Municipals are steady ahead of the Labor Day holiday, as U.S. Treasury yields rose out long and equities ended down.
The two-year muni-UST ratio Friday was at 61%, the five-year at 64%, the 10-year at 76% and the 30-year at 94%, according to Municipal Market Data's 3 p.m. ET read. ICE Data Services had the two-year at 60%, the five-year at 65%, the 10-year at 75% and the 30-year at 94% at a 3 p.m. read.
The muni yield curve fared "better this week," according to BofA strategists, who highlighted that "short maturity yields [were] down slightly" and bonds 10-year and out were unchanged.
"Overall in August, a light bull steepening was the theme, and munis performed more in line with Treasuries and corporates," they said.
The performance of the asset class year-to-date, however, still remains "quite behind Treasuries and corporates," due, in part, to heavy issuance throughout August, "which prevented potentially better performance due to large redemptions and positive mutual funds flows," BofA strategists said.
Preliminary issuance figures for August show issuance at $46.968 billion, down 7.8% from 2024, according to LSEG data.
For September, BofA strategists are predicting new issuance will reach $49 billion and "should be more comparable to September 2024's $48 billion" and not "double-digit growth like we saw over the previous eight months."
"Lighter issuance should keep [muni-UST] ratios stable in September despite lighter redemptions," BofA strategists said. "Investors can use the month of September to accumulate longer-duration bonds in anticipation of a year-end rally."
Unlike previous summer campaigns, "long-end market conditions have remained attractive as supply has overwhelmed the typically supportive July-August reinvestment period," said J.P. Morgan strategists, led by Peter DeGroot.
Further expectations call for "episodic pressure on liquidity" during large supply weeks that intersect with exchange-traded fund selling "amidst rate volatility associated with anticipated Fed activity," they said.
New-issue calendar
Issuance for the week of Sept. 2 is at an estimated $7.457 billion, with $6.179 billion of negotiated deals and $1.278 billion of competitive deals on tap, according to LSEG.
The Dormitory Authority of the State of New York (Aa1//AA+/) leads the negotiated calendar with $2.337 billion of general purpose state personal income tax revenue bonds, followed by the Massachusetts School Building Authority with $1.892 billion of social bonds.
The competitive calendar is led by the Santa Clara Unified School District, California, (Aaa/AAA/) with $190 million of Election of 2018 GOs.
AAA scales
MMD's scale was little changed: The one-year was at 2.18% (+1) and 2.20% (+1) in two years. The five-year was at 2.37% (unch), the 10-year at 3.22% (-1) and the 30-year at 4.61% (unch) at 3 p.m.
The ICE AAA yield curve was unchanged: 2.25% in 2026 and 2.20% in 2027. The five-year was at 2.40%, the 10-year was at 3.16% and the 30-year was at 4.59% at 3 p.m.
The S&P Global Market Intelligence municipal curve was unchanged: The one-year was at 2.18% in 2025 and 2.20% in 2026. The five-year was at 2.36%, the 10-year was at 3.23% and the 30-year yield was at 4.60% at 3 p.m.
Bloomberg BVAL was unchanged: 2.17% in 2025 and 2.19% in 2026. The five-year at 2.35%, the 10-year at 3.18% and the 30-year at 4.58% at 3 p.m.
Treasuries saw losses out long.
The two-year UST was yielding 3.62% (-1), the three-year was at 3.584% (-1), the five-year at 3.7% (+1), the 10-year at 4.227% (+2), the 20-year at 4.867% (+4) and the 30-year at 4.917% (+5) at 3 p.m.
PCE
Consumers continued to spend despite inflation and economic data released Friday matched expectations.
"You have to love it when a plan comes together," said Art Hogan, chief market strategist for B. Riley Wealth. Personal consumption, expenditure and income figures were "right down the middle of the fairway. This leaves the door wide open for the Fed to cut rates in September and likely again in October and in December. The Treasury yield curve is responding appropriately with rates coming down both on the two-year and the 10-year."
While the news was "very good" for the economy, BMO Chief U.S. Economist Scott Anderson said, "it is less good news for those who were looking for aggressive interest rate cuts from the Fed."
"The lowest core goods inflation since December marks a welcome respite from tariff price pressures, though perhaps only temporarily," noted FHN Financial Chief Economist Chris Low. The increase in service prices "could be residual seasonality or even noise," he said.
Personal spending "remains strong enough to support the U.S. growth narrative," said Gina Bolvin, president of Bolvin Wealth Management Group. "While markets continue to flirt with all-time highs, breadth remains weak — yet still bullish for the longer term."
The ever-so-slight rise in inflation was "right in line with forecasts," said Chris Zaccarelli, chief investment officer for Northlight Asset Management. This raises the odds of the Fed cutting at its September meeting, he said.
Although two more inflation reports will be released before the meeting, Zaccarelli said, as long as they "don't show a huge spike in inflation, the Fed will be almost guaranteed to cut interest rates by 0.25% on September 17."
And while September is generally "the weakest month of the year on average," he said, "we don't see anything on the horizon to knock this bull market off its path."
Should there be typical market volatility in September or October, "it will likely prove to be a great buying opportunity as we are setting up to rally into year end, especially if the Fed is cutting rates outside of a recession," Zaccarelli said.
The data showed "somewhat more inflation on services than the goods side," noted Greg Wilensky, head of U.S. Fixed Income at Janus Henderson Investors. "This means either the tariffs' impacts have still not flowed through to a large extent or the tariff impact will be smaller than originally expected. There is probably some truth to both of these factors, but this still means that there will be more upward pressure [on] goods inflation to come."
Still, given these inflation numbers, unless headline payrolls are strong, he said, "the path to a 25-basis-point cut at the September meeting will be very clear."
More interesting will be the dot plot, Wilensky said. "Do we see a large shift to 75 bps on total cuts for 2025 that would increase the chances of additional consecutive cuts in October and December?"
His answer: No. "We believe the shift will be relatively modest."
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 Georgia Housing and Finance Authority (/AAA//) is set to price Tuesday $224.585 million of non-AMT single family mortgage bonds, Series 2025E. Raymond James.
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.
Gary Siegel and Jessica Lerner contributed to this report.
