Consider the factors we’ve seen in the municipal market the past several weeks, all of which are favorable to issuers:

  • Demand for new paper appears robust
  • The Bloomberg Barclays Index has a 2.7% positive return since the beginning of May, the largest one-month return since 2009
  • The deals Baker Tilly has been a part of have been getting done with oversubscriptions (more orders for bonds than bonds available)

To further illustrate, a review of the Thomson Reuters Municipal Market Data (MMD), an index used to price municipal bonds, has had the following movement since May 1:

During May, the MMD came back in issuers’ favor, with the short end of the curve leading the way. This was especially beneficial to issuers issuing bond anticipation notes (BANs) or tax anticipation warrants (TAWs) and those with longer deal structures. For example, Baker Tilly was recently involved in a deal with a 16-year structure and an average life of 9.5 years. The winning bid was 1.85%, a very good result.

An interesting trend we’re currently seeing in the market involves the length of deals. The shorter end of deals (2021-2030) are seeing the fewest amount of orders. Buyers are sliding out to the longer end to pick up yield, which is the inverse of what the market has historically produced. Normally, the shorter end has much higher demand than the longer end, but in this low interest rate environment, we’ve seen a reversal in historic norms.

When the COVID-19 pandemic first hit, taxable municipal bonds (munis) had some issues getting sold, but that began to change in May. There now appears to be robust demand for taxable munis. We have been involved with several taxable muni deals in May and experienced no issues with completing those deals.

The message for issuers continues to be one of cautious optimism.  It’s too early to say we have officially turned the corner related to the impact of COVID-19 on the municipal market. What we do know is that right now, deals are getting done and the levels at which they are getting done are good. 

The market will continue to put a premium on the creditworthiness of issuers. Sound issuers, particularly those with upcoming bond deals, should take steps to relay strong fiscal measures, including:

  • Develop, monitor and update different scenarios to forecast varying revenues and tax collections
  • Continue to focus on sound fiscal management procedures and policies
  • Communicate detailed responses of new or adjusted internal procedures due to COVID-19

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
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