Municipals and U.S. Treasuries were narrowly mixed Tuesday and equities ended up.
The two-year muni-UST ratio Tuesday was at 64%, the five-year at 62%, the 10-year at 71% and the 30-year at 90%, according to Municipal Market Data's 3 p.m. ET read. ICE Data Services had the two-year at 62%, the five-year at 61%, the 10-year at 70% and the 30-year at 90% at a 4 p.m. read.
Muni yields saw small cuts on the front end of the curve and small bumps out long, on the heels of last week's selloff as "data suggesting healthier employment and a bit more inflationary pressure catalyzed a correction in bond yields, the tax-exempt front end in particular being repriced," said Matt Fabian, a partner at Municipal Market Analytics.
Following last week, the "entire municipal offered side curve appears to be oversold and trending worse, suggesting that underwriters not only added back enough yield to ensure demand, but also inoculated the primary market against modest near-term swings," he said.
In other words, "solid value should be available, in particular up front for buyers; with things requiring a bit more, but not undue, caution at the very long end," Fabian said.
Levels set last week "appear to have some staying power" barring any major drivers, but an increasingly likely government shutdown could force change, "especially if the administration accelerates job cuts or makes other choices (and thus amplifies event and headline risks) in response," he said.
"At midnight on Tuesday, funding for the U.S. government expires; if a new spending plan or short-term continuing resolution is not passed by that time, this will prompt a government 'shutdown' for the first time since 2018," said J.P. Morgan strategists led by Peter DeGroot.
In the event of a shutdown, UST yields could fall, but "given that the debt ceiling has already been dealt with, our rates team would expect any near-term decline to be fairly limited," they said.
"In addition to empirical evidence that rates drop when the government shutters, other impacts on the municipal market have been muted in brief government shutdowns, with only temporary disruption of related income tax receipts and federal funds," J.P. Morgan strategists said.
A recent Office of Management and Budget report may indicate "longer-term risks for municipal credits in regions with a high share of their workforce employed by the federal government, in the event a signed CR does not materialize, and if measures outlined in the directive are actually enacted and survive an expected court challenge," they said.
Elsewhere, October has historically not been "particularly kind to the municipal market, as it tends to be one of the heavier supply months of the year," said Daryl Clements, a portfolio manager at AllianceBernstein.
"While this year may differ, given the deluge of issuance during the first half, the odds still favor a relatively healthy amount of supply in October," he said.
With some parts of the curve still looking "modestly expensive," multiple weeks of heavy supply could create catalysts for relative tax-exempt underperformance, Clements said.
"That said, any pockets of weakness should be viewed as opportunities to add exposure and take advantage of more attractive valuations — particularly on the long end of the curve," he said.
In the primary market on Tuesday, Morgan Stanley priced for Energy Southeast (/A//) $799.015 million of energy supply revenue bonds, Series 2025B, with 5s of 9/2027 at 3.71%, 5s of 3/2030 3.85%, 5s of 9/2030 at 3.88%, 5s of 3/2033 at 4.34% and 5s of 9/2033 at 4.35%, callable 6/2033.
J.P. Morgan priced for the Allegheny County Sanitary Authority (Aa3/AA-//) $372 million of sewer revenue bonds, with 5s of 12/2025 at 2.64%, 5s of 2030 at 2.51%, 5s of 2035 at 3.15%, 5s of 2040 at 3.83%, 5s of 2045 at 4.25%, 5s of 2050 at 4.53%, 5s of 2055 at 4.58% and 5.25s of 2058 at 4.54%, callable 12/2034.
BofA Securities priced for Norfolk, Virginia, (/AAA/AA+/) $256.27 million of GO capital improvement and refunding bonds. The first tranche, $241.485 million of GO capital improvement and refunding bonds, Series 2025A, with 5s of 9/2026 at 2.41%, 5s of 2030 at 2.38%, 5s of 2035 at 3.02%, 5s of 2040 at 3.66% and 5s of 2045 at 4.11%, callable 9/2034.
The second tranche, $14.785 million of taxable GO capital improvement bonds, Series 2025B, priced all bonds at par: with 3.798s of 9/2026 and 3.755s of 2028, noncall.
BofA Securities priced for the New Mexico Finance Authority (Aa1/AAA//) $216.695 million of subordinate lien public project revolving fund revenue bonds, Series 2025C, with 5s of 12/2025 at 2.58%, 5s of 2030 at 2.50%, 5s of 2035 at 3.10%, 5s of 2040 at 3.76%, 5s of 2045 at 4.24%, 5s of 2050 at 4.45% and 5s of 2054 at 4.51%, callable 12/2035.
