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Munichain Market Perspective #14

By Matthew Gerstenfeld
Market Perspective

New issue supply has declined nearly -25% over the course of April as state and local governments have found themselves with excess cash from the American Rescue Plan.

The American Rescue Plan, which was signed into law in March of 2021, provided $350 billion in aid to state and local governments (representing ~70% of the $500Bn+ issued during the peak of 2020) to help them recover from the economic impacts of the pandemic.

This infusion of cash has given issuers some breathing room and reduced their immediate need to issue new bonds to finance their operations or capital projects.

The surplus of federal relief funds has led many governments to hold off on tapping into the primary market for refunding and new money opportunities, resulting in a slowdown in issuance over the course of this year.

Despite the lackluster volume in the market, credits remain stable, with a noteworthy uptick in yield fluctuations and corresponding steady buy-side appetite for paper. Such resilience is a testament to the strength of the muni market and the underlying creditworthiness of state and local governments exhibiting generally low default rates.

Market participants are preparing for an uptick in primary levels as seasonal redemptions climb over the course of the summer and dry powder is re-deployed across various credits and tenors. Impending institutional demand may spark greater interest from sidelined issuers who are seeking an ideal entry point to finance transactions given the loud market volatility.

Looking ahead, new issue supply will remain light relative to historical levels as participants stand by for the upcoming two day FOMC meeting beginning on Tuesday May 2nd.

This week’s negotiated calendar will be fueled by the City of Chicago, IL offering revenue bonds, and City of Columbus, OH, selling unlimited tax GO’s. On the competitive front, Long Beach Unified School District will be selling an aggregate $480mm across three tranches on 05/02 with bond maturities spanning from 2024-2053 with Keygent Advisors serving as the districts municipal advisor for the upcoming auctions.

Keygent Advisors is based out of California and provides advisory services to various educational entities, with a team that has collectively advised on 600+ new issue offerings for a total of ~$23Bn.

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