Municipals were quiet Wednesday as U.S. Treasury yields rose and equities ended up.
The two-year muni-UST ratio Wednesday was at 63%, the five-year at 65%, the 10-year at 76% and the 30-year at 95%, according to Municipal Market Data's 3 p.m. ET read. ICE Data Services had the two-year at 62%, the five-year at 67%, the 10-year at 75% and the 30-year at 95% at a 4 p.m. read.
The Investment Company Institute Wednesday reported $674 million of inflows for the week ending July 16, following $1.361 billion of inflows the previous week. This differs from LSEG Lipper, which reported $224.6 million of outflows over the same time period.
Exchange-traded funds saw inflows of $767 million after $310 million of inflows the week prior, per ICI data.
Investment-grade munis are seeing negative returns of 0.68% MTD and 1.03% YTD, while high-yield munis are seeing losses of 1.94% MTD and 2.26% YTD. Taxable munis are seeing losses of 0.41% MTD but gains of 3.40% YTD.
U.S. Treasuries are seeing losses of 0.38% month-to-date but gains of 3.40% year-to-date, while corporates are seeing negative returns of 0.15% so far this month but gains of 4.02% in 2025.
While munis are seeing losses, returns should recover the remainder of the year, said Cooper Howard, a fixed-income strategist at Charles Schwab.
Munis had a poor start to the year because issuance surged as a result of concerns over the risk to the municipal tax exemption, leading many issuers to pull their supply forward, he said.
"We expect issuance to moderate over the rest of the year since there's no longer a risk of the muni tax exemption being repealed," Howard said. "Assuming demand remains favorable, a slower pace of issuance is supportive of total returns recovering."
Around $5 billion of net new issuance is expected this summer, an increase from last year's negative $7 billion, said James Welch, head of municipals at Principal Asset Management.
Fund flows, particularly from exchange-traded funds, will impact relative performance, and valuations and the budget reconciliation bill will influence the muni market, he said.
However, a challenging liquidity environment is expected this fall, potentially leading to market weakness, Welch said.
Net new supply will show "little support" until the holidays, with projections of negative $1 billion in November and December, significantly less favorable than last year, he said.
Despite these challenges, heavy supply presents opportunities, according to Welch.
"The steep yield curve enhances the attractiveness of longer-term investments, offering compelling valuations relative to taxable peers," he said. Current yields provide substantial relative value, especially considering their tax-exempt benefits. Consequently, municipal investors appear more comfortable with additional risk."
Furthermore, longer-term munis look more attractive, Howard said.
Absolute yields for 30-year AAA munis are near the highest in more than a decade, while yields relative to alternatives are attractive too with the 30-year muni-UST ratio at 95%, he said.
"While we don't advocate going out 30-years for most muni investors, we do believe that investors with a long time horizon and those with a greater risk tolerance and capacity may want to consider a small allocation to longer-term bonds," Howard said. "We suggest a benchmark duration which includes an average of some short and longer-term bonds."
In the primary market Wednesday, Ramirez priced for the New York City Transitional Finance Authority (Aa1/AAA/AAA/) $1.5 billion of future tax-secured tax-exempt subordinate bonds, Fiscal 2026 Series A, Subseries A-1, with 5s of 5/2027 at 2.47%, 5s of 2030 at 2.72%, 5s of 2035 at 3.57%, 5s of 2040 at 4.38%, 5s of 2045 at 4.85%, 5.5s of 2050 at 4.86% and 5s of 2054 at 5.02%, callable 11/1/2035.
Raymond James priced for the Sherman Independent School District, Texas, (Aaa/AAA//) $218.85 million of PSF-insured unlimited tax school building bonds, with 5s of 2/2026 at 2.52%, 5s of 2030 at 2.80%, 5s of 2035 at 3.61%, 5s of 2040 at 4.36%, 5.25s of 2045 at 4.77%, 5.25s of 2049 at 4.83% and 5s of 2053 at 4.95%, callable 2/15/2035.
Piper Sandler priced for the Alvin Independent School District, Texas, (Aaa//AAA/) $101.76 million of PSF-insured unlimited tax schoolhouse bonds, Series 2025A, with 5s of 2/2026 at 2.62%, 5s of 2030 at 2.84%, 5s of 2035 at 3.62%, 5s of 2040 at 4.37%, 5.25s of 2045 at 4.79%, 5.25s of 2050 at 4.86% and 5.25s of 2053 at 4.91%, callable 2/15/2035.
In the competitive market,
Denton, Texas, (/AA+/AA+/) sold $232.645 million of certificates of obligation to Wells Fargo, with 5s of 2/2026 at 2.57%, 5s of 2030 at 2.77%, 5s of 2035 at 3.54%, 5s of 2040 at 4.35%, 5s of 2045 at 4.82%, 5s of 2052 at par and 5s of 2055 at 5.03%, callable 2/15/2035.
AAA scales
MMD's scale was little changed: The one-year was at 2.43% (-2) and 2.43% (-2) in two years. The five-year was at 2.57% (-2), the 10-year at 3.34% (unch) and the 30-year at 4.71% (unch) at 3 p.m.
The ICE AAA yield curve was little changed: 2.42% (-2) in 2026 and 2.40% (-1) in 2027. The five-year was at 2.60% (unch), the 10-year was at 3.29% (unch) and the 30-year was at 4.66% (+1) at 4 p.m.
The S&P Global Market Intelligence municipal curve was little changed: The one-year was at 2.43% (-2) in 2025 and 2.44% (-2) in 2026. The five-year was at 2.57% (-2), the 10-year was at 3.34% (unch) and the 30-year yield was at 4.71% (unch) at 4 p.m.
Bloomberg BVAL was little changed: 2.43% (-1) in 2025 and 2.45% (-1) in 2026. The five-year at 2.57% (-1), the 10-year at 3.31% (unch) and the 30-year at 4.69% (unch) at 4 p.m.
Treasuries saw losses.
The two-year UST was yielding 3.887% (+5), the three-year was at 3.837% (+6), the five-year at 3.937% (+5), the 10-year at 4.389% (+4), the 20-year at 4.936% (+3) and the 30-year at 4.948% (+3) just before the close.
Primary to come
The Tarrant County Cultural Education Facilities Finance Corp. (Aa2/AA//) is set to price Thursday $703.465 million of Texas Health Resources System revenue bonds. Morgan Stanley.
The Snohomish County Public Utility District, Washington, (Aa2/AA/AA/) is set to price Thursday $387.545 million of electric system revenue and refunding bonds. Raymond James.
The Illinois Housing Development Authority (Aaa///) is set to price Thursday $350 million of social revenue bonds. RBC Capital Markets.
The Spring Branch Independent School District, Texas, is set to price Thursday $323.92 million of unlimited tax school building and refunding bonds. Piper Sandler.
The Florida Local Government Finance Commission (Ba1///) is set to price Thursday $201.29 million of educational facilities revenue bonds (Bridgeprep Academy Projects). HJ Sims.
The San Mateo-Foster City School District, California, (Aaa///) is set to price Thursday $100 million of GOs. Stifel.
Competitive
The Freehold Township Board of Education, New Jersey, is set to sell $135.468 million of school bonds at 11 a.m. Thursday.
