Municipals were firmer Tuesday as U.S. Treasury yields fell and equities ended up.
Muni yields were bumped one to four basis points, depending on the scale, while UST yields fell up to seven basis points out long.
As the last third of January progresses, munis are in the red, with losses of 0.31%, according to Jason Wong, vice president of municipals at AmeriVet Securities.
Underperforming since the calendar turned, “munis have continued to cheapen over the past three weeks as Treasury returns are about flat for the year while munis are down 0.31%,” he said.
This has pushed muni-UST ratios higher by 1 to 1.5 percentage points in the two to 10-year maturities and by 3 percentage points in the 30-year ratio, Wong said.
The two-year municipal to UST ratio Tuesday was at 65%, the five-year at 65%, the 10-year at 68% and the 30-year at 83%, according to Municipal Market Data’s 3 p.m. EST read. ICE Data Services had the two-year at 65%, the five-year at 65%, the 10-year at 67% and the 30-year at 81% at 4 p.m.
“This is positive news for investors interested in the long end of curve as the 30-year ratio reached a high of 90.48% for 2024 in September to a low of 78.43% within 90 days,” he said.
However, more broadly, “volatility (to both the upside and downside) is expected this year, as the market is hyper fixated on economic data and will also contend with potential policy shifts in Washington as well as expected heavy municipal issuance,” said Daryl Clements, a municipal portfolio manager at AllianceBernstein.
“Investors should remember that it is extremely difficult to time this volatility and so should rely on the power of income to help dampen volatility as opposed to trying to time the market,” he said.
Yields rose at the start of last week, “only to reverse course following Wednesday’s inflation data, which was a welcome sigh of relief for the market,” Clements said.
For the week as a whole, the muni market significantly underperformed USTs with yields falling two to three basis points across most maturities, Birch Creek strategists said.
“The tone started off quite weak with a heavy dose of [bids wanteds] to kick things off in the face of a nearly $13 billion primary calendar,” they said.
Some of the increased selling pressure stemmed from accounts looking to cut risk related to the
Furthermore, with IG muni mutual funds seeing $495 million of outflows and “underwriters sending around attractive premarketing levels, many funds rushed to raise cash,” they said.
That said, Birch Creek strategists added, “the underperformance and attractive absolute yield levels seem to pull buyers back into the market.”
Many deals were oversubscribed and bumped, according to Birch Creek strategists.
In the secondary, there was a significant uptick in customer purchases, with volumes on 10 years and out rising between 53% and 72%, they said, citing J.P. Morgan data.
A broad buyer base was reported by dealers as accounts “looked to accomplish a variety of portfolio needs.”
“While ratios are off their lows seen earlier this month, munis will struggle to outperform in the face of a robust slate of issuance expected this year,” Birch Creek strategists said.
As such, they think this year’s return “will come from the running yield offered, which seems to be attractive on a tax-adjusted basis,” they said.
In the primary market Tuesday, J.P. Morgan accelerated a pricing for the Idaho Health Facilities Authority (/A/A+/) with $581.645 million of St. Luke’s Health System Project revenue bonds. The first tranche, $396.935 million of fixed-mode Series 2025A bonds, saw 5s of 3/2026 at 3.05%, 5s of 2030 at 3.27%, 5s of 2035 at 3.56%, 5s of 2040 at 3.89%, 5s of 2045 at 4.32%. 5.25s of 2050 at 4.44%, 4.375s of 2053 at 4.57% and 5.25s of 2053 at 4.48%, callable 3/1/2035.
The second tranche, $92.67 million of term mode Series 2025B bonds, saw 5s of 3/2060 with a mandatory put date of 3/1/2032 at 3.47%, callable 9/1/2031.
The third tranche, $92.04 million of term mode Series 2025C bonds, saw 5s of 3/2060 with a mandatory put date of 3/1/2035 at 3.72%, callable 9/1/2034.
AAA scales
MMD’s scale was bumped four basis points: The one-year was at 2.76% (-4) and 2.78% (-4) in two years. The five-year was at 2.88% (-4), the 10-year at 3.11% (-4) and the 30-year at 4.00% (-4) at 3 p.m.
The ICE AAA yield curve was bumped one to four basis points: 2.77% (-3) in 2026 and 2.81% (-2) in 2027. The five-year was at 2.88% (-1), the 10-year was at 3.08% (-3) and the 30-year was at 3.91% (-4) at 4 p.m.
