Securitization

Overall $274.231 billion of the coronavirus emergency supplemental appropriations package goes to state and local governments and communities.

The short end in particular was rebounding after Fed announced it would include variable rate demand obligations and short-term paper to its balance sheets.

Public finance advocates said the Senate bill has been broadened to authorize the Federal Reserve to purchase all types of bonds that are sold on the secondary market.

The Fed today added in variable rate demand notes to other short-term municipal debt to a list of assets eligible to be used as collateral by financial institutions, which contributed to some stability in the secondary market.

The municipal bond market is facing a new reality as yields rise, issuance slows and investors remaining skittish about the future.

A big New York State Empire Development Corp. private placement is likely to be followed by more until the municipal primary starts functioning again.

The municipal bond market again sold off as much as a half percentage point across the curve.

Lipper reported a whopping $12.2 billion of outflows from municipal bond funds. Out of that huge number, $5.3 billion were from high-yield funds. The $12 billion figure of outflows in one week equates to about 3% of annual municipal volume.

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Benchmarks showed again that the short end was being hit hardest — 30 basis points up on the one-year and at least 10 up on the long end, but the entire curve was being cut drastically. The primary market was again at a standstill.

Tax-exempt municipal yields rose substantially last week causing the MSRB to take a look at trade data, said John Bagley, MSRB chief market structure officer.

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The municipal market is dealing with a major liquidity event, with massive short-end selling.

The municipal finance industry is dealing with minute-by-minute news of state-wide school closures, shuttered restaurants, curfews and canceled events. New issues are increasingly being put on the day-to-day calendar.

Muni market players may have to rely on more than their basic instincts as the economy heads into stormy weather.

Uncertainty still abounds for the public finance space, as just before the market close, President Trump declared a national emergency. Meanwhile, states and cities across the country are closing schools, sporting events, and cutting back public transit. But Friday, at least, provided some reprieve from the five previous volatile days.

Michael Zezas, managing director of research at Morgan Stanley, notes that muni yields have not fallen as quickly as the Treasury equivalents and recession risk climbs the longer the coronavirus persists. Layer on top of those items the incipient oil competition and quite a storm is brewing. Even liquidity is becoming "disorderly." John Hallacy hosts.

The municipal market was hammered Wednesday by the COVID-19 pandemic with a more than quarter point correction in AAA benchmarks, issuers pulling deals off the shelves and more reports of pricing and evaluation confusion.

Uncertainty continues to hang over financial markets due to COVID-19. Stocks rebounded somewhat Tuesday while muni yields rose as much as 16 basis points — Tuesday saw a correction of sorts.

As COVID-19 wreaks havoc on global markets, munis try to keep pace.