Municipal bond yields rose up front for the second consecutive session as investors digested another hefty new-issue calendar led by retail offerings from California and Connecticut, while U.S. Treasuries saw losses across the curve and equities were down.
Triple-A yields rose up to five basis points on the short end, depending on the curve. The two-year muni-UST ratio Wednesday was at 59%, the five-year at 59%, the 10-year at 70% and the 30-year at 89%, according to Municipal Market Data's 3 p.m. ET read. ICE Data Services had the two-year at 59%, the five-year at 60%, the 10-year at 70% and the 30-year at 90% at a 3 p.m. read.
The final days of the third quarter have both "brought a roller coaster ride in yields and shifted outlooks for Q4," said Kim Olsan, senior fixed income portfolio manager at NewSquare Capital.
"A modest bear flattener has emerged and moved the 5-year/1-year MMD slope to just 1 basis point," Olsan said. "The 1-3 year range became overbought earlier in the month on optimism of a rate cut and may have turned out to be a buy-the-rumor-sell-the-news trade."
Across the last three months, one-year maturities "have seen a one-way trade down in yield
A rally earlier this month in bids wanteds "substantiated greater risk taking but appears to have negated active selling as well," Olsan said, highlighting that Bloomberg calculations for daily bid list volume show an average of $985 million for September.
This figure, she added, is "well below the $1.27 billion figure in the prior eight months" as "demand by quality and tenor is more fragmented as buyers balance duration against credit strength."
Municipal fund flows have remained strong in recent weeks. Inflows totaled $1.136 billion for the week ending Sept. 17, according to the Investment Company Institute. Exchange-traded funds saw inflows of $953 million for the same reporting period.
Tax-exempt municipal money market funds saw inflows of $37.1 million for the week ending Monday following $1.314 billion of outflow the week prior, according to the Money Fund Report, a weekly publication of EPFR. The inflows bring total assets to $136.988 billion.
The average seven-day simple yield for all tax-free and municipal money-market funds fell to 2.29% from 2.35% a week prior.
"Muni issuance remains heavy with continued investor absorption, and with market opportunities presenting themselves, muni fund flows have been quite strong," according to a New York strategist.
Moving out further along the muni yield curve finds that "valuations become cheaper," which is "exhibited by the steepness of the curve," the strategist said.
"After spending extended time in a performance holding tank, long bond performance has been showing meaningfully improved returns," the strategist said.
Expectations for "1-2 more policy rate cuts through the end of the year" will support the trend of money from low-yielding cash and money market funds "flowing into mutual fund complexes to capture and preserve tax-advantaged value," the strategist said. "This dynamic tends to promote duration extensions as the risk/reward calculus becomes more compelling."
"While unforeseen data with a displacement in the Treasury market that may derail the easing trajectory, or perhaps a credit or liquidity event, could impact fund flow activity, such circumstances are not anticipated," the strategist added.
In the primary market Wednesday, Wells Fargo priced for retail investors $2.149 billion of GOs for California (Aa2/AA-/AA//). The first tranche, $689.545 million of various purpose GOs, saw 5s of 8/2026 at 2.21%, 5s of 2031 at 2.49%, 5s of 2035 at 3.05%, 5s of 2041 at 3.78%, 5s of 2044 at 4.06%, 5s of 2050 at 4.31% and 5.25s of 2055 at 4.31%, callable 8/2035.
The second tranche, $1.46 billion of various purpose refunding GOs, saw 5s of 2/2026 at 2.21%, 5s of 8/2026 at 2.21%, 5s of 8/2030 at 2.33%, 3s of 8/2030 at 2.48%, 5s of 8/2035 at 3.05% and 5s of 8/2045 at 4.12%, callable 8/2035.
BofA Securities priced for the Texas Water Development Board (/AAA/AAA/) $1.846 billion of Master Trust state water implementation revenue fund revenue bonds, with 5s of 4/2026 at 2.26%, 5s of 10/2026 at 2.28%, 5s of 4/2030 at 2.36%, 5s of 10/2030 at 2.39%, 5s of 4/2035 at 3.06%, 5s of 10/2035 at 3.12%, 5s of 10/2040 at 3.76%, 4.5s of 10/2045 at 100%, 4.75s of 10/2050 at 4.72%, 4.75s of 10/2055 at 100% and 5s of 10/2060 at 4.60%, callable 10/2035.
Morgan Stanley priced for retail investors $1.515 billion of GOs for Connecticut (Aa2/AA-/AA/AA+). The first tranche, $800 million of Series C bonds, saw 5s of 8/2026 at 2.36%, 5s of 2030 at 2.43%, 5s of 2035 at 3.15%, 5s of 2040 at 3.79% and 5s of 2045 at 4.25%, callable 8/2035.
The second tranche, $714.62 million of Series 2025D refunding bonds, saw 5s of 08/2026 at 2.36%, 5s of 2030 at 2.43% and 5s of 2035 at 3.15%. Noncall.
AAA scales
MMD's scale was cut up to three basis points: 2.21% (+3) in 2026 and 2.11% (+3) in 2027. The five year was at 2.19% (unch), the 10-year was at 2.91% (unch) and the 30-year was at 4.24% (unch) at 3 p.m.
The ICE AAA yield curve saw small cuts: 2.17% (+1) in 2026 and 2.12% (+5) in 2027. The five-year was at 2.20% (+4), the 10-year was at 2.90% (+3) and the 30-year was at 4.26% (+2) at 3 p.m.
The S&P Global Market Intelligence municipal curve was cut: The one-year was at 2.20% (+4) in 2025 and 2.10% (+4) in 2026. The five-year was at 2.19% (unch), the 10-year was at 2.91% (unch) and the 30-year yield was at 4.25% (unch) at 3 p.m.
Bloomberg BVAL was cut: 2.12% (+5) in 2025 and 2.09% (+5) in 2026. The five-year at 2.18% (+5), the 10-year at 2.88% (+3) and the 30-year at 4.22% (+1) at 3 p.m.
Primary to come
Texas (/AAA/AAA/) is set to price Thursday $761.98 million of GO water financial assistance bonds (State Water Plan), with $444.725 million of Series 2025E bonds and $317.245 million of taxable Series 2025F bonds. BofA Securities.
The Michigan State Housing Development Authority (Aa2/AA+//) is set to price Thursday $547.5 million of single-family mortgage revenue bonds, consisting of $412.105 million of non-AMT bonds, Series 2025C, and $135.395 million of taxables, Series 2025D. RBC Capital Markets.
Competitive
The North Texas Municipal Water District (Aa2/AAA//) is set to sell $286.84 million of regional wastewater system revenue refunding and improvement bonds at 11:30 a.m. Thursday.
The North Texas Municipal Water District (Aa1/AAA//) is set to sell $152.18 million of Upper East Fork wastewater interceptor system contract revenue refunding and improvement bonds at noon on Thursday.
The Pinellas County School District is set to sell $150 million of tax anticipation notes at 11 a.m. Thursday.
