ramirez municipal strategy

Municipal Market Update

***INSTITUTIONAL USE ONLY***

Ramirez Municipal Strategy

July 26, 2021

Summary: Risk-on sentiment sparked by exceptional 2Q21 earnings drove major equity indices to record high levels. The roughly 25% of S&P 500

companies that reported earnings mostly (~90%) beat expectations, indicating that price inflation – whether transitory or not – has thus far success-

fully been passed on to consumers. The week began on Monday with risk-off as delta coronavirus variant impacts on the economic recovery caused

the S&P 500 index to decline -1.6% on the day (sharpest one-day decline YTD 2021) and sent the 10yr Treasury yield to an intraday low of 1.13%.

Investor sentiment shifted on Tuesday to risk-on, however, following release of the first batch of 2Q earnings and carried through Friday. Economic

data on the week was also highlighted by higher than expected housing starts in June (6.3% m/m) and a preliminary IHS Markit US Manufacturing

PMI for July (63), indicating that manufacturing growth is unexpectedly accelerating. Offsetting data included a slowing July Services PMI of 59.8

and higher than expected initial unemployment weekly claims of 419k. Other market influences included OPEC+ lifting crude output by 400k bbl/wk

and no Fed comments due to this week’s (Tues-Wed) highly anticipated policy meeting.

Returns: All three major US equity indices gained at least +1% on the week. The DJIA rose +1.08% to break 35,000 for the first time at

35,061 (+14.56% YTD); the S&P 500 was up +1.96% to 4,411 (+17.46% YTD); and the NASD was up +2.84% to 14,836 (+15.12% YTD). The

Treasury index gained +0.19% (-1.52% YTD) as yields declined across the curve, led by the 5yr which declined -6.2 bps to end at 0.71%. The 10yr

Treasury yield declined only -1.4 bps to 1.28% after Monday’s intraday plunge to 1.13%. Tax-Exempts gained slightly on the week in sympathy

with Treasuries and posted mixed performance on continued investor resistance to low absolute yields -- despite a dearth of bonds and a torrent of

fund inflows and July-Aug reinvestment. The S&P Main Muni Index gained +0.06% and is up +1.86% YTD. Taxables gained in sympathy with Treas-

uries and IG-Corps; the Taxable Muni index gained +0.09% (+1.32% YTD). The ‘AAA’ MMD scale was bumped by an average of -1.3 bps across the

scale, including -3 bps in the 5yr spot. New issue of $11.1 bil. on the week was manageable and well-received, led by issues from Salt Lake, OR

Edu Dists, and LA Co Met. About $9.2 bil., or 82.8% of new issue was tax-exempt. Secondary market activity was muted as bid-wanted lists and

trading activity remained at about -20% below average. Fund inflows on the week were again staggering at +$1.72 bil. (+$43.4 bil. YTD).

Gross new issue supply this week is estimated at $7 bil., of which $5.2 bil., or 73.4% is long-term tax-exempt, led by issues from Washington, King

County, and Philadelphia. Total gross supply YTD is +$253 bil, (+5.8% y/y), of which only 75.8%, or $192 bil, (+12.5% y/y) is exempt. We expect

gross supply in July to end at ~$41 bil and at ~ $37 bil. in Aug. Trailing 30 day net visible supply is negative -$18.8 bil., reflecting +$8.1 bil. of visible

new issue supply against -$26.9 bil. of reinvestment. States with the largest net supply delta in the next 30 days include: CA (-$-6.5 bil.), NY (-$3.7

bil), and TX (-$2.7 bil.). Fortunately, net supply should gradually recover from negative supply months July-Aug and end 2021 with positive net sup-

ply of about +$70 bil., (+$51 bil. exempt).

Valuation / Strategy: Municipals (tax-exempt and taxable) remain a very low absolute and relative value proposition (vs Treasuries/IG-Corps)

even assuming significantly higher marginal tax rates (pg 6). Tax-exempts last week posted mixed performance against Treasuries, outperforming

by -9.3 ratios in 2yrs (40.4%), but underperforming about +1 ratio in 30yrs (71%). Muni credit spreads also remain fair to rich across most sectors.

