Munis saw losses on the front end of the curve but gains out long, as U.S. Treasuries saw yields fall slightly in spots.
The two-year muni-UST ratio Tuesday was at 69%, the five-year at 66%, the 10-year at 69% and the 30-year at 90%, according to Municipal Market Data's 3 p.m. EDT read. ICE Data Services had the two-year at 68%, the five-year at 66%, the 10-year at 69% and the 30-year at 89% at a 3 p.m. read.
The muni yield curve "continues to flatten, rapidly, with long-end yields rallying with steadily positive fund inflows, lower recent supply and sharply slowing (not to mention increasingly uncertain) economic backdrop that's boosting demand for USTs," said Matt Fabian, president of Municipal Market Analytics.
Yields have fallen the most in intermediate and longer maturities, but the front end has cheapened to appeal to "income-interested buyers," he said.
"That concession to nominal yields is compressing municipal term spreads," the curve caught between the early-buying separately managed accounts and the inflows of muni mutual funds and exchange-traded funds out long, Fabian said.
ETF inflows are at a record $29.1 billion year-to-date, breaking the 2022 record of $28.5 billion, which didn't happen until almost the end of the year, he said, citing Investment Company Institute data.
"So even with [year-to-date] cumulative inflows from traditional mutual funds at the exact average ($13.1 billion) over the last 16 years, fund investment overall (and thus demand for [total return rate]) is fairly good," he said.
Theoretically, term spreads may keep grinding tighter between the two types of buyers, "implying that 'value' buyers are going to keep going lower in credit/rating, keeping credit spreads tight," Fabian said.
With the number of disclosures of first-time payment defaults this year vying for the lowest levels since at least 2019 — potentially even beating 2018's record lows — tight and tightening credit spreads are not out of place, he said.
"There's also every other data point: the federal shutdown, increasing current damage to higher education, impending future damage to hospitals, worsening state and local budgets, higher costs via labor and supplies, the slowing economy, etc.," Fabian said.
Those risks could be "scaring ostensible bond issuers into next year, helping both dealers and buyers manage the flow at lower yields," he said, noting this year will be another record for issuance, but the total will be below $575 billion.
Elsewhere, investor demand for munis is robust and could keep growing, said Tom Kozlik, managing director and head of public policy and municipal strategy at HilltopSecurities.
Muni mutual funds have seen almost $9 billion of inflows since late August, and this trend shows signs of not letting up, he said.
Demand may strengthen as "investors anticipate the Federal Reserve's likely path of rate cuts, which would drive yields even lower," Kozlik said.
As 2025 progresses, supply-demand dynamic is likely to become "less favorable" for buyers, he said.
Investors who wait may miss the opportunity to secure "generationally attractive yields," Kozlik said.
For fixed-income investors, the case for tax-exempt munis is "compelling," he said.
With volatility and uncertainty accelerating, munis offer "stability, tax-advantages, solid credit quality (with careful credit selection), and a proven track record of resilience in market downturns," he said.
In the primary market Tuesday, Truist priced for CPS Energy (Aa3/A+/AA-/) $514.83 million of variable rate junior lien revenue and refunding bonds, Series 2025A, with all bonds priced at par: 3.05s of 2/2049 and 3.1s of 2055.
Goldman Sachs priced for Energy Southeast (A2///) $405.035 million of energy supply revenue bonds, 2025 Series A, with 5s of 11/2030 at 3.56% and 5s of 2035 at 4.04%, callable 8/1/2035.
BofA Securities priced for CPS Energy (Aa2/AA-/AA-/) $346.515 million of revenue refunding bonds, New Series 2025B, with 5s of 2/2027 at 2.66%, 5s of 2030 at 2.62%, 5s of 2035 at 2.90% and 5s of 2/2039 at 3.43%, callable 2/1/2036.
Oppenheimer priced for the Cumberland County Industrial Facilities and Pollution Control Financing Authority (Aa1///) $250 million of Project Aero solid waste disposal revenue bonds, with 3.125s of 12/2027 with a tender date of 12/1/2026 at par, callable 5/1/2026.
Frost Bank priced for Comal Independent School District (Aaa///) $181.09 million of PSF-insured unlimited tax refunding bonds, Series 2025A, with 5s of 2/2027 at 2.60%, 5s of 2030 at 2.55%, 5s of 2035 at 2.90%, 5s of 2040 at 3.51% and 5s of 2042 at 3.76%, callable 2/1/2035.
Wells Fargo priced for the Missouri Joint Municipal Electric Utility Commission (A3//A/) $151.37 million of power project revenue bonds (Marshall Energy Center project), with 5s of 1/2030 at 2.67%, 5s of 2035 at 3.03%, 5s of 2040 at 3.75%, 5s of 2045 at 4.34%, 5s of 2051 at 4.54% and 5.25s of 2056 at 4.54%, callable 1/1/2036.
BofA Securities priced for Pensacola, Florida (/A+/A+/A+/) $110.06 million of AMT airport revenue bonds, Series 2025, with 5s of 10/2026 at 3.12%, 5s of 2030 at 3.10%, 5s of 2035 at 3.59%, 5.25s of 2040 at 4.04%, 5.25s of 2045 at 4.54%, 5.5s of 2050 at 4.63% and 5.5s of 2055 at 4.66%, callable 10/1/2035.
