Government building

The week of April 6, 2020 saw positive movements in the markets:

  • On the equities side, the Dow Jones Industrial Average had a 12% gain – its best one week gain since 1974. This gain is even more impressive, given the market was closed Friday in observance of Good Friday.  
  • The ten-year U.S. Treasury backed up a bit this week, starting the week at 0.58% and ending at 0.72%. 
  • The municipal market saw the ten year MMD (Municipal Market Daily Index, put out by Thomson Reuters) start the week at 1.53% and end at 1.11%.

In the last three weeks leading up to April 6, the municipal market has been anything but normal. We have seen significant one-day swings with MMD of 30-60bp, when a one day swing of 3-5bp was considered volatile in normal conditions. The amount of redemptions flowing into bond mutual funds created major supply issues, resulting in the new issue market being disconnected from the secondary market, placing significant pressure on the market as a whole. Under more normal circumstances, the primary market (new issues) and the secondary market have very similar pricing; however, during this “disconnect,” the vast swings in secondary market pricing made it nearly impossible to establish pricing in the primary market. Each trade became dependent on liquidity available at the time of sale and liquidity levels seemed to change by the minute. Because market participants had a difficult time coming to a consensus on “market price,” the primary market effectively shut down and did not price. 

The muni-market for the week of April 6, 2020 had a much different feel and better results. The recently passed Coronavirus Aid, Relief and Economic Securities (CARES) Act has money set aside to help the muni-market with much needed liquidity. Although the market and the government are still working through the specifics, participants have expressed general comfort knowing there is added liquidity in the very near term. As we learn more about the different programs available to issuers, we will share that information.  

During the past week, Baker Tilly was involved in several competitive sales, and we were pleased with the results. While we didn’t complete any negotiated sales, there were several deals priced with very positive outcomes. The disconnect noted earlier appears, for the time being, to have worked itself out.

The week of April 13, 2020 will be a good test for the muni-market because the weekly calendar presents “a more normal” par amount of bonds.

Let’s not forget, the rates we saw on deals last week, from a historical perspective, were very low.  Issuers are still getting a lot of bang for their buck!

For more information on this topic, or to learn how Baker Tilly public sector specialists can help, contact our team.

Tim Sutton
Director of Bond Pricing
Next up

SEC ruling: summary of amendments to filer definitions and Sarbanes-Oxley (SOX) impacts