The week of April 20, 2020 saw the municipal market continue its “slowly but surely” – and sometimes not so surely – movement toward normalcy. Over the last few weeks, the market has managed to get numerous deals priced, and rates and spreads came back in the issuers’ favor. One example is a school financing in the Midwest, a 20-year structure that was financed with a total interest cost of approximately 2.5%.
Now for the “not so surely.” Beginning Wednesday, April 22, the market experienced some extreme volatility with oil prices going negative. Buyers were trying to pay sellers to not deliver oil. Demand is down significantly and storage for the actual commodity is very hard to come by. Between the volatility in oil prices and a healthy supply of new issues coming to market, the bid (bond buyer’s) side of the market started to soften up and yields and spreads started to widen (yields going higher). In a matter of approximately 48 hours, we experienced a swing where deals went from pricing very well, to starting to be put back on the shelf, to going on a day-to-day status.
What is the important takeaway for issuers? Remain flexible.
During these times, it’s very possible to be talking with your municipal advisor on Monday for a Wednesday or Thursday pricing, and within 24 hours, the market has changed and a sale that appeared to be a “go” is now being delayed due to market conditions.
It’s also very possible we will be in this cycle for some time. Issuers who have the flexibility to postpone deals will be better situated to navigate this market. Issuers without this flexibility in sale date and who need to close by a certain time may find themselves having to sell into a less-than-ideal market.
If your organization has upcoming projects with financing needs, we recommend that you continue to work through the process of approvals and be ready to sell. As we navigate the current market, organization and readiness will be two very important characteristics of success.
To find out how Baker Tilly Municipal Advisors team members’ knowledge and expertise can help you navigate volatile markets, connect with us.