Municipals improved slightly Wednesday as participants digested recent deals and reinvestment dollars continued to be put to work as the Federal Open Market Committee meeting concluded without touching interest rates.
The decision to hold rates steady was expected but analysts read the minutes and the Fed's approach to dealing with macroeconomic uncertainty as
"We believe the Fed will have the opportunity to cut rates later in the year if the economic slowdown materializes and as long as inflation allows," noted Wells Fargo Investment Institute's Luis Alvarado, global fixed income strategist.
"The threat of having both inflation and unemployment rising simultaneously continue to create a big headache for the Fed's interest policy," he said. "There is still a possibility where the federal funds rate could remain on hold at current levels in the near-term especially if inflation remains sticky."
Under this level of uncertainty, Alvarado said fixed-income investors "may benefit by being exposed to the intermediate portion of the curve (3-7 year maturities) striking the best balance between attractive yield and less sensitivity to potential interest rate risk."
Municipal triple-A yields fell two to three basis points, depending on the curve, as did USTs, keeping ratios at recent levels.
The two-year ratio Wednesday was at 77%, the five-year at 77%, the 10-year at 77% and the 30-year at 92%, according to Municipal Market Data's 3 p.m. ET read. ICE Data Services had the two-year at 75%, the five-year at 76%, the 10-year at 76% and the 30-year at 91% at 4 p.m.
The Investment Company Institute Wednesday reported $282 million of outflows for the week ending April 30, following $872 million of outflows the previous week. This differs from LSEG Lipper, which reported
Exchange-traded funds saw inflows of $2.426 billion after $299 million of inflows the week prior, per ICI data.
From the technical perspective, munis look pretty good, as demand remains strong in parts of the curve, said Todd Bleakney, head of public finance at Truist.
There has been activity on bonds 12 years and in where separately managed accounts may start putting cash to work, so that feels reasonably good, whereas the long end is only "OK," he said.
Individual investors have a "renewed interest" in munis, as 4% yields on intermediate bonds and 5% yields on long bonds are appealing, said Anders S. Persson, Nuveen's chief investment officer for global fixed income, and Daniel J. Close, Nuveen's head of municipals.
The muni market should see "solid demand" for the next couple of months, they noted.
May 1 saw $40 billion of reinvestment money come into the market, and Persson and Close expect at least that amount, and possibly more, in June, July and August.
Additionally, muni yields remain attractive, said Tom Kozlik, managing director, head of public policy and municipal strategy at HilltopSecurities.
Even before tariff concerns surged a month ago, some investors were already unsure if "they should be in more cash because of the uncertainty," he noted.
Prior to 'Liberation Day,' muni yields, especially tax-exempt yields, were very attractive. Then with yields rising almost 100 basis points over a three-day period, they became even more attractive, Kozlik said.
Yields could fall even further over the next six weeks, dropping below levels from early April, Kozlik said.
"What could happen is that there's going to be a short period of yields dropping and equity market valuations dropping, because oftentimes that's what happens in response to economic weakness," he said.
Macro events could impact May, June and July, which are normally strong months in the muni market, Truist's Bleakney noted.
There are tariff negotiations with more than 50 other countries and even "China has come in and kind of opened the door a little bit," he said.
So if there are movements on tariff agreements to bring taxes on imported goods down, which will take several months before coming to a resolution, "then the Fed's going to have to look at the climate in general where they need to cut [rates]," Bleakney said.
In the primary market Wednesday, BofA Securities priced for the Southern Ute Indian Tribe, Colorado, $182.505 million of unlimited tax GOs, with 5s of 4/2035 at 4.40%, noncall.
Loop Capital Markets priced for the Stockton Unified School District, California, (Aa3///) $140 million of BAM-insured 2022 Election GOs, Series A, with 5s of 8/2031 at 3.11%, 5s of 2035 at 3.44%, 5s of 2040 at 3.89%, 5s of 2045 at 4.28% and 5s of 2049 at 4.48%, callable 8/1/2035.
In the competitive market, the Virginia Public School Authority sold $186.855 million of school financing refunding bonds, Series 2025B, to BofA Securities, with 5s of 8/2025 at 2.90%, 5s of 2030 at 3.03%, 5s of 2035 at 3.38% and 5s of 2038 at 3.67%, callable 8/1/2035.
AAA scales
MMD's scale was bumped two basis points across the curve: The one-year was at 2.89% and 2.90% in two years. The five-year was at 2.98%, the 10-year at 3.31% and the 30-year at 4.38% at 3 p.m.
The ICE AAA yield curve was bumped two to three basis points: 2.85% (-2) in 2026 and 2.86% (-3) in 2027. The five-year was at 2.95% (-3), the 10-year was at 3.27% (-3) and the 30-year was at 4.37% (-2) at 4 p.m.
The S&P Global Market Intelligence municipal curve was bumped two to three basis points: The one-year was at 2.88% (-2) in 2025 and 2.89% (-5) in 2026. The five-year was at 2.98% (-3), the 10-year was at 3.31% (-2) and the 30-year yield was at 4.37% (-2) at 4 p.m.
Bloomberg BVAL was bumped one to two basis points: 2.85% (-1) in 2025 and 2.90% (-1) in 2026. The five-year at 3.01% (-2), the 10-year at 3.32% (-2) and the 30-year at 4.37% (-2) at 4 p.m.
Primary to come
The Connecticut Health and Educational Facilities Authority (Aaa/AAA//) is set to price Thursday on behalf of Yale University $500 million of revenue bonds, consisting of $250 million of Series B-1 and $250 million of Series B-2. Barclays.
The New Hampshire Health and Education Facilities Authority (/A/A/) is set to price Thursday for the Dartmouth Health Obligated Group $420.285 million of revenue bonds. Jefferies.
Pennsylvania Higher Education Assistance Agency is set to price Thursday $225 million of tax-exempt AMT fixed-rate education loan revenue bonds, consisting of $177 million of senior Series 2025-1A bonds (/AA//), serials 2030-2034, 2046, and $48 million of subordinate Series 2025-1C bonds (/BBB//), serials 2052. RBC Capital Markets.
The Massachusetts Development Finance Agency (Baa3//BBB-/) is set to price Thursday for Suffolk University $158.405 million of revenue bonds. Morgan Stanley.
The MIDA Cormont Public Infrastructure District is set to price Thursday $139.737 million of non-rated bonds, consisting of $46 million of Series 1, $74.271 million of Series 2 and $19.466 million of Series 3. D.A. Davidson.
Denton County, Texas, (Aaa/AAA//) is set to price Thursday $108.45 million of permanent improvement and refunding bonds, serials 2026-2045. Cabrera Capital Markets.
Competitive
The Beaufort County School District, South Carolina, (Aa1/AA//) is set to sell $132.2 million of GOs, Series 2025B, at 1 p.m. Thursday.
