Municipals were weaker Wednesday as U.S. Treasury yields fell and equities ended up.
The two-year muni-UST ratio Wednesday was at 63%, the five-year at 64%, the 10-year at 74% 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 73% and the 30-year at 93% at a 4 p.m. read.
The Investment Company Institute reported Wednesday $1.361 billion of inflows for the week ending July 9, following $243 million of inflows the previous week.
Exchange-traded funds saw inflows of $298 million after $662 million of inflows the week prior, per ICI data.
Tensions between President Donald Trump and Federal Reserve Chairman Jerome Powell continue to escalate, said Vikram Rai, a portfolio manager and macro trader at First New York.
Things came to a head Wednesday when the topic of firing Powell from his position was discussed in a closed-door meeting with Congressional Republicans.
The market reaction was short-lived, as Trump said he had no plans to remove Powell later in the day.
"Any instability at the Fed, anything that undercuts Powell, or if he resigns, or something like that, could destabilize the rate market, and that could lead to a double whammy for municipals," Rai said.
Through the first half of the year, outside of "Liberation Day" and the tariff-induced volatility, munis reacted to supply and the uncertainty over whether the tax exemption would be eliminated, said Jeremy Holtz, a portfolio manager at Income Research + Management.
These themes continue in the third quarter.
The past two weeks have seen heavy supply, as the muni market continues to react to and investors digest the news that the tax bill did not affect the tax exemption, Holtz said.
Issuance will continue to be elevated, even in the face of tariffs, expected rate cuts from the Federal Reserve and geopolitical risks, he noted.
There are sometimes outliers to supply, most recently in June, when two weeks each boasted around $20 billion, Holtz said.
"There's a lot trying to go down the drain at once, and it gets slow. And that's where you see deals sort of slow down. Deal subscription slows a little bit, and spreads widen out and new-issue concessions grow," he said.
As the market continues to contend with the surge in issuance, investors still have a significant amount of cash that can be put to work, according to Holtz.
"But we're not in a market where there's no opportunity. There's still plenty of opportunity," he said.
For a long time, there was a supply/demand imbalance with demand outstripping supply by a "large margin," Holtz said.
Over the past several years, ratios 10 years and in were near 60%. There were even times when ratios five years and in fell below 60%, and the market was fine, he noted.
"Normally, you think, 'Oh, there'd be a selloff, there'd be some sort of reversion,'" Holtz said.
However, that speaks to the level of demand out there, even though ratios are a little bit more elevated these days, he said.
The secondary market is doing well right now, and there is "pronounced strength" inside 10 years, per Holtz.
"As we continue to see flows come into the market, whether they're exchange-traded funds, mutual funds, separately managed accounts, that has boosted demand and a bit too much cash chasing too few bonds at right now, in our view, and that's led to lower ratios," he said.
Ratios on the long end of the curve are higher. In that part of the curve, there is not much buying from retail and SMAs; most of it comes from funds and insurance companies, Holtz said.
Following the summer months, the market may enter a weak technical period in September, and even October may prove to be a "little dicey," Rai said.
This is because of a surge in insurance while coupon payments and redemptions drop, so there is positive net supply, he said.
Additionally, many state and local governments "get their ducks together, they get their budget approved, and that's enough to market," Rai said.
In the primary market Wednesday, BofA Securities priced for the New York Transportation Development Corp. (Baa3//BBB-/BBB-/) $1.367 billion of John F. Kennedy International Airport Terminal One project green special facilities revenue bonds, with 5.5s of 6/2037 at 4.50%, 6s of 2040 at 5.07%, 6s of 2045 at 5.27% (AGM-insured) and 6s of 2050 at 5.39% (AGM-insured), 6s of 2050 at 5.65% (non-AGM-insured), 6s of 2055 at 5.44% (AGM-insured), 6s of 2055 at 5.72% (non-AGM-insured) and 6s of 2060 at 5.53% (AGM-insured), callable 6/30/2034.
Goldman Sachs priced for the New York Energy Finance Development Corp. (A1///) $944.15 million of energy supply revenue bonds, with 5s of 7/2056 with a tender date of 12/1/2033 at 4.53%, callable 9/1/2033.