In the competitive market, Fayetteville, North Carolina, (Aa2/AA/AA/) sold $156.135 million of Public Works Commission revenue bonds, to BofA Securities, with 5s of 3/2028 at 2.41%, 5s of 2030 at 2.44%, 5s of 2035 at 2.78%, 5s of 2040 at 3.42%, 4s of 2045 at 4.19%, 4s of 2051 at 4.36%, and 4s of 2055 at 4.40%, callable 3/1/2035.
Lawrence, Kansas, (Aa2///) sold $121.57 million of water and sewage system improvement and refunding revenue bonds, to BofA Securities, with 5s of 11/2026 at 2.53%, 5s of 2030 at 2.45%, 5s of 2035 at 2.90%, 3.75s of 2041 at 3.82%, and 4.125s of 2045 at 4.15%, callable 11/1/2034.
AAA scales
MMD's scale was bumped five years and out: 2.49% (+2) in 2026 and 2.39% (+2) in 2027. The five-year was 2.34% (unch), the 10-year was 2.72% (-2) and the 30-year was 4.11% (-2) at 3 p.m.
The ICE AAA yield curve was bumped in spots outside five years: 2.45% (+2) in 2026 and 2.36% (+1) in 2027. The five-year was at 2.36% (unch), the 10-year was at 2.75% (-2) and the 30-year was at 4.08% (unch) at 3 p.m.
The S&P Global Market Intelligence municipal curve was bumped out long: The one-year was at 2.46% (unch) in 2025 and 2.38% (unch) in 2026. The five-year was at 2.34% (unch), the 10-year was at 2.72% (-3) and the 30-year yield was at 4.09% (-2) at 3 p.m.
Bloomberg BVAL was mixed: 2.43% (+3) in 2025 and 2.38% (+2) in 2026. The five-year at 2.30% (+5), the 10-year at 2.72% (-3) and the 30-year at 4.06% (-1) at 3 p.m.
Treasuries were slightly firmer out long.
The two-year UST was yielding 3.454% (flat), the three-year was at 3.451% (-1), the five-year at 3.558% (-2), the 10-year at 3.958% (-2), the 20-year at 4.516% (-2) and the 30-year at 4.543% (-3) at 3:15 p.m.
Primary to come
The New Jersey Transportation Trust Fund Authority (A1/A/A/A/) is set to price Wednesday $1.5 billion of transportation program bonds, Series 2025 AA. J.P. Morgan.
The New York City Transitional Finance Authority (Aa1/AAA/AAA/) is set to price Wednesday $1.5 billion of future tax secured tax-exempt subordinate bonds, Fiscal 2026 Series B. Siebert Williams Shank.
The Kentucky State Property and Buildings Commission (Aa3//AA-/) is set to price Wednesday $940.27 million of Project No. 133 revenue bonds, consisting of $775 million of Series A bonds and $165.27 million of Series B refunding bonds. BofA Securities.
The Sacramento City Unified School District, California, (/AA//) is set to price Thursday $451.88 million of GO bonds, consisting of $262.5 million of GO 2020 Election (Measure H) bonds, Series C; $143 million of GO 2024 Election (Measure D) bonds, Series A; $9.855 million of 2025 GO refunding bonds, Series A; and $36.525 million of 2025 GO refunding bonds, Series B. Loop Capital Markets.
North Slope Borough, Alaska, (/AA//AA+/) is set to price Wednesday $186.75 million of GOs. Jefferies.
The Oklahoma City Water Utilities Trust (Aaa/AAA//) is set to price Thursday $185.91 million of utility system revenue refunding and improvement bonds. Morgan Stanley.
The Conroe Independent School District, Texas, (Aaa/AAA//) is set to price Wednesday $185.14 million of PSF-insured unlimited tax refunding bonds. RBC Capital Markets.
The Glendale Industrial Development Authority, Arizona, (/AA-/AA/) is set to price Thursday $150 million of Midwestern University revenue. Raymond James.
Metrocare Services (Aa3///) is set to price Wednesday $142.49 million of revenue bonds. Raymond James.
The Maryland Health and Higher Educational Facilities Authority (A1/AA//) is set to price Wednesday $135.565 million of TidalHealth issue revenue bonds, Series 2025C. KeyBanc.
The Village Community Development District No. 16, Florida, is set to price Thursday $127 million of nonrated special assessment revenue bonds. Jefferies.
The Colorado Health Facilities Authority (/A-//) is set to price Thursday $125 million of Craig Hospital Project hospital revenue bonds, consisting of $105 million of Series A and $20 million of Series B. RBC Capital Markets.
The South Carolina Student Loan Corp. (/AA//) is set to price Thursday $112.1 million of taxable senior student loan revenue bonds, Series 2025A. RBC Capital Markets.
Oregon (Aa1/AA+/AA+/) is set to price Thursday $109.44 million of GOs, Series 2025K. Morgan Stanley.
The IPS Multi-School Building Corp., Indiana, (/AA+//) is set to price Wednesday $107.75 million of social ad valorem property tax first mortgage bonds. Stifel.
The Mission Economic Development Corp. (A1///) is set to price Wednesday $100 million of Vinton Steel LLC Project solid waste disposal revenue bonds. Jefferies.
Competitive
Suffolk County, New York, (/AA-/AA-/) is set to sell $188.735 million of public improvement serial bonds, Series 2025A, at 11 a.m. Thursday.
Henrico County, Virginia, (///AAA/) is set to sell $125 million of water and sewer system revenue bonds, Series 2025D, at 10:30 a.m. Thursday.
