Municipals were little changed as short-term U.S. Treasuries saw small losses and equities ended mixed.
The two-year muni-UST ratio Tuesday was at 67%, the five-year at 64%, the 10-year at 66% and the 30-year at 88%, according to Municipal Market Data's 3 p.m. EDT read. ICE Data Services had the two-year at 68%, the five-year at 64%, the 10-year at 67% and the 30-year at 87% at a 4 p.m. read.
Recent muni outperformance of USTs may reflect "generic expectations for seasonal strength (on yearend/new year buying, on a more constructive maturity roll-down amid Federal Reserve loosening, on a typical increase in mutual fund/[exchange-traded fund] inflows, and on a current abundance of supply that not everyone believes will continue)," said Matt Fabian, president of Municipal Market Analytics.
"There is also evidence of modest tax-swap activity — last week saw the highest number of trades since the weeks just after Liberation Day and otherwise elevated offering levels — which may be delivering a bit of liquidity and/or price discovery in a market that has needed more of both lately," he said.
In general, robust issuance and traded par, both the fifth most of the year, "will be conveying staying power to Friday's nominal yields," Fabian said.
However, richer muni-UST ratios and recent softer returns are concerns, he said.
While muni returns moved lower last week, year-to-date returns still hover around 4%, said Jason Wong, vice president of municipals at AmeriVet Securities.
Muni returns for the month are down 0.13% with the long end posting the largest losses of 0.45%. The three-year range saw the largest gains, with returns of 0.12%.
"With the Fed expected to cut rates later this week, we shouldn't expect too much movement in rates as munis have already priced in the cut in rates," Wong said.
However, "more UST losses, especially if occurring around an actual Fed rate cut, will need to be reconciled with higher municipal yields," Fabian said.
In previous years, "reversals/corrections could upset yearend bullishness for fund flows, but with ETFs crushing all-time inflow records and [separately managed accounts] clearly not running out of customer assets to spend, municipals may care a bit less about negative momentum," he said, noting even a worst possible performance scenario is for "modest," if not necessarily "temporary," correction.
Despite "modest" performance last month, technicals have remained strong, and Daryl Clements, a portfolio manager at AllianceBernstein, expects that to continue.
Net supply for December is expected to be negative $3 billion, he said.
"Now that the market has cleared the last large week of supply for the year, we expect technicals to strengthen further," Clements said.
Over the last 10 years, munis have seen positive returns in December nine times, with a monthly average return of 0.63%, he said.
"Fortunately for investors, yields remain elevated and income is the engine of bond returns," Clements said.
New-issue market
In the primary market Tuesday, Jefferies priced for the Regents of the University of California (Aa2/AA/AA/) an upsized $2.2 billion of general revenue bonds, 2025 Series CD, with 5s of 5/2030 at 2.42%, 5s of 2035 at 2.73%, 5s of 2040 at 3.44%, 5.25s of 2040 at 3.50% and 5.5s of 2040 at 3.38%, callable 11/15/2035.
Jefferies priced for the New York City Housing Development Corp. (Aa2/AA+//) $536.48 million of non-AMT sustainable development multi-family housing revenue bonds. The first tranche, $149.88 million of Series 2026A-1, saw all bonds price at par — 2.95s of 11/2030, 3.6s of 5/2035, 3.65s of 11/2035, 4.15s of 11/2040, 4.65s of 11/2045, 4.9s of 11/2050, 5s of 11/2060 and 5.05s of 11/2065 — except for 5s of 11/2055 at 4.95%, callable 5/1/2032.
The second tranche, $386.6 million of Series 2026A-2, saw 3.25s of 11/2065 with a tender date of 2/1/2030 priced at par, callable 5/1/2029.
Morgan Stanley priced for the California Infrastructure and Economic Development Bank $366.55 million of Brightline West Passenger Rail Project revenue bonds, Series 2025C, with 3.5s of 1/2065 with a put date of 11/2/2026 at par.
BofA Securities priced for the Maryland Stadium Authority (/AA/AA/) $246.095 million of taxable Pimlico Improvements project revenue bonds at par: 3.888s of 6/2027, 4.128s of 2030, 4.714s of 2035, 5.054s of 2040, 5.499s of 2045 and 5.578s of 2055.
Wells Fargo priced for the Board of Regents of the Texas A&M University System (Aaa/AAA/AAA/) $223.225 million of revenue financing system bonds, Series 2025A, with 5s of 5/2026 at 2.50%, 5s of 2030 at 2.57%, 5s of 2035 at 2.92%, 5s of 2040 at 3.52%, 5s of 2045 at 4.04%, 5s of 2050 at 4.36% and 4.375s of 2055 at 4.55%, callable 5/15/2035.
Jefferies priced for Ohio (Aaa/AAA/AAA/) $205.23 million of GO refunding bonds. The first tranche, $177.46 million of Series 2025B common school bonds, saw 5s of 9/2029 at 2.47%, 5s of 2030 at 2.52%, 5s of 2035 at 2.84% and 5s of 2037 at 3.08%, callable 6/15/2035.
The second tranche, $27.77 million of Series 2025B infrastructure improvement bonds, saw 5s of 9/2029 at 2.47%, 5s of 2030 at 2.51% and 5s of 2035 at 2.83%, noncall.
AAA scales
MMD's scale was unchanged: 2.48% in 2026 and 2.43% in 2027. The five-year was 2.43%, the 10-year was 2.77% and the 30-year was 4.21% at 3 p.m.
The ICE AAA yield curve was little changed: 2.48% (-1) in 2026 and 2.45% (unch) in 2027. The five-year was at 2.41% (-1), the 10-year was at 2.78% (-1) and the 30-year was at 4.18% (unch) at 4 p.m.
The S&P Global Market Intelligence municipal curve was unchanged: The one-year was at 2.48% in 2025 and 2.43% in 2026. The five-year was at 2.43%, the 10-year was at 2.77% and the 30-year yield was at 4.19% at 3 p.m.
Bloomberg BVAL was unchanged 2.50% in 2025 and 2.45% in 2026. The five-year at 2.38%, the 10-year at 2.73% and the 30-year at 4.11% at 4 p.m.
Treasuries were weaker five years and in.
The two-year UST was yielding 3.607% (+3), the three-year was at 3.643% (+3), the five-year at 3.775% (+3), the 10-year at 4.179% (+1), the 20-year at 4.777% (flat) and the 30-year at 4.804% (flat) near the close.
Primary to come
The Alabama Highway Authority (Aa2///) is set to price Thursday $730 million of special obligation revenue bonds. J.P. Morgan.
The Wisconsin Health and Educational Facilities Authority is set to price Thursday $627.885 million of Mercy Health Corp. refunding revenue bonds, consisting of $126.35 million of Series 2025A, $401.535 million of Series 2026A, $100 million of Series 2026B and $100 million of Series 2026C. Ziegler.
The
The Public Finance Authority is set to price Thursday $248.925 million of Tech Tower project multifamily housing revenue bonds, consisting of $202.45 million of Series 2025A, $3.085 million of Series 2025T and $43.39 million of Series 2025B. D.A. Davidson.
The MIDA Mountain Village Public Infrastructure District is set to price Thursday $125.205 million of tax allocation revenue bonds, consisting of $101.5 million of Series 2025-1 bonds and $23.705 million of Series 2025-2 convertible capital appreciation bonds. Stifel, Nicolaus & Co.
Competitive
Suffolk County, New York, is set to sell $390 million of tax anticipation notes at 11 a.m. Wednesday.
