Municipal Bond Investor Weekly - Raymond James

NOVEMBER 28, 2022

Municipal Bond Investor Weekly

High Net Worth Wealth Solutions and Market Strategies // Fixed Income Solutions

GINA FAY

THE WEEK AHEAD

Director Fixed Income Private Wealth

1.

Treasury yields fell last week following the release of FOMC minutes which indicate the Committee is open to slowing the pace of rate hikes.

DREW O'NEIL

Director Fixed Income Strategy

2. This week's economic data highlight will be Friday's employment report, as the market will be looking for signs of cooling in the labor the market.

3. New issue supply picks up this week with $4.6 billion expected to come to market.

MONDAY'S COMMENTARY Cyber Monday ? Shopping for Munis

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THE NUMBERS THIS WEEK

Yields trended lower last week, continuing the November trend. Yields on the short end of the Treasury curve edged slightly higher, but most of the Treasury curve finished the week lower by 14-18 basis points. The 3-month to 10-year yield inversion is currently at ~64 basis points, which is its deepest inversion in over 20 years. The 2-year to 10-year is inverted by ~79 basis points, which is the deepest level since 1981. Municipal yields also fell as the benchmark AAA curve moved lower by 3-10 basis points with larger moves on the shorter part of the curve.

Year

Treasury

Municipal

Municipal

Municipal TEY*

Municipal

Muni (AAA)/Tsy

Muni TEY* (AAA)/Tsy

(AAA) (A)

(AAA) TEY* (A) Ratio

Ratio

1 2023 4.76 2.65 2.98 4.47 5.03 56% 94%

2 2024 4.42 2.68 3.02 4.52 5.10 61% 102%

5 2027 3.85 2.72 3.18 4.60 5.37 71% 119%

10 2032 3.68 2.83 3.45 4.78 5.82 77% 130%

20 2042 3.97 3.34 4.11 5.64 6.94 84% 142%

30 2052 3.74 3.57 4.41 6.02 7.45 95% 161%

*Taxable equivalent yield @ 40.8% tax rate

Traditional ladder strategies (table on right) highlight opportunities along the curve, based on maturities. Duration focused strategies can extract additional yield available with longer maturities, while potentially mitigating risk with shorter calls. Yield curve (upper right) highlights taxable equivalent yields.

9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00

1

5.37

5.82

4.60 3.85

4.78 3.68

7.45

6.02 3.74

3 5 7 9 11 13 15 17 19 21 23 25 27 29

AAA Municipal TEY

A Muni GO TEY

Treasury

Maturity Range Avg. Maturity Duration Yield to Worst

1 to 5

3.0

2.76

2.80%

5 to 10

7.5

6.31

2.93%

10 to 20

15.0

7.97

3.43%

*Taxable equivalent yield @ 40.8% tax rate. Assumes a 10-year call.

TEY* 4.73% 4.96% 5.79%

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MUNICIPAL BOND INVESTOR WEEKLY

CYBER MONDAY ? SHOPPING FOR MUNIS

This week's new issue supply is expected to increase to $4.6 billion, up from the previous holiday-shortened week's $1.5 billion. As we head in to the last month of the year, we would expect to see investors hunting for bargains to fill their previous November and upcoming December redemptions before time runs out. According to The Bond Buyer, industry wide there is approximately $26 billion maturing in December.

In general "seasonal" trends suggest that new issue volume tapers off in December. Over the past decade, December new issue volume has averaged ~$35 billion (skewed higher by the increased issuance in December 2017 ahead of the implementation of the Tax Cuts and Jobs Act). If history repeats itself, that could leave a very limited amount of net new supply (Bloomberg estimates show ~$13.8 billion in net negative supply over the next 30 days). This is on top of supply already being down 16% year-to-date vs last year (~$404 billion issued in JanuaryOctober 2021 vs ~$338 billion issued in January-October 2022). In the chart below, you can see supply in September and October in particular declined 40% from last year's volume in the same months. While we anticipate a moderate pick up in the new issue market this week, typical December fashion sees volume peak by the second week and then decline into year end. For munis, there is also the "January effect" - the municipal market typically experiences a sluggish beginning to the New Year with little new issuance in the first couple weeks of January, adding to the potential supply/demand imbalance.

