Munis were steady ahead of the Thanksgiving holiday as issuance rebounds to $10.9 billion for the first week of December. U.S. Treasuries were little changed and equities were up.
The two-year muni-UST ratio Wednesday was at 70%, the five-year at 67%, the 10-year at 69% and the 30-year at 90%, according to Municipal Market Data's 3 p.m. EDT read. ICE Data Services had the two-year at 70%, the five-year at 67%, the 10-year at 69% and the 30-year at 88% at a 3 p.m. read.
The Investment Company Institute Wednesday reported inflows of $488 million for the week ending Nov. 19, following $1.042 billion of outflows the previous week. This differs from the $965.8 million of outflows, as reported by LSEG Lipper, over the same time period.
Exchange-traded funds saw inflows of $366 million after $2.735 billion of inflows the week prior, per ICI data.
November's supply was more "benign" this month compared to previous months, said Kim Olsan, senior fixed income portfolio manager at NewSquare Capital.
Preliminary November issuance figures are at $37.054 billion, up 45.5% year-over-year, according to LSEG.
"That figure is still a healthy weekly average but is well off April through August and September, when the monthly total exceeded $50 billion (the largest month was June at $58.8 billion issued)," Olsan said.
As a "supply-centric market," munis, compared to other asset classes, have certain considerations, including a "smaller buyer base to leverage the tax-advantaged nature of the product," she said.
As December begins, certain elements will play a role in yearend performance, Olsan said.
"An impediment to short, fixed-coupon commitments has been high money-market rates," she said.
Daily and weekly reset floaters are trading with 2.75% yields, but one-year bonds yield around 25 basis points less than that. For example, Aaa/AA-plus Denver school 5s due 12/1/26 were sold at 2.52%, Olsan said.
Looking at November's exchange-traded fund flows, "intake levels turned rather anemic mid-month, with no one strategy dominating flows," she said.
ETFs saw around $2.59 billion in inflows in November, "near parity" with the average of the previous 10 months, Olsan said.
More active flows have been "discouraged" due to "flat and inverted conditions" 10 years and in, she said.
"A 10-basis-point inversion in the five-year range has buyers maneuvering around this range to maximize yields (mainly with short calls or lower-rated bonds)," Olsan said.
"An extension into 10 years nets about a 30-basis-point pickup, but with raw yields around 2.75%, the taxable-equivalent component falls short of many buyers' 5.00% bogey," she said.
One caveat is that with the 10-year UST closing at 3.99% Tuesday, cross-market ratios have improved, nearing 70% once more, Olsan said.
"In the longer-intermediate range, more than 100 basis points of yield can be found compared to the 10-year range," she said.
"The coupon component unique to municipal financing — with 3s and 4s available in longer maturities — adds an interesting option, particularly with greater performance potential if rates decline through 2026," Olsan said.
Net supply value was smaller earlier this year, with fewer maturities and calls happening against supply. Between January and June, the net average value was negative $5 billion, Olsan said.
"March and April's upward yield move correlated with reduced demand on lighter redemption totals," she said.
The "active" summer months saw a total of $45 billion net-negative supply, Olsan said, resulting in the 10-year AAA BVAL yield rallying an average of 10 basis points from June to September.
With current estimates of net-negative value at $18 billion, this could possibly set the market up for a year-end rally, she said.
Last year was the only year over the past decade to see a market loss in December, with the average return for the month at +0.6%, Olsan said.
New-issue calendar
The new-issue calendar surges to an estimated $10.932 billion, with $8.92 billion negotiated deals on tap and $2.013 billion of competitives.
Connecticut leads the competitive calendar with $1.56 million of special tax obligation bonds, followed by the Utility Debt Securitization Authority with $1.026 billion of restructuring bonds and Massachusetts with $1.019 billion of GOs.
The competitive calendar is led by the California Infrastructure and Economic Development Bank with $554.625 million of Clean Water and Drinking Water State Revolving Fund revenue bonds.
AAA scales
MMD's scale was bumped two basis points four years and in: 2.50% (-2) in 2026 and 2.44% (-2) in 2027. The five-year was 2.41% (unch), the 10-year was 2.75% (unch) and the 30-year was 4.16% (unch) at 3 p.m.
The ICE AAA yield curve was bumped a basis point: 2.47% (-1) in 2026 and 2.45% (-1) in 2027. The five-year was at 2.40% (-1), the 10-year was at 2.75% (-1) and the 30-year was at 4.10% (-1) at 3 p.m.
The S&P Global Market Intelligence municipal curve was little changed: The one-year was at 2.50% (-1) in 2025 and 2.44% (-1) in 2026. The five-year was at 2.40% (unch), the 10-year was at 2.75% (unch) and the 30-year yield was at 4.13% (unch) at 3 p.m.
Bloomberg BVAL was unchanged: 2.50% in 2025 and 2.46% in 2026. The five-year at 2.39%, the 10-year at 2.72% and the 30-year at 4.05% at 3 p.m.
Treasuries were little changed.
The two-year UST was yielding 3.482% (+2), the three-year was at 3.473% (+2), the five-year at 3.573% (+1), the 10-year at 3.997% (flat), the 20-year at 4.603% (flat) and the 30-year at 4.643% (-1) at 3 p.m.
