Calendar Week of 10/04/2021

New issue supply peaked over the course of last week, as market activity continues to heat up during the fall season which has historically witnessed healthy supply levels as state and local governments price new issue deals in order to finalize financing activities prior to year-end. As the market digests fall season new issue supply figures, participants continue to battle volatility-induced interest rate fluctuations after the FOMC announced the intention to taper asset repurchases, driving greater concerns surrounding forward looking monetary policy. In addition to mounting concerns over monetary policies, failed bi-partisan negotiations behind the national infrastructure package and multi-trillion social spending budget reconciliation in conjunction with a potential government default as a result of a failed national debt ceiling increase has fueled heightened volatility across the marketplace. Given the evolving developments flowing from Washington, muni benchmarks rose significantly over the course of last week, widening by 2-12bps across the curve with the greatest increase noted in the 10YR tenor after US treasuries rose to the highest yield levels since the beginning of 2020. As a result of the sharp move in rates, Muni/UST ratios reached higher percentage levels, with the 10YR ratio hovering at 75% as well as the 30YR reaching 81% as of last Friday, presenting buyside investors a more encouraging entry point given the uptick in volumes complemented by robust investor demand. Despite cross currents surrounding government monetary policies, national inflation levels and pandemic-related economic setbacks, momentum in the muni landscape remains healthy with institutional demand for muni paper translating into sustained mutual fund inflows paired with noteworthy primary issue oversubscriptions as cash seeks to be deployed across a myriad of issuer credits. Looking ahead, participants forecast the continuation of double digit new issue weekly volume levels despite an uptick in macro market volatility as monthly primary issuance performance continues to outpace prior years, marking a strong reliance on behalf of state and local governments seeking to reduce borrowing costs while taking advantage of current opportunistic financing rates.

Greater new issue volumes continue to be openly welcomed on behalf of the buyside community after last week's calendar peaked at $13Bn, with several large scale issuers offering new issue deals providing hungry investors greater par size on a wider maturity basis. As investor demand continues to run high, the State of Hawaii came to market last week with $1.9Bn of taxable general obligation bonds across seven series, with the greatest par size housed in series GD ($700mm). Market demand for the Hawaii offering was noteworthy with bumps registered across the scale with the 10/2041 maturity witnessing the greatest investor traction resulting in a 16bp bump or +79bps spread to the 30YR UST. The Golden State Tobacco Securitization Corporation also stepped up to the plate to price $1.84Bn of tobacco settlement bonds with extreme bumps of 15-30bps driven by strong buyside appetite, with the greatest investor demand noted in the intermediate range falling 70-80bps off the 10YR UST coupon. This week's calendar is slated to taper slightly to $10.9Bn, represented by 223 new issue offerings largely represented by California issuers supplying $2.7Bn to market in addition to numerous ESG offerings for an aggregated total of $2.5Bn. The Alabama Federal Aid Highway Finance Authority (Aa2/AAA/-/-) is positioned to lead this week's negotiated calendar, supplying $1.5Bn of taxable special obligation revenue bonds led by Bank of America. The San Diego Unified School district will also tap into the primary market to finance $575mm of education bonds across four series spanning 01/2022-07/2051, selling on Wednesday 10/06 with JP Morgan listed as senior manager. This week's competitive calendar will include 107 new issues for a total of $1.2Bn led by the Jefferson County School District Corporation of Kentucky auctioning $92mm of school building revenue bonds.

Negotiated ESG Offerings Week of 10/04/2021:

Posted 04 October 2021 by Matthew Gerstenfeld, Municipal Bond Business Development Specialist, IHS Markit

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