Municipals richened slightly Tuesday as U.S. Treasuries were slightly firmer and equities down ahead of the Federal Open Market Committee decision.
The two-year muni-UST ratio Tuesday was at 57%, the five-year at 59%, the 10-year at 71% and the 30-year at 91%, according to Municipal Market Data's 3 p.m. ET read. ICE Data Services had the two-year at 56%, the five-year at 58%, the 10-year at 70% and the 30-year at 91% at a 4 p.m. read.
The municipal market was a touch firmer Tuesday, following last week's "impressive" but unsurprising rally in longer-maturity bonds, said Daryl Clements, a portfolio manager at AllianceBernstein.
"It was only a matter of time until the bonds that were extremely cheap would outperform shorter-maturity bonds," he said.
Also, the "obscenely" steep muni yield curve was expected to flatten at some point, Clements said.
Looking at both "the fact that the slope of the municipal yield curve remains extremely steep and long bonds are cheap relative to U.S. Treasuries," Clements predicts "long municipal bonds have a long way to go until they are considered fair value."
Short-maturity bonds have become expensive as investor demand has driven yields downward, he said.
"If yields fall just 50 basis points over the next 12 months, the five-year and 20-year indices would return approximately 4.4% and 9.2%, respectively," Clements said. "Given the expensiveness of the short end of the yield curve and the cheapness in the long end, it's more likely long bond yields will fall more than short bond yields."
This week,
The 30-year AAA consensus spot for municipal bonds is 30 basis points lower than two weeks ago, while the offered side curve outperformed that by roughly 25%, he said.
Treasuries were "more nuanced" last week compared to munis, as the yields on the two-year cheapened slightly and the 30-year richened somewhat, Fabian said, highlighting the likelihood that "investors feel a Fed cut is already priced in."
Fabian reports relative price movements — offered curve stronger than MMA, which was stronger than USTs — allude to an "overbought offered side," even with the Fed rate cuts on the horizon.
"'Overbought' could just mean 'early' if [USTs] and the rest of fixed income rally as well as they might after a Fed cut, he said.
A smaller calendar for this week "presents an easier challenge for underwriters, who have themselves cut in-house inventories to nearly the lightest of the year," Fabian said. "But 'overbought' still means buyers [should] be cautious with purchases."
In the primary market, Goldman Sachs priced for the Metropolitan Transportation Authority (A2/A/AA/AA/) an upsized $1.403 billion of green climate bond-certified transportation revenue refunding bonds, Series 2025B, with 5s of 11/2026 at 2.46%, 5s of 2030 at 2.70%, 5s of 2035 at 3.39%, 5s of 2041 at 4.21% and 5s of 2043 at 4.39%, callable 11/2035.
Morgan Stanley priced for the California Community Choice Financing Authority (/A+//) $1.004 billion of green clean energy project revenue bonds, Series 2025C, with 5s of 10/2028 at 3.02%, 5s of 4/2030 at 3.25%, 5s of 10/2030 at 3.28% and 5s of 10/2033 at 3.85%, callable 7/2033.
Ramirez priced for the Philadelphia Authority for Industrial Development (A1/A+/A+/) $170.27 million of city service agreement revenue bonds. The first tranche, $128.79 million of Rebuild Project bonds, Series 2025A, saw 5s of 12/2026 at 2.34%, 5s of 2030 at 2.44%, 5s of 2035 at 3.25%, 5s of 2040 at 3.90% and 5s of 2045 at 4.39%, callable 12/2035.
The second tranche, $41.48 million of Cultural and Commercial Corridors Program refunding bonds, Series 2025B, saw 5s of 12/2025 at 2.47%, 5s of 2030 at 2.44% and 5s of 2031 at 2.63%, noncall.
BofA Securities priced for Sarasota County, Florida, (/AA+/AA+/) $142.36 million of utility system revenue bonds, with 5s of 10/2028 at 2.08%, 5s of 2030 at 2.23%, 5s of 2035 at 2.98%, 5s of 2040 at 3.74%, 5s of 2045 at 4.17%, 5s of 2050 at 4.40% and 5.25s of 2055 at 4.38%, callable 10/2035.
AAA scales
MMD's scale was bumped up to two basis points: The one-year was at 2.12% (unch) and 2.00% (unch) in two years. The five-year was at 2.13% (-2), the 10-year at 2.86% (-2) and the 30-year at 4.21% (unch) at 3 p.m.
The ICE AAA yield curve was bumped up to two basis points: 2.05% (unch) in 2026 and 1.99% (unch) in 2027. The five-year was at 2.10% (-2), the 10-year was at 2.83% (-2) and the 30-year was at 4.22% (-2) at 4 p.m.
The S&P Global Market Intelligence municipal curve was bumped up to three basis points: The one-year was at 2.11% (unch) in 2025 and 1.99% (unch) in 2026. The five-year was at 2.15% (-1), the 10-year was at 2.87% (-3) and the 30-year yield was at 4.21% (-2) at 3 p.m.
Bloomberg BVAL was bumped up to two basis points: 2.04% (unch) in 2025 and 2.00% (-1) in 2026. The five-year at 2.09% (-1), the 10-year at 2.83% (-2) and the 30-year at 4.17% (-1) at 4 p.m.
Treasuries were slightly firmer.
The two-year UST was yielding 3.514% (-3), the three-year was at 3.482% (-2), the five-year at 3.594% (-1), the 10-year at 4.037% (flat), the 20-year at 4.617% (flat) and the 30-year at 4.654% (-1) near the close.
Primary to come
Leander, Texas, (Aa1/AA//) is set to price Thursday $132.105 million of combination tax and revenue certificates of obligation. FHN Financial.
Competitive
The Greenville County School District, Georgia, (MIG1/A-1+//) is set to sell $185.5 million of GOs (South Carolina School District Credit Enhancement Program), Series 2025C, at 11:30 a.m. Eastern Thursday.
The Clover School District No. 2, South Carolina, (MIG1///) is set to sell $156 million of GO bond anticipation notes at 11 a.m. Wednesday.
Tulsa, Oklahoma, (Aa1/AA//) is set to sell $107.705 million of GOs, Series 2025A, at noon Wednesday.
Jessica Lerner contributed to this story.
