Municipals were a touch firmer to start the week as U.S. Treasuries were firmer and equities ended up.
Muni yields were bumped up to two basis points, depending on the scale, while UST yields fell three to six basis points.
The two-year muni-UST ratio Monday was at 69%, the five-year at 70%, the 10-year at 77% 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 66%, the five-year at 69%, the 10-year at 74% and the 30-year at 93% at 4 p.m.
As it did for most of June, the muni market saw "limited volatility and price movements" last week, as muni yields fell only a few basis points in the shortest maturities but remained unchanged out long, said Birch Creek strategists.
"Dealers reported strong inquiry across the board for 'anything priced attractively,' but the primary market continues to be the star of the show, with deals pricing with generous spreads and attracting heavy subscription levels," they said.
As ratios and after-tax spreads "drift wider," particularly on the long end, market participants believe "the market is cheap but are struggling to identify a catalyst to propel muni outperformance," the Birch Creek strategists said.
For example, fund flows need to be "markedly higher" to drive true outperformance, they said.
Muni mutual funds saw smaller inflows of $76.9 million last week, according to LSEG Lipper. It was the ninth straight week of positive fund flows.
Munis saw gains of 0.19% last week, bringing year-to-date returns to negative 0.45%, said Daryl Clements, a portfolio manager at AllianceBernstein.
"Following the horrendous three-day period, April 7–9, when the Index was down 5.18%, the Index has since returned 3.68%," he said. "If not for this three-day period, the Index return would be meaningfully positive."
The technical backdrop in the muni market will turn "decidedly positive," Clements said.
This week brings July reinvestment cash, as investors will receive $33 billion of maturing and called bond principal, said CreditSights strategists Pat Luby and Wilson Lees.
For the month overall, muni investors are expected to receive $40 billion of principal and $14 billion of interest in July, up nearly 50% from this year's monthly average of $27 billion, they said.
Redemptions will be heaviest in California at $5.4 billion, followed by New York with $4.4 billion and Florida with $3.2 billion, CreditSights strategists said.
This week has the July 4th holiday, with only $2.5 billion on tap in the muni primary.
The new-issue market "will be able to soak up some of that liquidity, but there is not a single state that is expected to have over $1 billion in debt issuance, although next week has some large deals that will attract attention," CreditSights strategists said.
The largest is from the California Community Choice Financing Authority with $1 billion of clean energy project revenue bonds, followed by the Washington Metropolitan Area Transit Authority with $654 million of second lien dedicated revenue bonds.
The week of July 14 will see the New York State Thruway Authority with $2 billion of personal income tax revenue bonds and $800 million of PIT revenue green bonds, the New York Transportation Development Corp. with $1 billion of JFK Terminal One Project special facilities revenue refunding bonds and Honolulu with $720 million of GOs and refunding GOs.
The week of July 21 will see the New York City Transitional Finance Authority with $1.5 billion of future tax subordinate bonds.
"Outside of an unexpected macroeconomic shock, expect the muni market to rally given this strong demand technical," Clements said.
Another positive: "Investors with a longer-term horizon are getting compensated with generous after-tax yields, with many HG deals pricing >8% on a tax-equivalent basis," Birch Creek strategists added.
AAA scales
MMD's scale saw was bumped up to two basis points: The one-year was at 2.57% (-1) and 2.58% (-1) in two years. The five-year was at 2.67% (-1), the 10-year at 3.26% (-2) and the 30-year at 4.54% (unch) at 3 p.m.
The ICE AAA yield curve was bumped one to two basis points: 2.59% (-1) in 2026 and 2.50% (-1) in 2027. The five-year was at 2.66% (-1), the 10-year was at 3.17% (-2) and the 30-year was at 4.48% (-2) at 4 p.m.
The S&P Global Market Intelligence municipal curve was bumped up to two basis points: The one-year was at 2.57% (-1) in 2025 and 2.58% (-1) in 2026. The five-year was at 2.66% (-1), the 10-year was at 3.25% (-2) and the 30-year yield was at 4.53% (unch) at 4 p.m.
Bloomberg BVAL was bumped one basis point: 2.57% (-1) in 2025 and 2.59% (-1) in 2026. The five-year at 2.70% (-1), the 10-year at 3.19% (-1) and the 30-year at 4.47% (-1) at 4 p.m.
Treasuries saw gains.
The two-year UST was yielding 3.718% (-3), the three-year was at 3.682% (-4), the five-year at 4.791% (-4), the 10-year at 4.229% (-5), the 20-year at 4.781% (-6) and the 30-year at 4.779% (-6) just before the close.
Primary to come
The Massachusetts Bay Transportation Authority (/AA+/AAA/AAA/) is set to price Wednesday $939.22 million of senior sales tax bonds, 2025 Series B, serials 2029-2045, terms 2050, 2055. Barclays.
The Los Angeles Unified School District (Aa3//AA-/) is set to price Tuesday $308.17 million of taxable judgment obligation refunding bonds, Series 2025A, serials 2026-2040. RBC Capital Markets.
The Colorado Housing and Finance Authority (Aaa/AAA//) is set to price Tuesday $197.63 million of taxable single-family mortgage bonds Class I, 2025 Series L-1, serials 2027-2037, terms 2033, 2040, 2042, 2056. RBC Capital Markets.