$600,000

Municipal New Issue Volume, Monthly 2015 - 2022 ($ Millions)

$500,000

$400,000 $300,000 $200,000 $100,000

$0

$22,197 $24,303 $33,947 $23,573 $32,379 $35,298 $40,187 $36,739 $41,000

$45,603

$33,160 $29,322

2015

$18,881 $31,665 $53,447

$39,794 $46,659 $28,831 $47,961

$42,319 $35,368 $42,489 $31,662 $25,725

2016

$69,827

$45,430

$40,099 $29,696 $37,541 $24,973 $39,301 $38,710 $30,711 $32,894 $23,385 $36,048

2017

$21,965 $27,846 $36,585 $25,220 $34,042 $27,740 $33,388

$35,147

$31,516 $26,084 $17,895 $21,506

2018

$42,523

$47,314

$55,775

$37,435 $39,522 $30,158 $36,747 $29,212 $28,154 $27,949 $26,489 $25,070

2019

$34,822 $21,359 $73,448

$53,513

$43,362 $47,782

$52,390 $30,991 $31,650 $20,262 $42,229 $32,793

2020

Sources: Refinitiv, Raymond James

$40,840 $37,042 $41,811 $44,604 $43,885 $37,601 $50,371 $35,358 $37,105 $47,768 $37,052 $28,183

2021

Estimates

$33,000 $32,000 $24,950 $26,483 $41,556 $27,957 $37,223 $36,237 $39,981

$45,417

$31,402 $26,322

2022

December November October September August July June May April March February January

Given the prospect for dwindling supply as we head into year-end - and yields at some of the highest levels we've seen in over a decade - now is great to shop for munis. Year-to-date AAA "benchmark" muni yields are higher by 175-245 basis points (bp). 10-year AAA munis currently yield 2.83% - that equates to a taxable equivalent yield of 4.78% (based on the 37% federal tax bracket plus the 3.8% net investment income tax), and over 100 bp yield pick-up vs 10 year Treasuries yielding 3.68%. Additional value can be found in municipals with sector/credit

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MUNICIPAL BOND INVESTOR WEEKLY

selection, coupon selection, or call structure. There are a variety of municipal bond offerings available with 34% yields or higher, which equates to taxable equivalent yields (TEY) of ~5-6.75% or more for investors in the top tax bracket - an additional ~130-300 bp higher than the yield of 10-year Treasuries. For investors in high tax states buying in-state bonds, the TEY is even more attractive.

What's the implication for clients? With so few "muni shopping days" left this year, there is no better time than the present to hunt for muni deals so you have a better selection of bonds before new issue volume slows down. There are plenty of good values out there, you just have to look in the right places: there are currently over 180 bonds in Raymond James' inventory this Monday morning with a tax-exempt yield to worst of 3% or higher and TEYs of 5% or higher. Our team of fixed income professionals can work with your financial advisor to identify what buying opportunities are available to lock in yield and help you achieve your investment needs and objectives.

NAVIGATING TODAY'S MARKET

The Bond Buyer expects new issuance to come in at $4.6 billion this week. Some of the larger deals expected to come to market include: Connecticut (Aa3/AA-/AA-) is selling $900 million in general obligation bonds split over three series; The San Jose Financing Authority (-/AAA/AAA) is bringing a $276 million wastewater revenue green bond deal to market; the Texas Department of Housing and Community Affairs (Aaa/AA+) is selling $190 million of single-family mortgage revenue bonds in a non-AMT deal; School District Number 58 in DuPage County, IL (-/AA) is issuing $131 million in general obligation bonds; and the School Board of Sarasota County, FL (Aa2/-) is bringing a $123 million COP deal to market. See table below for additional new issuance.

HISTORICAL YIELDS

4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00

Municipal AAA 10-Year

Municipal AAA 2-Year

Fed Funds (Upper Bound)

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MUNICIPAL BOND INVESTOR WEEKLY

Date Amount

Issuer

ST

Description

Moody's/S&P/Fitch

11/29 11/29 11/29 11/29 11/29 11/29 11/30 11/30 11/30 11/30 11/30 11/30 11/30 11/30

12/1

$45MM West Virginia Housing $250MM State of Connecticut $250MM State of Connecticut $400MM State of Connecticut $123MM School Board of Sarasota County, $750MM New Jersey Transportation Trust

$32MM New York State Housing Finance $86MM New York State Housing Finance $112MM Massachusetts Clean Water Trust $143MM Massachusetts Clean Water Trust $150MM Massachusetts Clean Water Trust

$1MM IDB of the City of Loudon TN $3MM HEFB Metro Gov of Nashville and $3MM HEFB City of Memphis TN $10MM Northern York County School

WV Housing Finance Bonds 2022 Series C CT General Obligation Bonds (2022 Series F) CT General Obligation Refunding Bonds CT General Obligation Bonds (2022 Series E) FL Certificates of Participation, Series 2022A NJ Transportation Program Bonds, 2022 NY Affordable Housing Revenue Bonds 2022 NY Affordable Housing Revenue Bonds 2022 MA State Revolving Fund Refunding Bonds, MA State Revolving Fund Bonds, Series 24A MA State Revolving Fund Bonds, Series 24B TN Collateralized Multifamily Housing Bonds TN Collateralized Multifamily Housing TN Collateralized Multifamily Housing Bonds PA York County, Pennsylvania, General