Given this paradigm, we suggest investors focus in the meantime on improving credit and curve positioning until values normalize. The current MMD

curve indicates optimal rolldown in 5-11 yrs (pg 9). The largest visible risk to the exempt market is a reversal of fund inflows — and potentially a

Muni sell-off — due to lack of any meaningful changes to the tax code which causes retail investors to reevaluate tax-exempt Muni investment at

current low values.

This week: This week is all about the Fed policy meeting on Tues -Wed, more 2Q21 earnings, including megacap tech on Tues, BIG economic

data, Covid variants. The Fed is expected to maintain the fed funds rate unchanged at 0% and leave support in place for Treasury/MBS purchases,

although discussion is likely to occur on a timeline for tapering of at least MBS purchases given the strong housing market. Earnings this week are

led by megacap tech companies Alphabet, Apple, Microsoft. Other economic data includes: PCE, Univ of MI and Conf bd consumer sentiment/

confidence indices for July, new home sales, durable goods, case-shiller home price index, initial and continuing claims, personal income and

spending, BEA releases 2Q GDP with median consensus at +9.2% annualized q/q; also advance estimate of GDP for the second quarter of 2021.

Also this week we have continued consternation on the Covid delta variant, mask mandates, vaccination rates, and of course the US Olympic medal

count vs China, Australia, Russia, et al..

PETER BLOCK Managing Director

[email protected]

(212) 248-3885

MICHAEL SLONIM Analyst

[email protected]

(212) 248-3876

JOHN YOUNG

Managing Director

[email protected]

(212) 248-3870

PATRICIA MCGRORRY Managing Director

[email protected]

(212) 248-3870

ALAN GRECO Managing Director

[email protected]

(212) 248-3892

Economic Calendar

Monday (7/26) Tuesday (7/27) Wednesday (7/28) Thursday (7/29) Friday (7/30)

New Home Sales Conf. Board Consumer Confi-

dence

FOMC Rate Decision (Upper

Bound)

Initial Jobless Claims U. of Mich. Sentiment

Dallas Fed Manf. Activity Durable Goods Orders MBA Mortgage Applications GDP Annualized QoQ Personal Spending

U.S. To Sell 26-Week Bills Durables Ex Transportation Wholesale Inventories MoM GDP Price Index Personal Income

U.S. To Sell 2-Year Notes Richmond Fed Manufact.

Index

Powell Holds Press Confer-

ence Following FOMC Meeting

Continuing Claims MNI Chicago PMI

Source: Bloomberg

Previous Week Deal Pricings (Week of 7/23/2021)



July 26, 2021

Source: Bloomberg

Municipal Market Update



July 26, 2021

Source: Thomson Reuters (TM3) Source: Bloomberg

Muni Primary Market

Municipal Market Update Ramirez Municipal Strategy

30-Day Visible Supply ($ in millions)

Current 2021 High 2021 Low

Total $ Date $ Date

Total $9,401 $16,737 (6/7) $5,068 (1/4)

Comp. 3,074 5,878 (5/3) 1,617 (1/4)

Neg. 6,327 12,313 (6/7) 2,079 (2/10)

Source: Bond Buyer

Source: Bloomberg

Weekly Supply

($ in millions)

Week of

7/19/21

Total 7,023

Neg. 5,154

Comp. 1,869

Total Taxable 1,867

Taxable % of

Supply

26.6%

Source: Bloomberg, Ramirez

Gross Supply

($ in millions)

As of

7/16/21

Last Week 11,131

12wk Moving Avg. 9,318

YTD 253,347

Total Issuance YoY 5.8%

Taxable Last Week 1,914

Taxable YTD 61,208

Taxable % of YTD 24.2%

Source: Bloomberg

July 26, 2021

New Issue Calendar (Partial)