BofA Securities priced for the Maine State Housing Authority (Aa1/AA+//) $117.73 million of social mortgage purchase bonds, Series 2025D, with all bonds priced at par — 2.85s of 11/2028, 2.95s of 2030, 3.85s of 2035, 4.5s of 2040, 4.85s of 2045 and 4.95s of 2050 — except for 6s of 2055 at 3.51%, callable 11/2033.
Wells Fargo priced for the Wisconsin Housing and Economic Development Authority (Aa3/AA+//) $105.115 million of non-AMT housing revenue bonds. The first tranche, $39.97 million of Series 2025A bonds, priced all bonds at par: 2.9s of 11/2027, 3.1s of 5/2030, 3.15s of 11/2030, 3.85s of 5/2035, 3.9s of 11/2035, 4.5s of 11/2040, 4.95s of 11/2045, 5s of 11/2050, 5.05s of 11/2055 and 5.15s of 11/2059, callable 5/2034.
The second tranche, $65.145 million of Series 2025B bonds, priced 3.05s of 11/2046 with a put/tender date of 5/2027 at par, callable 5/2026.
AAA scales
MMD's scale was narrowly mixed: 2.38% (unch) in 2026 and 2.30% (+2) in 2027. The five-year was at 2.32% (+2), the 10-year was at 2.92% (unch) and the 30-year was at 4.24% (-2) at 3 p.m.
The ICE AAA yield curve was bumped a basis point outside two years: 2.36% (+4) in 2026 and 2.26% (unch) in 2027. The five-year was at 2.30% (-1), the 10-year was at 2.92% (-1) and the 30-year was at 4.24% (-1) at 4 p.m.
The S&P Global Market Intelligence municipal curve was bumped three basis points out long: The one-year was at 2.36% (unch) in 2025 and 2.26% (unch) in 2026. The five-year was at 2.30% (unch), the 10-year was at 2.93% (unch) and the 30-year yield was at 4.24% (-3) at 3 p.m.
Bloomberg BVAL was narrowly mixed: 2.28% (+1) in 2025 and 2.25% (+1) in 2026. The five-year at 2.29% (+1), the 10-year at 2.90% (unch) and the 30-year at 4.24% (-1) at 4 p.m.
Treasuries were narrowly mixed.
The two-year UST was yielding 3.603% (-3), the three-year was at 3.615% (-1), the five-year at 3.731% (flat), the 10-year at 4.145% (+1), the 20-year at 4.699% (+1) and the 30-year at 4.726% (+1) at the close.
Primary to come
The Los Angeles Department of Water and Power (Aa2//AA-/AA/) is set to price Wednesday $812.69 million of power system revenue bonds, Series 2025C. Wells Fargo.
The Lower Alabama Gas District (A1///) is set to price $678.14 million of gas project revenue refunding bonds, Series 2025A. Goldman Sachs.
The Cherry Creek School District No. 5, Colorado, (Aa1/AA//) is set to price Wednesday $193.09 million of GO refunding bonds. RBC Capital Markets.
The Birmingham Special Care Facilities Financing Authority, Alabama, (/AA-/AA-/) is set to price Wednesday $187.87 million of health care facilities revenue bonds, Series 2025A Children's Hospital. J.P. Morgan.
The North East Texas Regional Mobility Authority is set to price Wednesday $181.52 million of revenue and refunding bonds, consisting of $133.935 million of senior lien bonds, Series 2025 (Baa1/A//), and $47.585 million of subordinate lien bonds, Series 2025B (Baa2/A-//). BofA Securities.
The Riverside County Public Finance Authority (/AA//) is set to price Wednesday $175.75 million of tax allocation refunding revenue bonds, Series 2025A. Loop Capital Markets.
Cook County, Illinois, (/AA-/AA/AAA) is set to price Wednesday $149.41 million of sales tax revenue bonds. Ramirez.
Riverside County is set to price Thursday $148.1 million of Teeter Plan obligation notes, Series 2025A. Loop Capital Markets.
The Wisconsin Housing and Economic Development Authority (Aa3/AA+//) is set to price $105.34 million of non-AMT housing revenue bonds, consisting of $39.92 million of Series 2025A bonds and $65.42 million of Series 2025B bonds. Wells Fargo.
