Municipals were steady Wednesday as U.S. Treasuries were firmer and equities ended up.
The two-year muni-UST ratio Wednesday was at 60%, 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 64%, the 10-year at 74% and the 30-year at 94% at a 4 p.m. read.
The Investment Company Institute Wednesday reported $732 million of outflows for the week ending Aug. 20, following $663 million of inflows the previous week. This greatly differs from LSEG Lipper's $2.332 billion of inflows, skewed by an asset allocation shift from equities into fixed income from a single high-yield exchange-traded fund.
Exchange-traded funds saw inflows of $2.5 billion after $206 million of outflows the week prior, per ICI data.
Supply has surged in 2025 due to higher inflation and earlier concerns over the potential elimination of the tax exemption, said Cooper Howard, a fixed income strategist at Charles Schwab.
For the latter, the fear of the repeal of the tax exemption led issuers to pull forward supply and rush to the capital market to avoid potential risk, he said.
With the tax exemption "left in place," supply is expected to moderate over the remainder of 2025, which should be supportive of total returns, Howard said.
With rising construction costs and bonds issued to fund much-needed infrastructure projects, he doesn't expect supply to reach the depressed levels from a few years ago.
While issuance has been on a record pace this year, this week sees a slight slowdown in activity, caused by participants going on vacation, said Jeff Timlin, a partner at Sage Advisory.
Even with supply at record levels, "it didn't feel like a super busy summer … It felt pretty orderly. It just felt like a steady pace, nothing overly hectic," he said.
The muni market seemed to handle headline-induced volatility rather well, despite other markets facing some challenges, or at least experiencing some daily volatility, according to Timlin.
The fall will see a softer period, but munis will be "well supported" due to the attractive valuations, particularly out long.
"It offers a better value set for people who can utilize any market — equities, fixed income, private equity. When you're looking at their overall portfolio and where to reallocate, munis are blinking green, at least in terms of, 'Hey, give us a look.'"
The asset class has underperformed for the first eight months of the year, but the broad index has finally turned positive.
Munis are seeing gains of 0.73% month-to-date, bringing year-to-date gains to 0.18%.
HY munis are seeing gains of 0.37% in August, but losses of -1.47% so far in 2025, while taxable munis are seeing positive returns of 1.08% month-to-date and 4.78% year-to-date.
U.S. Treasuries are seeing gains of 0.89% MTD and 4.31% YTD, and corporates are seeing positive returns of 1.05% MTD and 5.34% YTD.
Furthermore, munis may receive some additional attention compared to other asset classes, Timlin said.
This is due to the significant underperformance that creates yield levels—, especially for those who can take advantage further out on the curve — that might encourage some investors to give munis a "second look" and start investing in an underperforming asset class, he noted.
"Things are lining up to maybe give people, as they're kind of trying to think about how they're going to reposition into going into year-end, do any final adjustments, maybe take some gains," Timlin said.
There have been market participants who were "killed" in April that are now back to making new highs, he noted.
"So those astute investors may be a little bit more apt to pivot and take some of the chips off the table that they've done so well with, and then put it into something else that could possibly, at minimum stay stable, but at best, we'll probably start to see some outperformance because of the potential shifting In investor sentiment," Timlin said.
In the primary market Wednesday, Loop Capital Markets priced for the Pennsylvania Turnpike Commission (Aa3/AA-/AA-/AA-/) $600 million of turnpike revenue bonds. The first tranche, $343.165 million of Series B of 2025 bonds, saw 5s of 12/2026 at 2.27%, 5s of 2030 at 2.55%, 5s of 2035 at 3.48%, 5s of 2040 at 4.21%, 5.25s of 2045 at 4.67%, 5.25s of 4.87% and 5.25s of 2055 at 4.90%, callable 12/1/2035.
The second tranche, $154.755 million of refunding Third Series of 2025, Sub-series 1 bonds, saw 5s of 12/2026 at 2.27%, 5s of 2030 at 2.55%, 5s of 2035 at 3.48% and 5s of 2040 at 4.21%, callable 12/1/2035.
The third tranche, $102.08 million of refunding Third Series of 2025, Sub-series 2 bonds, saw 5s of 12/2045 with a put date of 12/1/2032 at 3.28%, callable 6/1/2032.
Siebert Williams Shank priced for the Michigan Finance Authority (/A-/A-/) $129.45 million of BAM-insured local government loan program revenue refunding bonds (Public Lighting Authority Refunding Local Project), Series 2025A, with 5s of 7/2026 at 2.52%, 5s of 2030 at 2.78%, 5s of 2035 at 3.66%, 5s of 2040 at 4.41% and 5s of 2044 at 4.86%, callable 7/1/2035.
J.P. Morgan priced for the Pennsylvania Economic Development Financing Authority $100 million of nonrated solid waste disposal revenue bonds, with 6.875s of 9/2047 at 7.00%, callable 9/1/2035.
AAA scales
MMD's scale was unchanged: The one-year was at 2.17% and 2.19% in two years. The five-year was at 2.37%, the 10-year at 3.23% and the 30-year at 4.61% at 3 p.m.
The ICE AAA yield curve was cut up to a basis point: 2.24% (unch) in 2026 and 2.20% (unch) in 2027. The five-year was at 2.40% (+1), the 10-year was at 3.16% (unch) and the 30-year was at 4.60% (unch) at 4 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 4 p.m.
Bloomberg BVAL was unchanged: 2.18% in 2025 and 2.20% in 2026. The five-year at 2.36%, the 10-year at 3.20% and the 30-year at 4.60% at 4 p.m.
Treasuries saw gains.
The two-year UST was yielding 3.23% (-6), the three-year was at 3.592% (-3), the five-year at 3.706% (-4), the 10-year at 4.237% (-3), the 20-year at 4.871% (-1) and the 30-year at 4.914% (-1) near the close.
Competitive
The South Carolina Association of Governmental Organizations is set to sell $306.945 million of certificates of participation, Series 2025B (South Carolina School District Credit Enhancement Program), at 11 a.m. Thursday.
North Hempstead, New York, is set to sell $142.701 million of bond anticipation notes at 10:30 a.m. Thursday.
