 5yrs and 10yrs and +12.4 ratios in 30yrs. Despite the weekly underperformance, tax-exempts remain only fairly valued on a M/T ratio basis as well as spread and absolute rate perspective. We think valuations will likely become more compelling over the next few months as the Treasury sell-off (likely) deepens slightly and Munis catch up with reality.
Gross supply for this week is $8.5 bil., although only $5.1 bil., or 59.9% is tax-exempt. Top issuances this week are led by New York City, BART, and Baltimore. The 30-day visible net supply is -$6.2 bil., reflecting +$11.2 bil. of announced supply against -$17.5 bil. of maturities/ calls. New issue supply in Feb was in-line with our forecast at about $32 bil., (22% m/m), of which 68.7% or $22 bil. was tax-exempt. We ex-pect March new issue volume to be about $33 bil (4% m/m) and for net supply to be -$1 bil.
This Week: Big week for potential catalysts...Fiscal stimulus vote in Senate this week. Fed speakers every day this week. Brainard today and Tues, Bostic on Wed, Powell Thurs, Bostic on Friday. Economic data headlined by the Feb nonfarm payroll report on Friday, expected at +180k jobs vs +49k jobs in Jan and a slightly uptick in the UE rate to 6.4% from 6.3%. ADP jobs report on Wed also expects +180k jobs in Feb. Weekly unemployment claims are expected to increase slightly to +755k. Other data includes ISM Manuf PMI for Feb (58.6 exp), ISM Services PMI (58.9 exp), construction spending, Fed beige book.
PETER BLOCK Managing Director
Peter.Block@ramirezco.com
(212) 248-3885
MICHAEL SLONIM Analyst
Michael.Slonim@ramirezco.com
(212) 248-3876
JOHN YOUNG
Managing Director
John.Young@ramirezco.com
(212) 248-3870
PATRICIA MCGRORRY Managing Director
Patty.McGrorry@ramirezco.com
(212) 248-3870
ALAN GRECO Managing Director
Alan.Greco@ramirezco.com
(212) 248-3892
Economic Calendar
Monday (3/1) Tuesday (3/2) Wednesday (3/3) Thursday (3/4) Friday (3/5)
ISM Manufacturing Fed’s Brainard Discusses
Economic Outlook
MBA Mortgage Applications Initial Jobless Claims Change in Nonfarm Payrolls
Markit US Manufacturing PMI Fed’s Daly Speaks to Eco-
nomic Club of New York
ADP Employment Change Factory Orders Unemployment Rate
Construction Spending MoM U.S. To Sell USD30 Bln 42-
Day CMB
ISM Services Index Durable Goods Orders Trade Balance
ISM Prices Paid Markit US Composite PMI Durables Ex Transportation Change in Manufact. Payrolls
Fed’s Brainard Discuses
Financial Stability
Markit US Services PMI Continuing Claims Fed’s Bostic Discusses Mac-
roeconomic Policy Source: Bloomberg
Previous Week Deal Pricings (Week of 2/26/2021)
***INSTITUTIONAL USE ONLY***
Ramirez Municipal Strategy
Page 2 March 1, 2021
Source: Bloomberg
Municipal Market Update
***INSTITUTIONAL USE ONLY***
Ramirez Municipal Strategy
Page 3 March 1, 2021
Source: Thomson Reuters (TM3) Source: Bloomberg
Muni Primary Market
Municipal Market Update Ramirez Municipal Strategy
30-Day Visible Supply ($ in millions)
Current 2021 High 2021 Low
Total $ Date $ Date
Total $10,231 $11,851 (2/22) $5,068 (1/4)
Comp. 4,040 5,298 (2/5) 1,617 (1/4)
Neg. 6,191 8,641 (2/19) 2,079 (2/10)
Source: Bond Buyer
Source: Bloomberg
Weekly Supply
($ in millions)
Week of
3/1/21
Total 8,481
Neg. 6,406
Comp. 2,075
Total Taxable 3,405
Taxable % of
Supply
40.1%
Source: Bloomberg, Ramirez
Gross Supply
($ in millions)
As of
2/26/21
Last Week 10,341
12wk Moving Avg. 7,268
YTD 60,347
Total Issuance YoY 17%
Taxable Last Week 2,917
Taxable YTD 18,882
Taxable % of YTD
Supply
31.3%
Source: Bloomberg
March 1, 2021 Page 4
New Issue Calendar (Partial)
Issuer State Amount ($mil.) Sale Type Tax Status Ramirez Role
New York City GO NY 1,249 Neg TE Co-Sr
BART CA 727 Neg TE/Txbl
Baltimore MD 658 Comp TE/Txbl
Univ. of Chicago *corporate CUSIP* IL 610 Neg Txbl
Ohio GO OH 564 Neg TE
Florida DOT FL 344 Comp TE
Rhode Island Hlth & Edu RI 13 Neg TE/Txbl Co-Mgr
Burlington Airport VT 5 Neg Txbl Senior
Source: Bloomberg, Ramirez
Municipal Market Update Ramirez Municipal Strategy
March 1, 2021 Page 5
Muni Secondary Market
Source: Bloomberg Source: Bloomberg
US Lipper Fund Flows
Sector Flow Change ($B) YTD ($B)
Tax-Exempt Inflow: 0.038 Inflow: 15.125
Money Market Inflow: 13.19 Inflow: 32.064
Taxable Inflow: 4.067 Inflow: 59.901
Equities Inflow: 17.112 Inflow: 46.71
Source: Lipper Fund Flows Source: Lipper Fund Flows
Municipal Market Update Ramirez Municipal Strategy
Page 6 March 1, 2021
Source: Bloomberg
Taxable Munis Look Rich
Relative Value
Municipal Market Update Ramirez Municipal Strategy
Page 7 March 1, 2021
Source: Bloomberg, Ramirez
2021 Muni Supply Forecast
Source: Bloomberg, Ramirez
2021 Muni Cashflow Forecast
Municipal Market Update Ramirez Municipal Strategy
March 1, 2021 Page 8
Municipal Market Update Ramirez Municipal Strategy
March 1, 2021 Page 9
Municipal Market Update Ramirez Municipal Strategy
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_____________________________________________________________________________________
1 For purposes of the debt Rule FINRA 2242, a “debt security” excludes any equity security, municipal security and security-based swap (each as
define under the Exchange Act) and any US Treasury (as defined in FINRA Rule 6710 (p)).
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March 1, 2021