Wells Fargo priced for the Utah Transit Authority (Aa2/AA+/AA/) $484.81 million of sales tax revenue and refunding bonds, with 5s of 12/2026 at 2.51%, 5s of 2030 at 2.74%, 5s of 2035 at 3.50%, 5s of 2040 at 4.20% and 5s of 2044 at 4.63%, callable 12/15/2035.
Barclays priced for the Wisconsin Public Finance Authority (/A/A+/) $192.4 million of Renown Regional Medical Center project hospital revenue bonds. The first tranche, $145.76 million of Series A bonds, with 5s of 6/2026 at 2.89%, 5s of 2030 at 3.15%, 5s of 2032 at 3.41%, 5s of 2055 at 5.32% and 5.5s of 2055 at 5.27%, callable 6/1/2035.
The second tranche, $46.64 million of Series B bonds, with 5s of 6/2030 at 3.15%, noncall.
In the competitive market, Rochester, New York, sold $171.26 million of bond anticipation notes, 2025 Series II, to Wells Fargo, with 4s of 7/2026 at 2.57%, noncall.
AAA scales
MMD's scale was cut up to three basis points: The one-year was at 2.46% (unch) and 2.46% (unch) in two years. The five-year was at 2.55% (unch), the 10-year at 3.28% (+2) and the 30-year at 4.65% (+3) at 3 p.m.
The ICE AAA yield curve was cut two to four basis points: 2.47% (+2) in 2026 and 2.43% (+2) in 2027. The five-year was at 2.65% (+2), the 10-year was at 3.26% (+3) and the 30-year was at 4.64% (+4) at 4 p.m.
The S&P Global Market Intelligence municipal curve was cut up to four basis points: The one-year was at 2.46% (unch) in 2025 and 2.47% (unch) in 2026. The five-year was at 2.55% (unch), the 10-year was at 3.28% (+2) and the 30-year yield was at 4.64% (+4) at 4 p.m.
Bloomberg BVAL saw cut up to three basis points: 2.47% (unch) in 2025 and 2.49% (unch) in 2026. The five-year at 2.60% (unch), the 10-year at 3.26% (+1) and the 30-year at 4.65% (+2) at 4 p.m.
Treasuries saw gains.
The two-year UST was yielding 3.885% (-6), the three-year was at 3.862% (-6), the five-year at 3.986% (-6), the 10-year at 4.452% (-3), the 20-year at 5.008% (-1) and the 30-year at 5.013% (-1) just before the close.
Primary to come
Salt Lake City (A1/A+/NR/AA) is set to price Thursday $608.6 million airport revenue bonds. Serials, terms. JPMorgan.
The Wisconsin Public Finance Authority (NR/NR/NR/NR) is set to price $175 million tax-exempt pooled securities. JPMorgan.
The California Statewide Communities Development Authority is set to price Wednesday $151.98 million Cal-Mortgage Loan insured revenue and refunding bonds (Sequoia Living Project). Ziegler.
The Wisconsin Public Finance Authority is set to price Thursday $150 million municipal certificates (Cuyahoga River Capital Portfolio). HilltopSecurities.
Charlotte, North Carolina, (Aaa/AAA//) is set to price Thursday $145.86 million water and sewer system refunding revenue bonds. Serials. BofA.
The Ohio Housing Finance Agency (Aa1///) is set to price Thursday $125 million residential mortgage revenue bonds (social bonds). Serials, terms. BofA.
Competitive
The New York State Thruway Authority (Aa1///AAA/) is set to sell $2.431 billion of tax-exempt state PIT revenue bonds in six tranches: $483.51 million of Series 2025A Bidding Group 1 at 10:15 a.m. Eastern Thursday; $444.165 million of Series 2025A Bidding Group 2 at 10:45 a.m. Thursday; $330.85 million of Series 2025A Bidding Group 3 at 11:15 a.m. Thursday; $391.585 million of Series 2025A Bidding Group 4 at 11:45 a.m. Thursday; $368.085 million of Series 2025B Bidding Group 1 at 12:15 p.m. Thursday; and $413.88 million of Series 2025B Bidding Group 2 at 12:45 p.m. Thursday.
The North Syracuse Central School District, New York, is set to sell $106.637 million bond anticipation notes Thursday at 11 a.m.
Wakefield, Massachusetts, (/AA+//) is set to sell $106 million GOs Thursday at 11 a.m.
