Municipal yields rose across the curve with the largest losses up front Tuesday as some secondary selling pressure emerged while a large slate of new deals priced in the primary. U.S. Treasuries yields fell slightly and equities were down near the close.
Triple-A yields rose anywhere from two to six basis points with the bigger cuts on the short end, while USTs fell one to three with the biggest gains out long.
The two-year muni-UST ratio Tuesday was at 58%, the five-year at 60%, the 10-year at 71% 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 57%, the five-year at 58%, the 10-year at 69% and the 30-year at 89% at a 4 p.m. read.
Municipals had been outperforming USTs and rallied ahead of the
Indeed, the municipal outperformance of Treasuries moved the 10-year muni-UST ratios down from 76% to around 70% over the prior 13 consecutive sessions, noted J.P. Morgan strategists led by Peter DeGroot.
Still, "relative value persists in the longest portions of the municipal market, whether comparing levels with their own historical pattern, or versus similar-term and rated taxable fixed income," DeGroot said.
Fabian noted that mutual fund flows "need some discussion" as the recent large inflows reported by ICI show investors are reasonably extending duration, and money funds have begun to see outflows.
Indeed, he pointed out Monday that short and intermediate maturities were "apt to face more resistance if yields fall below separately managed account-interested thresholds," he said, adding that net demand overall faded Thursday and Friday.
DeGroot said that muni funds saw modest net inflows of $21 million Monday, as open-end funds took in $89 million, while ETFs saw $68 million of outflows.
"This follows a broader inflow streak of 27 positive sessions, which has seen signs of waning," he added.
Short trading Tuesday echoed this.
The new-issue calendar picked up following the Fed week pause, which may drive underwriters "back into a more conservative pricing mode to raise the odds of successful delivery," Fabian said. Fabian also pointed to signs of labor market distress – which may outweigh inflationary signals for now – that directly impacts state and local credit quality: a key difference with "risk free" USTs.
"Not that municipal credit has yet weakened, but in the context of nosebleed ratios, the risk/reward for new purchases by anyone with an eye on taxables has to be concerning right now," he said.
In the primary market Tuesday, the largest deal of the day came from the competitive sale of gilt-edged Minnesota (Aaa/AAA/AAA/).
The state sold $1.260 billion total in six series. The first tranche, $271.18 million of state various purpose GOs, Series 2025A, Bidding Group 1, went to BofA Securities with 5s of 8/2026 at 2.25%, 5s of 2030 at 2.26% and 5s of 2035 at 2.99%. Noncall.
The second tranche, $275.2 million of state various purpose GOs, Series 2025A, Bidding Group 2, to Wells Fargo with 5s of 8/2036 at 3.13%, 5s of 2040 at 3.65% and 5s of 2045 at 4.08%, callable 8/2035.
The third tranche, $294.915 million of state trunk highway GOs, Series 2025B, to J.P. Morgan Securities with 5s of 8/2026 at 2.25%, 5s of 2030 at 2.28%, 5s of 2035 at 2.99%, 5s of 2040 at 3.64% and 4.25s of 2045 at 4.35%, callable 8/2035.
The fourth tranche, $234.675 million of state various purpose refunding GOs, Series 2025D, to BofA Securities with 5s of 8/2026 at 2.25%, 5s of 2030 at 2.26% and 5s of 2035 at 2.99%. Noncall.
The fifth tranche, $158.69 million of state trunk highway refunding GOs, Series 2025E, to Morgan Stanley with 5s of 8/2026 at 2.27%, 5s of 2030 at 2.25% and 5s of 2035 at 2.97%. Noncall.
The sixth tranche, $25.6 million of taxable various purpose bond GOs, Series 2025C, to Piper Sandler with 3.67s of 8/2026 at 3.67%, 4s of 2030 at 3.74% and 4.33s of 2035 at 4.33%. Noncall.
In the negotiated market, Goldman Sachs priced for the Black Belt Energy Gas District (A1///) $972.09 million of gas project revenue bonds, Series 2025E, with 5s of 5/2028 at 3.12%, 5s of 2030 at 3.23% and 5s of 2035 at 4.00%, callable 2/2035.