The S&P Global Market Intelligence municipal curve was bumped: The one-year was at 2.75% (-4) in 2025 and 2.78% (-4) in 2026. The five-year was at 2.84% (-4), the 10-year was at 3.06% (-4) and the 30-year yield was at 3.92% (-4) at 4 p.m.
Bloomberg BVAL was bumped three to four basis points: 2.72% (-3) in 2025 and 2.78% (-3) in 2026. The five-year at 2.89% (-4), the 10-year at 3.14% (-4) and the 30-year at 3.95% (-4) at 4 p.m.
Treasuries were weaker inside 10 years.
The two-year UST was yielding 4.273% (-1), the three-year was at 4.319% (-3), the five-year at 4.386% (-5), the 10-year at 4.561% (-7), the 20-year at 4.867% (-6) and the 30-year at 4.791% (-7) at the close.
Primary to come
The Regents of the University of California (Aa2/AA/AA/) is set to price Thursday $2 billion of general revenue refunding bonds, 2025 Series BZ. Morgan Stanley.
The Massachusetts Clean Water Trust (Aaa/AAA/AAA/) is set to price Thursday $541.155 million of State Revolving Fund bonds, consisting of $261.77 million of Series 2026A green bonds, serials 2026-2042; $146.61 million of Series 2026B sustainability bonds, serials 2039-2045; and $132.775 million of Series 2025 green bonds, serials 2026-2037. Jefferies.
Portland, Oregon, (Aa2/AA//) is set to price Thursday $508.935 million of second lien sewer system revenue refunding bonds, consisting of 422.365 million of Series A, serials 2025-2044, terms 2049, 2054, and $86.57 million of Series B, serials 2026-2031. BofA Securities.
The Massachusetts Development Finance Agency (/BBB+/A-/) is set to price Thursday $337.825 million of UMass Memorial Health Care Obligated Group revenue refunding bonds, Series N, consisting of $237.825 million of Series N-1, and $100 million of Series N-2. Morgan Stanley.
The Maryland Health and Higher Educational Facilities Authority (A2/A//) is set to price Wednesday $300.96 million of University of Maryland Medical System revenue bonds, consisting of $227.915 million of Series A and $73.045 million of Series B. Morgan Stanley.
The Connecticut Housing Finance Authority (Aaa/AAA//) is set to price Thursday $300 million of social housing mortgage finance program bonds, consisting of $100 million of 2025 Subseries A-1 bonds, serials 2025-2029, terms 2044, 2049, 2051, and $200 million of 2025 Subseries A-2 taxables, serials 2029-2036, terms 2039, 2044,2047, 2055. RBC Capital Markets.
The South Dakota Housing Development Authority (Aaa/AAA//) is set to price Thursday $200 million of homeownership mortgage bonds, consisting of $160 million of Series A non-AMT bonds, serials 2029-2030, 2036-2037, terms 2040, 2045, 2050, 2055, and $40 million of Series B taxables, serials 2026-2036. BofA Securities.
The Washington Health Care Facilities Authority (A2//A+/) is set to price Wednesday $172.075 million of Fred Hutchinson Cancer Center revenue bonds, Series 2025A, serials 2026-2045. BofA Securities.
Long Beach, California, (Aa2/AA+//) is set to price Thursday $119.945 million of non-AMT harbor revenue and revenue refunding bonds, Series 2025A, serials 2026-2042. BofA Securities.
Competitive
Washington state (Aaa/AA+/AA+/) is set to sell $89.185 million of various purpose GOs, Series 2025C — Bid Group 1, at 10:15 a.m. eastern Wednesday; $319.525 million of various purpose GOs, Series 2025C — Bid Group 2, at 10:45 a.m. Wednesday; $344.06 million of various purpose GOs, Series 2025C — Bid Group 3, at 11:15 a.m. Wednesday; and $422.65 million of motor vehicle, fuel tax and vehicle-related fees GO bonds, Series 2025D, at 11:45 a.m. Wednesday.
Fairfax County, Virginia, (Aaa/AAA/AAA/) is set to sell $377.815 million of public improvement bonds, Series 2025A, at 10:15 a.m. Wednesday.
Mecklenburg County, North Carolina, (Aaa/AAA/AAA/) is set to sell $278.555 million of GO school bonds, Series 2025B, at 11 a.m. Wednesday.
Nevada (Aa1/AA+/AA+/) is set to sell $174.9 million of GO limited tax of capital improvement and cultural affairs refunding bonds, Series 2025A, at 11:30 a.m. Wednesday.
Greenwich, Connecticut, is set to sell $120 million of GO anticipation notes, Issue of 2025, at 11:30 a.m. eastern Thursday.