Aaa /AAA / Aa3 /AA- /AAAa3 /AA- /AAAa3 /AA- /AAAa2 /NR /NR A3 /BBB+ /AAa2 / / Aa2 / / Aaa /AAA /AAA Aaa /AAA /AAA Aaa /AAA /AAA /AA+ / /AA+ / /AA+ / NR /AA- /NR

Maturity 11/01/202311/15/35-42 11/15/23-32 11/15/23-35 7/1/24-37 6/15/32-50

2/1/24-35 2/1/24-43 2/1/24-43 8/1/2027 10/1/2026 12/1/2024 11/15/23-37

This offering calendar is for information purposes only, and is not intended as an offer for solicitation with respect to the purchase or sale of any securities. For more information on the new issues go to .

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MUNICIPAL BOND INVESTOR WEEKLY

There is no assurance any of the trends mentioned will continue or forecasts will occur. Investing involves risk and investors may incur a profit or a loss. Past performance may not be indicative of future results. Prior to transacting in any security, please discuss the suitability, potential returns, and associated risks of the transaction(s) with your Raymond James Financial Advisor. This communication is not an offer to sell or a solicitation to buy any securities mentioned herein. High grade and High yield securities mentioned herein may not be suitable for all investors. A credit rating of a security is not a recommendation to buy, sell or hold securities and may be subject to review, revisions, suspension, reduction or withdrawal at any time by the assigning rating agency. All expressions of opinion reflect the judgment of the Fixed Income Municipal Department of Raymond James & Associates (RJA) at the time of publication and may be subject to change without notice. Information has been obtained from sources considered reliable, but we do not guarantee that the foregoing report is accurate or complete. Other departments of RJA or its affiliates may have information that is not available to the Fixed Income Municipal Department about companies or Issuers mentioned in this report. Further information on the securities mentioned herein is available upon request. Interest on Municipal Bonds is generally exempt from federal taxation and may also be free of state and local taxes for investors residing in the state and/or locality where the bonds were issued. However, bonds may be subject to federal alternative minimum tax (AMT), and profits and losses on tax-exempt bonds may be subject to capital gains tax treatment. Bonds are subject to risk factors including: 1) Default Risk - the risk that the issuer of the bond might default on its obligation 2) Rating Downgrade - the risk that a rating agency lowers a debt issuer's bond rating 3) Reinvestment Risk - the risk that a bond might mature when interest rates fall, forcing the investor to accept lower rates of interest (this includes the risk of early redemption when a company calls its bonds before maturity) 4) Interest Rate Risk - this is the risk that bond prices tend to fall as interest rates rise. 5) Liquidity Risk the risk that a creditor may not be able to liquidate the bond before maturity. High-yield bonds are not suitable for all investors. The risk of default may increase due to changes in the issuer's credit quality. Price changes may occur due to changes in interest rates and the liquidity of the bond. When appropriate, these bonds should only comprise a modest portion of a portfolio.

Sourced from Bloomberg: Treasuries: US Fed H15 CMT Curve - The H15 curve is comprised of the constant maturity treasury rates as published daily by the Federal Reserve in the H15 report. Municipal (AAA): BVAL Municipal AAA Yield Curve (Callable) - The curve is populated with high quality US municipal bonds with an average rating of AAA from Moody's and S&P. The yield curve is built using non-parametric fit of market data obtained from the Municipal Securities Rulemaking Board, new issues, and other proprietary contributed prices. The curve represents 5% couponing. The 3 month to 10 year points are bullet yields, and the 11 year to 30 year points are yields to worst for a 10-year call. Municipal (AA): US General Obligation AA Muni BVAL Yield Curve - The BVAL curve is populated with pricing from uninsured AA General Obligation bonds. Municipal (A): US General Obligation A+ A A- Muni BVAL Yield Curve - The BVAL curve is populated with pricing from uninsured A+, A, and Arated General Obligation bonds. Fed Funds (Upper Bound): The federal funds rate is the short-term interest rate targeted by the Federal Reserve's Federal Open Market Committee as part of its monetary policy. US Treasury securities are guaranteed by the US government and, if held to maturity, generally offer a fixed rate of return and guaranteed principal value. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance.

US Treasury securities are guaranteed by the US government and, if held to maturity, generally offer a fixed rate of return and guaranteed principal value. The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ. The NASDAQ Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance.

Investment products are: not deposits, not FDIC/NCUA insured, not insured by any government agency, not bank guaranteed, subject to risk and may lose value.

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M21-3985225 through 12/15/2023

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