Munis rallied Wednesday, as U.S. Treasuries cheapened and equities ended mixed.
Muni yields richened by six to 18 basis points, with the biggest gains at the front and belly of the curve.
Muni-to-UST ratios fell by two to three percentage points across the curve.
UST yields cheapened by two to seven basis points, with the biggest losses at the long end.
The rally was not enough to reverse last week's losses. Yields are still higher than on Friday, when MMD placed the two-year muni yield at 3.46%, the 10-year at 4.05% and the 30-year at 5.05%.
The rally has been driven by strong exchange-traded fund inflows, in recognition of the market's strong absolute yields, according to Peter Delahunt, head of the municipal bond department at StoneX. Exchange-traded funds have had "a huge amount of creations" in the last two days.
The rally coincides with the release of
Delahunt noted munis and USTs are now "moving in opposite directions," and munis' relative value is weakening.
"We've become less attractive as a fixed income asset class than we were yesterday, but the absolute yields are still sexy enough to get the investors to be in buying, and they're doing their buying predominantly through ETFs," Delahunt said.
The sharp turn from losses to gains was driven by "fear and greed," Delahunt said. Investors were concerned about the economy and the war in Iran.
"As rates became attractive, and word got out that, 'Oh my God, I can lock in 5% tax-free.' Then there became the fear of missing out, and greed took over," Delahunt said.
ICI data
The Investment Company Institute Wednesday reported outflows of $2.073 billion for the week ending Sept. 23, following $2.276 billion of outflows the previous week. LSEG reported $633 million of inflows over the same period.
Exchange-traded funds saw inflows of $2.973 million after $1.724 billion of inflows the prior week, per ICI data.
New-issue market
In the primary market Wednesday, Goldman Sachs priced for the California Health Facilities Financing Authority (Aa2/AA/AA/) $478.04 million of Stanford Health Care revenue bonds. The first tranche, $300 million of Series 2026A bonds, saw 5s of 8/2031 at 3.99%, callable 5/2031.
The second tranche, $178.04 million of Series 2026B bonds, saw 5s of 8/2035 at 4.26%, callable 5/2035.
In the competitive market, Kansas (Aa3//AA-/) sold $126.85 million of State of Kansas Project revenue bonds. The first series, $107.41 million of tax-exempt Series 2026L bonds, sold to BofA Securities with 5s of 5/2030 at 3.82%, 5s of 2031 at 3.91%, 5s of 2036 at 4.27%, 5s of 2041 at 4.80% and 5s of 2046 at 5.10%, callable 5/2034.
The second series, $19.44 million of taxable Series 2026M bonds, sold to Piper Sandler with 5s of 5/2027 at par and 5.4s of 2030 at 5.56%, noncall.
