Munis were steady Monday as U.S. Treasuries were little changed and equities closed lower.
The two-year muni-UST ratio Monday was at 69%, the five-year at 65%, the 10-year at 66% and the 30-year at 87%, according to Municipal Market Data's 3 p.m. EDT read. ICE Data Services had the two-year at 69%, the five-year at 64%, the 10-year at 66% and the 30-year at 86% at a 4 p.m. read.
Muni yields were steady last week, with the Federal Reserve's expected 25 basis point rate cut having little effect on a market that already priced in the move, said Jason Wong, vice president of municipal at AmeriVet Securities.
Before the announcement, munis were unchanged 15 years and in and maturities outside 15 years were cut one basis point. Afterward, munis were unchanged with 2037-2040 maturities seeing a one basis point bump, he said.
Munis are seeing a "relatively quiet" December, with the asset class posting losses of 0.16%, pushing year-to-date returns to just under 4%, Wong said.
The one- to four-year range are seeing the largest gains this month with returns of 0.15% while the long end is seeing the largest losses: 0.56%, he said.
Next year, the "muni market could see stable to improving returns depending on yield curve positioning, with better performance possible at the long end of the curve," said Jonathan Rocafort, managing director and head of fixed income solutions at Parametric.
Last week, investors added only $16 million to muni mutual funds after inflows of $736.6 million the week prior, according to LSEG Lipper.
This marks three straight weeks of inflows after outflows "related to a fund acquisition" disrupted a seven-week inflow streak, said J.P. Morgan strategists, led by Peter DeGroot.
Open-ended funds saw negative flows of $394 million, while exchange-traded funds saw $410 million of inflows, "potentially indicative of year-end tax trading as investors swap between mutual funds and ETFs," said Daryl Clements, a portfolio manager at AllianceBernstein.
This year, inflows have reached $47 billion, already surpassing last year's total.
The trend may continue into next year as "rate cuts have historically driven positive net inflows during easing cycles," said Parametric's Rocafort.
The muni curve is "significantly" steeper than the UST curve, "offering buyers attractive compensation for extending maturities," he said.
"For investors transitioning out of cash and preparing for the next stage of the interest rate cycle, extending moderately along the curve may provide an opportunity to increase income while mitigating reinvestment risk," Rocafort said.
Muni credit remains strong; rainy-day funds average 15% of state spending this year, he said.
Solid reserves could help states "offset" Medicaid cuts and limit the effect on their credit ratings, Rocafort said.
"With muni spreads holding steady or tightening, upgrade-to-downgrade ratios may slow but stay at or above parity," he said.
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 2.76% and the 30-year was 4.24% at 3 p.m.
The ICE AAA yield curve was bumped up to one basis point: 2.47% (unch) in 2026 and 2.44% (unch) in 2027. The five-year was at 2.40% (unch), the 10-year was at 2.78% (-1) and the 30-year was at 4.19% (-1) at 4 p.m.
The S&P Global Market Intelligence municipal curve was little changed: The one-year was at 2.48% (unch) in 2025 and 2.43% (unch) in 2026. The five-year was at 2.43% (unch), the 10-year was at 2.76% (-1) and the 30-year yield was at 4.22% (unch) at 4 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 4.13% at 4 p.m.
Treasuries were little changed.
The two-year UST was yielding 3.505% (-2), the three-year was at 3.56% (-2), the five-year at 3.732% (-1), the 10-year at 4.181% (flat), the 20-year at 4.808% (flat) and the 30-year at 4.852% (+1) near the close.
Primary to come
The New York City Transitional Finance Authority (Aa1/AAA/AAA/) is set to price Wednesday $2 billion of future tax-secured subordinate refunding bonds, consisting of $500 million of tax-exempt Fiscal 2026 Series C bonds, $1.312 billion of tax-exempt Fiscal 2026 Series D-1 bonds, $167.42 million of taxable Fiscal 2026 Series D-2 bonds, and $20.67 million of tax-exempt Fiscal 2026 Series E bonds. Jefferies.
The Black Belt Energy Gas District is set to price $800 million of gas project revenue bonds, 2025 Series F. J.P. Morgan.
The Ohio State University (Aa1/AA+/AA+/) is set to price Tuesday $562 million of general receipts refunding bonds (Multiyear Debt Issuance Program III), Series 2026A. Jefferies.
The North Carolina Medical Care Commission (//BBB+/) is set to price Wednesday $313.5 million of retirement facilities first mortgage revenue bonds (Deerfield Episcopal Retirement Community Project), Series 2026, consisting of $153.435 million of Series 2026A, $16.85 million of Series 2026B-1, $25.3 million of Series 2026B-2, $33.7 million of Series 2026B-3 and $84.25 million of Series 2026B-4. Ziegler.
The Prosper Independent School District, Texas, (Aaa//AAA/) is set to price Tuesday $279.895 million of PSF-insured unlimited tax school building and refunding bonds, Series 2026. Piper Sandler.
The Cypress-Fairbanks Independent School District, Texas, (Aaa/AAA//) is set to price Tuesday $236.34 million of PSF-insured unlimited tax refunding bonds, Series 2026. Jefferies.
The Georgia Higher Education Facilities Authority (/AA-//) is set to price Tuesday $229.645 million of taxable revenue bonds (USG Real Estate Foundation XIV, LLC Project), consisting $190.5 million of taxable Series 2026A bonds and $39.145 million of Series 2026B bonds. RBC Capital Markets.
The New York City Housing Development Corp. (Aa2///) is set to price Tuesday $218.28 million of sustainable development housing impact bonds, consisting of $37.11 million of non-AMT 2025 Series F bonds and $181.17 million of taxable 2025 Series G bonds. BofA Securities.
The Glendale Community College District, California, (Aa2/AA-//) is set to price Wednesday $200 million of GO bonds, 2024 Election, 2025 Series A. RBC Capital Markets.
The Metropolitan Water District of Southern California (/AAA/AA+/) is set to price Wednesday $184.225 million of special variable rate water revenue refunding bonds, 2025 Series B. PNC Capital Markets.
The Build NYC Resource Corp. is set to price Tuesday $183.53 million of tax-exempt revenue bonds (Teachers Village Social Impact Mott Haven, LLC Project), consisting of $170.595 million of Series 2025 Class I and $12.935 million of Series 2025 Class II. Jefferies LLC.
The EHOVE Joint Vocational School District, Ohio, (/AA//) is set to price Wednesday $150 million of GO School Improvement bonds, Series 2026. Piper Sandler.
