Muni Market 

Observations

October 5, 2020

FIMSAC Muni Transparency Subcommittee
INTERCONTINENTAL EXCHANGE

US Municipal Market Overview: MSRB Trade Counts

CONFIDENTIAL | Source: MSRB & ICE Data Services 2

• Figure 1: With the exception of March and April, 2020 individual trade counts have decreased compared to 2019.

• Figure 2: Shows decrease in % 2019 vs 2020.

• Light blue: All trades: Decreased trade counts with exception of March and April

• Dark blue: Count of trades >=1mln in notional. Shows similar or increased trading in block trades.

• Overall there are fewer small retail trades taking place in 2020 when compared to 2019

Figure 1: MSRB Trade Count: 2019 v 2020

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

Jan Feb Mar Apr May Jun Jul Aug

YOY % CHANGE

Source: ICE Data Services

Figure 2: MSRB Differences 2019 v 2020

# OF TRADES

0

200000

400000

600000

800000

1000000

1200000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
INTERCONTINENTAL EXCHANGE

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%

110.00%

<=1 Day 2-3 Days 4-7 Days 8-30 Days 31+ Days

US Municipal Market Overview: Liquidity

Source: ICE Data Services 3

ICE BofA US Municipal Securities Index (U0A0): 

$25BN Liquidation Volume | 50bps Target Market Price Impact

• ICE US Municipal Securities Index (U0A0) with 

approximately 18k holdings

• Using constant assumptions of a $25BN liquidation 

volume and a 50bp target market price impact (i.e. 

cost of immediacy or price haircut), we tracked 

liquidity performance over time throughout the 

COVID-19 pandemic

• The display indicates the percentage of the index 

that can be liquidated in the various DTL 

buckets: <=1 Day, 2-3 Days, 4-7 Days, 8-30 Days, 

and 31+ Days

• The data shows an initial degradation of liquidity in 

the latter part of the week of March 10th.

• The impact of these DTL outputs is largely driven by 

certain factors including:

➢ Bid-Ask Spreads

➢ Price Volatility

➢ Observed Trading Volumes

Figure 3: Days to Liquidate Migration
INTERCONTINENTAL EXCHANGE

0

0.02

0.04

0.06

0.08

0.1

0.12

0.14

1/1/20069/1/20065/1/20071/1/20089/1/20085/1/20091/1/20109/1/20105/1/20111/1/20129/1/20125/1/20131/1/20149/1/20145/1/20151/1/20169/1/20165/1/20171/1/20189/1/20185/1/20191/1/2020

US Municipal Market: Index Yields

4

Figure 4: 

• Shows average index yield to worst for Taxable, Tax 

Exempt municipal and US Treasury bonds: 2018 to 

2020

• High correlation and comparable yields across US 

Treasuries and Tax-Exempt municipal bonds

• Divergence due to COVID-19 between US Treasuries, 

Tax Exempt and Taxable municipal bonds

Source: ICE Data Services

Figure 4: 

Historical yields by asset class

Figure 5: 

Annualized volatility: ICE US Broad Municipal Index: 2006-

2020, ICE BofA US Taxable Index: 2010-2020

Figure 6: 

Bid/Ask Spread: Taxable vs Tax-exempt Municipal bonds

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

YIELD %

Figure 5: 

• Annualized historical volatility across tax-exempt and 

taxable municipal bonds, as applicable

Source: ICE Data Services

Figure 6: 

• Year to date Bid/Ask spreads across taxable and taxexempt municipal bonds 

Source: SIFMA & ICE Bonds

ICE BofA US Taxable Municipal Securities Index

ICE BofA US Treasury Index

ICE US Broad Municipal Index

VOLATILITY

ICE BofA US Taxable Municipal Securities Index 

ICE US Broad Municipal Index 

0

0.1

0.2

0.3

0.4

0.5

0.6

Bid/ask spread in $

Taxable Municipal Bonds

Tax-Exempt Municipal Bonds
INTERCONTINENTAL EXCHANGE

General Trading Activity Comparison 

Source: MSRB EMMA, overall trade patterns, for more see MSRB Municipal Market COVID-19 Trading Report, updated monthly, Hilltop Securities 5

2007-2008 to 2008-2009
INTERCONTINENTAL EXCHANGE

General Trading Activity Comparison

6

2018-2019 to 2019-2020

Source: MSRB EMMA, overall trade patterns, for more see MSRB Municipal Market COVID-19 Trading Report, updated monthly, Hilltop Securities
INTERCONTINENTAL EXCHANGE

Trading 

Spread Analysis

Source: Refinitiv (formerly Thomson Reuters) TM3, Hilltop Securities 7

Spread to AAA 

MMD Benchmark
INTERCONTINENTAL EXCHANGE

Trading 

Spread Analysis

Source: Refinitiv (formerly Thomson Reuters) TM3, Hilltop Securities 8

Spread to AAA 

MMD Benchmark
INTERCONTINENTAL EXCHANGE

Transaction Costs During COVID-19

*Source: MSRB, See MSRB report: COVID-19 Crisis Drives Spike in Transaction Costs for Municipal Securities, May 2020 Hilltop Securities 9

