Municipals started September slightly weaker, as U.S. Treasury yields rose and equities ended down.
The two-year muni-UST ratio Monday was at 60%, the five-year at 64%, the 10-year at 75% and the 30-year at 93%, according to Municipal Market Data's 3 p.m. ET read. ICE Data Services had the two-year at 61%, the five-year at 65%, the 10-year at 75% and the 30-year at 94% at a 4 p.m. read.
Thanks to strong technicals and the anticipated interest rate cut by the Federal Reserve at its September meeting, municipal bonds posted positive returns of 0.87% in August, reversing their losses of 0.20% in July, according to Jason Wong, vice president municipals at AmeriVet Securities.
That pushed year-to-date returns to 0.32%
"Muni yields saw bumps of 13 basis points in the 2026-2029 maturities for the month," he said. "The 2030-2034 maturities saw bumps of 4 to 10 basis points, while the 2037-2055 maturities saw cuts of 1 to 4 basis points."
Munis outperformed Treasuries, Wong said.
The two-year muni-UST ratio, which began August at 63.32%, ended the month at 60.95%. Likewise, the five-year ratio ended the month at 64.13% compared to 65.59% at the beginning of August. The 10-year ratio narrowed slightly during the month to 75.71% from 75.88%, while the 30-year ratio fell to 95.20% from 95.98%.
Secondary trading volume totaled just over $41.07 billion for the month, with 54% of secondary trading being dealer sells, Wong said.
Mutual fund inflows continued to increase last month, both in the investment-grade and high-yield realms, Robert Lind of Lind Capital Partners noted in the firm's Municipal Market Commentary.
After increasing three out of four weeks in August, both IG and HY funds "have now experienced weekly inflows in 16 out of the last 18 weeks dating back to the end of April," Lind noted. "Both investment grade and high-yield inflows eclipsed $2 billion in August, totaling roughly $4.5 billion."
September is shaping up to be a "challenging month for munis," Wong said, noting munis have had only two positive returns in this month over the last 10 years.
"With investors anticipating a rate cut later in the month, this could push munis to underperform Treasuries," although munis may still eke out positive returns for September, he said.
When the Fed started its easing cycle September 2024, "munis saw an average bump of about eight basis points across the curve," Wong said noting it was a 50-basis point cut. "Additionally, munis did show a return of just under 1%. We could see similar results if there is a rate cut," he said.
"In what was largely an otherwise sleepy month, August was defined by Fed Chair Powell's dovish commentary," delivered at the Fed's Jackson Hole symposium, Lind said. "Broader volatility was generally range-bound and controlled, though fixed income yields ended the month mostly lower, as the Fed opened the door to potential rate cuts in the months ahead."
"After a record breaking first-half of the year, municipal supply felt like it took a breather in August," but approached $50 billion, Lind said.
August volume was $48.465 billion, a 4.8% decrease from $50.933 billion last year, as mixed economic data caused Federal Reserve uncertainty and kept issuers on the sidelines while the number of megadeals fell.
Issuance year-to-date is $386.689 billion, up 14.9% from $336.478 billion over the same period in 2024.
Non-rated and below-investment-grade issuance "remains subdued versus the trailing five- and 10-year averages, especially when compared to the significant [year-over-year] increase in investment-grade issuance," Lind noted. "Lately, the non-rated primary market is seeing a meaningful proportion of new deals get hung up during the pricing process, as underwriters struggle to obtain anchor orders. Ultimately, this compels the underwriter and borrower to strengthen credit covenants, increase yields, or wait for improved market conditions."
AAA scales
MMD's scale saw small cuts: The one-year was at 2.19% (+1, no Sept. roll) and 2.21% (+1, no Sept. roll) in two years. The five-year was at 2.38% (+1, no Sept. roll), the 10-year at 3.23% (+1, no Sept. roll) and the 30-year at 4.62% (+1) at 3 p.m.
The ICE AAA yield curve was cut up to three basis points: 2.25% (unch) in 2026 and 2.22% (+2) in 2027. The five-year was at 2.42% (+2), the 10-year was at 3.18% (+2) and the 30-year was at 4.62% (+3) at 4 p.m.
The S&P Global Market Intelligence municipal curve was cut one to two basis points: The one-year was at 2.19% (+1) in 2025 and 2.21% (+1) in 2026. The five-year was at 2.38% (+2), the 10-year was at 3.24% (+1) and the 30-year yield was at 4.62% (+2) at 4 p.m.
Bloomberg BVAL was cut a basis point: 2.18% (+1) in 2025 and 2.20% (+1) in 2026. The five-year at 2.36% (+1), the 10-year at 3.19% (+1) and the 30-year at 4.59% (+1) at 4 p.m.
Treasuries saw losses.
The two-year UST was yielding 3.648% (+3), the three-year was at 3.617% (+4), the five-year at 3.735% (+4), the 10-year at 4.273% (+5), the 20-year at 4.919% (+5) and the 30-year at 4.971% (+4) near the close.
Primary to come
The Dormitory Authority of the State of New York (Aa1//AA+/) is set to price Thursday $2.337 billion of general purpose state personal income tax revenue bonds, Series 2025C. BofA Securities.
The Massachusetts School Building Authority (/AA/AA+/) is set to price Thursday $1.892 billion of social bonds, consisting of $488.845 million of subordinated dedicated sales tax bonds, Series 2025A, and $1.404 billion of refunding bonds, Series 2025B, BofA Securities.
The Michigan State Housing Development Authority (/AA+//) is set to price Thursday $360.06 million of rental housing revenue bonds, Series 2025A-1. BofA Securities.
The Los Angeles Department of Water and Power (Aa2//AA-/AA) is set to price Thursday $166.045 million of water system revenue bonds, Series 2025B. BofA Securities.
Delray Beach, Florida, (Aa3/AA-//) is set to price Wednesday $149.01 million of water and sewer revenue improvement bonds. BofA Securities.
The Regents of the University of Colorado (Aa1//AA+/) is set to price Thursday $140.535 million of university enterprise revenue bonds, consisting of $76.555 million of Series C-1 and $63.98 million of Series C-2 refunding bonds. Stifel.
The Connecticut Health and Educational Facilities Authority (A3/A-//) is set to price Thursday $129.66 million of Quinnipiac University issue revenue refunding bonds, Series O. Barclays.
The Riverside Unified School District (Aa2///) is set to price Thursday $106.33 million of GOs, consisting of $40 million of Election of 2016 GOs, Series D, and $66.33 million of 2025 GO refunding bonds. Piper Sandler.
Competitive
The Santa Clara Unified School District, California, (Aaa/AAA/) is set to sell $190 million of Election of 2018 GOs, at 11:05 a.m. Eastern on Wednesday.
Brownsville, Texas, (Aa3/AA+/) is set to sell $143.86 million of combination tax and revenue certificates of obligation, Series 2025A, at 11 a.m. on Thursday.
The Hartford County Metropolitan District, Connecticut, set to sell $100 million of GOs at noon on Thursday.
Jessica Lerner contributed to this story.
