Munis were firmer on the front end and belly of the curve Wednesday, as U.S. Treasuries were narrowly mixed and equities ended mixed.
The two-year muni-UST ratio Wednesday was at 60%, the five-year at 57% the 10-year at 61% and the 30-year at 87%, according to Municipal Market Data's 3 p.m. EDT read. The two-year muni-UST ratio was at 60%, the five-year at 57%, the 10-year at 61% and the 30-year at 87%, according to ICE Data Services.
The Investment Company Institute Wednesday reported inflows of $1.911 billion for the week ending Jan. 28, following $2.331 billion of inflows the previous week.
Exchange-traded funds saw inflows of $2.021 billion after $467 million of inflows the week prior, per ICI data.
While muni yields fell further Wednesday, yields have seen "intermittent volatility from broader macro and geopolitical crosscurrents, keeping sentiment cautious despite relatively muted headline moves," said James Pruskowski, managing director at Hennion & Walsh.
In the near term, muni returns may struggle, said Cooper Howard, director of fixed income research and strategy at Charles Schwab.
"Munis outperformed most other fixed-income asset classes in January, which pulled relative yields lower," he said. "This poses a risk to near-term performance."
Very strong January municipal bond demand was "key" for the market, as mutual funds saw over $7 billion in inflows, including more than $2 billion last week, said Tom Kozlik, managing director and head of public policy and municipal strategy at HilltopSecurities, citing LSEG Lipper data.
Strong demand is expected again in February, but light issuance is expected at least for the first full week of February, he said.
For the year, though, munis are expected to have another record year of supply with estimates ranging from $520 billion to $600-plus billion, said Patricia Healy, senior vice president and director of fixed income research at Cumberland Advisors.
A substantial portion of this issuance will be earmarked for infrastructure needs, from roads, bridges, and airports to electric power and water systems, after years of underinvestment that leaves room for additional issuance, she noted.
Supply and credit dynamics, though, are mixed, Pruskowski said.
"Recent supply pressure and geopolitical concerns have weighed on pricing, while select credits, particularly utilities, are trading better and seeing renewed investor interest," he said.
Elsewhere, longer-dated munis continue to attract demand "even with valuations extended and absolute yields less compelling," Pruskowski said.
Compared to the rest of the investment-grade muni market, longer-term munis offer compelling relative yields, Howard said.
"We favor a benchmark duration but a barbell strategy can be a beneficial way to target an allocation to longer-term munis," he said.
The risk, though, is that yields rise and underperform other comparable fixed-income investments, Howard said.
Meanwhile, upgrades outpaced downgrades last year, but most sector outlooks are stable, except for the few with negative outlooks, Healy said.
Higher education and school districts are contending with an aging population and competition, while tariffs and changing supply routes pose issues for ports, she said.
Meanwhile, electric utilities are "investing in aging infrastructure and will need to raise rates at a time when affordability is a concern for many and could reduce the ability to raise rates to keep financial margins from eroding," Healy said.
New-issue market
In the primary market Wednesday, Goldman Sachs priced for the Central Valley Energy Authority (A2///) $739.68 million of commodity supply revenue bonds, with 5s of 8/2029 at 3.27%, 5s of 2031 at 3.46% and 5s of 2034 at 3.82%, callable 5/1/2034.
AAA scales
MMD's scale was bumped 19 years and in: 2.12% (-4) in 2027 and 2.13% (-3) in 2028. The five-year was 2.19% (-2), the 10-year was 2.60% (-2) and the 30-year was 4.29% (unch) at 3 p.m.
The ICE AAA yield curve was bumped up to three basis points: 2.17% (-1) in 2027 and 2.15% (-2) in 2028. The five-year was at 2.17% (-3), the 10-year was at 2.63% (-3) and the 30-year was at 4.24% (unch) at 4 p.m.
The S&P Global Market Intelligence municipal curve was bumped three basis points on the front end and belly of the curve: The one-year was at 2.11% (-3) in 2027 and 2.12% (-3) in 2028. The five-year was at 2.19% (-3), the 10-year was at 2.59% (-2) and the 30-year yield was at 4.24% (unch) at 3 p.m.
Bloomberg BVAL was bumped three basis points on the front end: 2.15% (-3) in 2027 and 2.13% (-3) in 2028. The five-year at 2.18% (-2), the 10-year at 2.59% (-1) and the 30-year at 4.16% (unch) at 4 p.m.
U.S. Treasuries were narrowly mixed.
The two-year UST was yielding 3.56% (-1), the three-year was at 3.639% (-1), the five-year at 3.834% (flat), the 10-year at 4.279% (+1), the 20-year at 4.863% (+2) and the 30-year at 4.914% (+2) near the close.
Primary to come
The
Cartersville, Georgia, (Aa3/AA-//) is set to price Thursday $240.955 million of water and sewer revenue bonds. Raymond James.
The Maryland Health and Higher Educational Facilities Authority (A2/A//) is set to price Thursday $189.395 million of MedStar Health issue revenue bonds, Series 2026C. J.P. Morgan.
Competitive
The Washington Suburban Sanitary District, Maryland, (Aaa/AAA/AAA/) is set to sell $366.565 million of consolidated public improvement bonds of 2026 at 10:15 a.m. Eastern Thursday.