From the MSRB Report: When isolating the change in effective spread to the four-month period in 2020, Chart 3 

shows that on certain trading days in mid-March and early April, the effective spread for fixed-rate municipal 

securities exceeded 100 basis points, with a peak of 165 basis points on March 20. Fluctuations in effective spread 

seemed to be correlated with the overall volatility of municipal securities price movements, as measured by the rolling 

10-day standard deviation of the S&P Municipal Bond Index daily percentage change during the period. (The volatility 

itself was likely driven by other market factors, such as the liquidity crunch and uncertainty of pricing due to the 

potential elevated credit risks and other factors.) The volatility measure typically represents the level of risk and 

uncertainty in the marketplace, and data show it was significantly elevated in the one-month period between early 

March and early April.*

From the MSRB Report: Chart 4 shows that, despite narrowing the 

gap, smaller-sized customer trades continued to be executed with 

a higher effective spread than larger-sized customer trades as of 

early 2020. That said, the sharp increase in effective spread 

triggered by the COVID-19 pandemic was apparent for all trade 

size groups, including the below $100,000 trade size groups where 

retail investors usually predominate.*.
Disclosures
INTERCONTINENTAL EXCHANGE

COVID-19 Related Disclosures

By Week, Since March 2020

Source: MSRB 12
INTERCONTINENTAL EXCHANGE

COVID-19 Related Disclosures

Primary Market and Continuing Disclosures

Continuing 

Disclosures

11,720

Primary Market

6,415

Total COVID-19 

Related Disclosures: 

18,135

Rating Changes 

accounted for 

10% or 1,195 of 

continuing 

disclosures

Source: MSRB 13
New Issuance
INTERCONTINENTAL EXCHANGE

Issuance Volume (2008 vs. 2020)

Source: Bond Buyer. Note 2020 Issuance is through September, Siebert Williams Shank & Co 15

▪ 2020 total issuance has been high through September, ranking 1

st in total issuance volume over the

past 35 years

▪ Highlights include:

– Total 2020 tax-exempt volume is projected to be approximately $2 billion lower than in 2008,

despite new money issuance being down due to the COVID-19 pandemic

– Total 2020 taxable volume is projected to be over $118 billion higher than in 2008

– Total 2020 issuance is projected to be $482 billion, approximately $116 billion higher than in

2008

ANNUAL MUNICIPAL ISSUANCE VOLUME THROUGH SEPTEMBER

ISSUANCE HIGHLIGHTS (IN $MM)

2008 Taxable Issuance: 24,252

2020* Taxable Issuance: 142,740

2008 Tax Exempt Issuance: 341,264

2020* Tax Exempt Issuance: 339,277

113

81 87 89 95

120

172

224

128

108

130

156

217

175

145

197

254

291

268

310

267

325 321

289 299

193

284

253

233

317

341

293

253

281

342

0

50

100

150

200

250

300

350

400

19861987198819891990199119921993199419951996199719981999200020012002200320042005200620072008200920102011201220132014201520162017201820192020

$ Billions
INTERCONTINENTAL EXCHANGE

Municipal New Issuance, 2009-Present 

Tax Status as Percentage of the Market

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Jan-09

May-09

Sep-09

Jan-10

May-10

Sep-10

Jan-11

May-11

Sep-11

Jan-12

May-12

Sep-12

Jan-13

May-13

Sep-13

Jan-14

May-14

Sep-14

Jan-15

May-15

Sep-15

Jan-16

May-16

Sep-16

Jan-17

May-17

Sep-17

Jan-18

May-18

Sep-18

Jan-19

May-19

Sep-19

Jan-20

May-20

Tax-Exempt Taxable AMT

35% of new issuance 

was taxable in July. 

Highest since BABs in 

Dec 2010.

Source: Siebert Williams Shank & Co 17
INTERCONTINENTAL EXCHANGE

Municipal New Issuance in 2020

By Tax Status

Source: Siebert Williams Shank & Co 16

22.8

27.9

14.5

21.7 22.3

30.0

26.6 27.9 29.7

7.3

11.8

2.9

5.1 5.9

17.5

18.2 12.7

16.7

0.5

0.2

0.0

0.1 0.4

1.0

0.9

0.7

3.4

0

10

20

30

40

50

60

Jan 20 Feb 20 Mar 20 Apr 20 May 20 Jun 20 Jul 20 Aug 20 Sep 20

$ Billions

Tax-Exempt Taxable AMT
INTERCONTINENTAL EXCHANGE

2019-2020 Fund Flows and Issuance Volume

Source:Thomson Reuters – SDC Platinum as of 10/1/2020 (Negotiated & Competitive Issuance); Lipper Fund Flows as of 9/24/20; Siebert Williams Shank & Co 17

0

10

20

30

40

50

60

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

$ Billions

2019 2020

2019 vs. 2020 Municipal Issuance Volume by Month

Municipal Bond Mutual Fund Inflows and Outflows ($ billions)