Issuer State Amount ($mil.) Sale Type Tax Status Ramirez Role

Washington WA 734 Comp TE/Txbl

King County WA 566 Neg TE/Txbl

Philadelphia PA 429 Neg TE/Txbl Co-Sr

Michigan St Housing MI 289 Neg AMT/Txbl Co-Mgr

New Mexico Fin Auth NM 235 Neg TE

Colorado Springs Utilities CO 229 Neg TE

Mass Institute of Technology MA 225 Neg Txbl

Durham NC 217 Neg TE



July 26, 2021

Muni Secondary Market

Source: Bloomberg Source: Bloomberg

US Lipper Fund Flows

Sector Flow Change ($B) YTD ($B)

Tax-Exempt Inflow: 1.727 Inflow: 43.372

Money Market Inflow: 1.899 Inflow: 192.285

Taxable Inflow: 0.315 Inflow: 173.572

Equities Outflow: -8.822 Inflow: 109.435

Source: Lipper Fund Flows Source: Lipper Fund Flows


July 26, 2021

Source: Bloomberg

Taxable Munis Look Rich

Relative Value


July 26, 2021


2021 Muni Cashflow Forecast


July 26, 2021


July 26, 2021

Roll Returns


©2019 Samuel A. Ramirez & Co., Inc., member FINRA, MSRB, SIPC.

This material is proprietary to Samuel A. Ramirez & Co., Inc. or (“Ramirez”) and may not be disclosed to any third party or used for any other

purpose without the prior written consent of Ramirez.

Unless otherwise agreed in writing between you and Ramirez & Co, we are acting solely as a principal/underwriter in an arm ’s length commercial

transaction in which Ramirez has financial and other interests that differ from yours. Ramirez is not acting as a municipal advisor, financial advisor

or fiduciary and the information provided should not be construed as “advice” within the meaning of Section 15B of the Securities Exchange Act of

1934.

The information in this document should not be considered research1 or its content be construed as a solicitation or recommendation. This materi-

al has been prepared for informational purposes only without regard to any particular user's investment objectives, financial situation, or means,

and Ramirez is not soliciting any action based upon it. The Information contained is not an offer to buy or sell or a solicitation of an offer to buy or

sell any security or instrument or to participate in any trading strategy. Ramirez does not provide accounting, tax or legal advice; however, you

should be aware that any proposed indicative transaction could have accounting, tax, legal or other implications that should be discussed with

your advisors and or counsel. The Information should not be relied upon for the maintenance of your books and records or for any tax, account-

ing, legal or other purposes. Subject to applicable law, you may disclose any aspects of any potential transaction or structure described herein

that are necessary to support U.S. federal income tax benefits. The information in this document reflects prevailing conditions and our views as of

this date which, are subject to change. In preparing this material, we have relied upon and assumed, without independent verification, the accura-

cy and completeness of all the information available from internal and public sources or which was provided to us by or on behalf of Ramirez or

which was otherwise reviewed by Ramirez. Even when this material contains a kind of appraisal, it should be considered preliminary, suitable only

for the purpose described herein and not be disclosed or otherwise used without the prior written consent of Ramirez. Bonds are subject to inter-

est rate risk. When interest rates rise, bond prices fall; generally the longer a bond's maturity, the more sensitive it is to this risk. Bonds may also

be subject to call risk, which is the risk that the issuer will redeem the debt at its option, fully or partially, before the scheduled maturity date. The

market value of debt instruments may fluctuate, and proceeds from sales prior to maturity may be more or less than the amount originally invest-

ed or the maturity value due to changes in market conditions or changes in the credit quality of the issuer. Bonds are subject to the credit risk of

the issuer. This is the risk that the issuer might be unable to make interest and/or principal payments on a timely basis. Bonds are also subject to

reinvestment risk, which is the risk that principal and/or interest payments from a given investment may be reinvested at a lower interest rate.

_____________________________________________________________________________________

1 For purposes of the debt Rule FINRA 2242, a “debt security” excludes any equity security, municipal security and security-based swap (each as

define under the Exchange Act) and any US Treasury (as defined in FINRA Rule 6710 (p)).

Samuel A. Ramirez & Co., Inc.

61 Broadway, 29th Floor

New York, NY 10006

July 26, 2021

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