Jefferies priced for the San Diego Public Facilities Financing Authority (/AA-/AA/) $612.535 million of lease revenue and lease revenue refunding bonds (capital improvement and refunding projects), Series 2025A, with 5s of 10/2026 of 1.93%, 5s of 2030 at 1.95%, 5s of 2035 at 2.74%, 5s of 2040 at 3.60%, 5s of 2045 at 4.13%, 5s of 2050 at 4.37% and 5.25s of 2055 at 4.37%, callable 10/2035.
J.P. Morgan priced for the Washington Health Care Facilities Authority (/A/A/) $375 million of fixed-rate revenue bonds (Providence St. Joseph Health), Series 2025B, with 5s of 10/2030 at 2.90% and 5s of 2035 at 3.65%. Noncall.
BofA Securities priced for San Antonio, Texas, (Aa1/AA+/AA/) $293.65 million of water system junior lien revenue refunding bonds, Series 2025C, with 5s of 5/2027 at 2.16%, 5s of 2030 at 2.28%, 5s of 2035 at 3.02%, 5s of 2040 at 3.81%, 5s of 2045 at 4.24% and 5s of 2048 at 4.41%, callable 5/2035.
BofA Securities priced for the North Texas Higher Education Authority (Aa1/A+//) $256.35 million of student loan-backed adjustable rate notes, Series 2025-2, priced at par with 4.12s of 7/2055. Callable.
Ramirez priced for Quincy, Massachusetts, (/SP-1+//) $170.22 million of GO bond anticipation notes, with 5s of 9/2026 at 2.57%. Noncall.
J.P. Morgan priced for the New York City Housing Development Corp. (Aa2/AA+//) $121.46 million of non-AMT sustainable development multi-family housing revenue bonds, Series 2025F, all priced at par with 2.70s of 5/2029, 2.80s of 11/2029, 2.85s of 5/2030, 2.95s of 11/2030, 3.70s of 5/2035, 3.80s of 11/2035, 4.50s of 11/2040, 4.85s of 11/2045, 4.95s of 11/2050 and 5.00s of 11/2055, callable 11/2031.
Piper Sandler priced for the Northshore School District No. 417, Washington, (Aaa///) $111.61 million of unlimited tax refunding GOs, with 5s of 12/2026 at 2.30%, 5s of 2030 at 2.37%, 5s of 2034 at 2.94%, 5s of 2040 at 3.85% and 5s of 2044 at 4.19%, callable 6/2035.
AAA scales:
MMD's scale was cut up to six basis points: 2.18% (+6) in 2026 and 2.08% (+6) in 2027. The five-year was at 2.19% (+4), the 10-year was at 2.91% (+3) and the 30-year was at 4.24% (+2) at 3 p.m.
The ICE AAA yield curve saw small cuts: 2.16% (+2) in 2026 and 2.07% (+2) in 2027. The five-year was at 2.16% (+2), the 10-year was at 2.87% (+2) and the 30-year was at 4.24% (+1) at 4 p.m.
The S&P Global Market Intelligence municipal curve was cut: The one-year was at 2.16% (+5) in 2025 and 2.06% (+5) in 2026. The five-year was at 2.19% (+3), the 10-year was at 2.91% (+2) and the 30-year yield was at 4.25% (+3) at 4 p.m.
Bloomberg BVAL was cut: 2.07% (+3) in 2025 and 2.04% (+3) in 2026. The five-year at 2.13% (+2), the 10-year at 2.85% (+2) and the 30-year at 4.21% (+1) at 4 p.m.
Primary to come:
California (Aa2/AA-/AA//) is set to price Thursday $2.3 billion of GOs, consisting of $700 million of various purpose GOs and $1.6 billion of various purpose refunding GOs. Wells Fargo.
The Texas Water Development Board (/AAA/AAA/) is set to price Wednesday $1.871 billion of state water implementation revenue fund for Texas revenue bonds (Master Trust). BofA Securities.
Connecticut (Aa2/AA-/AA/AA+) is set to price Thursday $1.815 billion of GOs, consisting of $300 million of taxable Series B bonds, $800 million of Series C bonds and $715 million of Series 2025 refunding bonds. Morgan Stanley.
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.
The Public Hospital District No. 4, Washington, is set to price Wednesday $174.13 million of nonrated hospital revenue refunding bonds (Snoqualmie Valley Health), Series 2025A. Piper Sandler.
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.
