Munis sold off across the curve, with the front end once again hit the hardest. U.S. Treasuries saw yields hit new highs, surging double digits throughout most of the curve. Equities ended lower.
Muni yields were cut six to 18 basis points, depending on the scale. UST yields rose nine to 15 basis points, with the five-year UST briefly topping 5%, its highest level since 2007.
Rates sold off hard and broke technical levels Wednesday, said James Pruskowski, managing director at Hennion & Walsh.
Flash purchasing managers index showed a "broad surge" in U.S. business activity, reigniting inflation fears and leaving the door open for more rate hikes. Additionally, oil shot up again, he said.
"The higher-for-longer camp got more bragging rights today, and sentiment felt it," Pruskowski said.
Munis saw large cuts across the curve, he said.
Yields have been slow to reprice Federal Reserve expectations, but on Wednesday, they caught up fast, Pruskowski said.
Bid-wanted lists got hit hard, while fund outflows may be more than just the beginning of tax-loss swap season, Pruskowski said.
Wednesday's move reset valuations faster than most expected, he noted.
Non-traditional buyers started to "source blocks" in the long end Wednesday; "selectively, but they were there," Pruskowski said.
"Historically, these are the levels where traditional and non-traditional demand can move in opposite directions," he said. That is a big thing for a market trying to find support."
ICI data
The Investment Company Institute Wednesday reported outflows of $2.276 billion for the week ending Sept. 16, following $45 million of inflows the previous week.
This is the largest outflow figure since the week ending Oct. 29, 2025.
Exchange-traded funds saw inflows of $1.724 billion after $1.231 billion of inflows the week prior, per ICI data.
New-issue market
In the primary market Wednesday, Morgan Stanley priced for the Texas Water Development Board (/AAA/AAA/) $893.78 million of State Water Implementation Revenue Fund for Texas revenue bonds, with 5s of 4/2026 at 3.31%, 5s of 4/2031 at 3.60%, 5s of 10/2031 at 3.62%, 5s of 4/2036 at 3.98%, 5s of 10/2036 at 4.03%, 4.75s of 10/2041 at par, 5s of 10/2046 at 4.83%, 5.125s of 10/2051 at 5.10%, 5.25s of 10/2056 at 5.18% and 5.25s of 10/2061 at par, callable 10/2036.
Wells Fargo priced for Chicago (/A+/A+/A+/) on behalf of Chicago O'Hare International Airport $519.02 million of non-AMT general airport senior lien revenue funding bonds. The first tranche, $292.955 million of Series 2026C bonds, saw 5s of 1/2027 at 3.38%, 5s of 2031 at 3.69%, 5s of 2036 at 4.15%, 5s of 2041 at 4.72% and 5s of 2042 at 4.79%, callable 1/2037.
The second tranche, $226.065 million of Series 2026D bonds, saw 5s of 1/2027 at 3.38%, 5s of 2031 at 3.69%, 5s of 2036 at 4.15%, 5s of 2041 at 4.72%, 5.25s of 2046 at 4.97% and 5s of 2052 at 5.25%, callable 1/2037.
In the competitive market, the California State Public Works Board (Aa3/A+/AA-/) sold $357.73 million of lease revenue refunding bonds to J.P. Morgan, with 5s of 9/2027 at 3.20%, 5s of 2031 at 3.50%, 5s of 2036 at 3.93% and 5s of 2039 at 4.25%, noncall.