-13.5

-11.5

-9.5

-7.5

-5.5

-3.5

-1.5

0.5

2.5

 Inflow / (Outflow)
INTERCONTINENTAL EXCHANGE

Municipal Liquidity Facility (MLF) Update

The Fed has updated the terms and pricing of its Municipal Liquidity Facility (below shows amendments in italics)

It will charge issuers a premium as it is intended to be used as a last resort

Summary of Key Terms: Municipal Liquidity Facility (as of 8/11/2020)

▪ Facility: The Municipal Liquidity Facility will support lending to U.S. States and District of Columbia, U.S. Cities with populations >250k, U.S. Counties with

populations >500k, and Multi-State Entities

▪ Eligible Notes: TANs, TRANS, BANs and other similar short-term notes that do not mature later than 36 months from the date of issuance

▪ Eligible Issuers: State, City or County (or instrumentality), or Multi-State Entity. Only one issuer per State, City, County

– Non-Multi-State Entity must be rated at least BBB-/Baa3 as of 4/8/20 by two or more major NRSROs and at least BB-/Ba3 at time of issuance

– Multi-State Entity must be rated at least A-/A3 as of 4/8/20 by two or more major NRSROs and at least BBB-/Baa3 at time of issuance

– If State, City, County or Multi-State Entity was rated by only one major NRSRO as of 4/8/20, it may be an Eligible Issuer if the rating was at least consistent

with criteria above and it is rated by at least two major NRSROs at time of issuance

▪ Borrowing Limit: 20% of the general revenue and utility revenue from own sources in FY2017 of State, City or County; 20% of Multi-State Entity’s gross revenue as

reported in FY2019 audit

– States may request borrowing in excess of the limit to assist political subdivisions and instrumentalities that are not eligible for the Facility

▪ Security: Will depend on applicable constitutional and statutory provisions governing the Eligible Issuer and should be generally consistent with the source of

repayment and strongest security typically pledged to repay publicly offered obligations of the Eligible Issuer

– Eligible Notes issued by Non-Multi-State Entities will generally be expected to represent general obligations, or be backed by tax or other specified

governmental revenues of State, City, or County

– If the Eligible Issuer is an authority, agency, or other entity of a State, City, or County, such Eligible Issuer must either commit the credit of, or pledge revenues

of, the State, City, or County, or the State, City, or County must guarantee the Eligible Notes issued by such issuer

– If the Eligible Issuer is a Multi-State Entity, the Eligible Notes will be expected to be parity obligations of existing debt secured by a senior lien on the MultiState Entity’s gross or net revenues

Source: SIFMA, Federal Reserve; as of 8/11/2020, Siebert Williams Shank & Co 19
INTERCONTINENTAL EXCHANGE

MLF Borrowings

19

State of Illinois & NY MTA

Source: BondBuyer and EMMA, Siebert Williams Shank & Co

State of Illinois MLF Borrowing

▪ In June, the State of Illinois became the first to use the Federal Reserve’s MLF program

▪ Size: Illinois issued $1.2 billion general obligation backed Notes 

▪ Pricing: The Notes priced as at a rate of 3.82% which represents a 380 basis point spread over the overnight swap index and 366 basis point spread over AAA MMD

▪ Proceeds:Proceeds are being used to bolster state liquidity and offset a portion of the tax hit from the COVID-19 crisis

▪ Ratings: The State is rated Baa3/BBB-/BBB- by Moody’s, S&P and Fitch, respectively

Metropolitan Transportation Authority MLF Borrowing

▪ On Tuesday, August 18th, the New York Metropolitan Transportation Authority rejected 20 bids on $465 million of Notes, opting instead to sell the notes through 

the Fed’s Municipal Liquidity Facility

▪ The 20 bids from 10 different banks averaged a True Interest Cost of 2.79%

▪ The Notes ultimately sold through the MLF pricing at a True Interest Cost of 1.93%, resulting in savings of approximately 86 basis points compared to public 

market levels

▪ The transaction closed on August 26th

▪ The MTA is currently projecting a $12 billion deficit through next year due to drastic declines in ridership as a result of the COVID-19 crisis

▪ Credit Transportation Revenue Bonds are rated A2/BBB+/A+/AA+ by Moody’s, S&P, Fitch, and Kroll

▪ Par Size: $465 million Bond Anticipation Notes

▪ Maturity Date: August 1, 2023

▪ Pricing: The Notes priced at a rate of 1.93% which represents a 178 basis point spread to AAA MMD

▪ Proceeds: Proceeds of the notes will be used to retire BANs maturing on September 1st
Going forward
INTERCONTINENTAL EXCHANGE

Anticipated Economic Climate – Q4 2020

▪ State and local governments will have to continue to tackle significant fiscal challenges in Q4

▪ S&P published a mid-year sector report for U.S. states with the expectation that rating stability in the 2

nd half of 2020 remains negative

– Leading factors that predict budgetary distress continue to include revenue volatility, weaker rainy day reserves (especially after COVID), and elevated fixed

costs

– In addition, many state budget decisions hinge on additional federal aid, but the amount and timing of this is uncertain

– The following are the agency’s key credit drivers for the 2

nd half of 2020:

Source: S&P, Siebert Williams 22
INTERCONTINENTAL EXCHANGE

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