Munis were steady Thursday as U.S. Treasuries barely moved and equities ended down.
The two-year muni-UST ratio Thursday was at 59%, the five-year at 58%, the 10-year at 62% and the 30-year at 90%, according to Municipal Market Data's 3 p.m. EDT read. The two-year muni-UST ratio was at 60%, the five-year at 57%, the 10-year at 62% and the 30-year at 89%, according to ICE Data Services.
This year, supply is on a trajectory to keep pace, if not break, 2025's record issuance figure.
"Perhaps more importantly, returns so far this year are a reminder that significant supply does not necessarily equate to poor market performance," said Daryl Clements, a municipal portfolio manager at AllianceBernstein.
Munis have seen "solid" gains of 1.82% this year — with only two days of negative daily returns — and the market has also been remarkably consistent, he said.
Munis have also performed well relative to USTs, especially in short and intermediate maturities, Clements said.
"Reinvestment cash from coupons and maturities, coupled with strong demand, has been crucial in taking down the wave of issuance this year," he said.
The market has seen 13 straight weeks of inflows and 23 of the last 25 weeks have seen positive fund flows, according to LSEG Lipper.
It's unlikely this level of return consistency will continue throughout the year, according to Clements.
"If (or when) demand does soften, it would likely cause some underperformance in the market — particularly given how expensive municipals have become in certain parts of the curve," he said.
Currently, the long end is attractive, but demand isn't there due to structural changes over the past decade, said Jeff Timlin, managing partner and head of municipal bond investing at Sage Advisory.
"Separately managed accounts have grown in size pretty substantially at the expense of mutual funds, and then, maybe to some extent, exchange-traded funds," he noted.
Mutual funds and ETFs were the natural buyers of long-dated paper and supported that market significantly, while SMAs have been mostly interested in intermediate- to short-dated types of product, according to Timlin.
However, there have been more inquiries about "core strategies" that can use the full yield curve, he said, noting Sage has seen some of the most significant growth on a percentage basis of AUM strategy in its core product.
"People are coming in and deploying new money in our longest-duration strategy, or they're … transitioning from an intermediate product," Timlin said.
There seems to be a rebalancing of sorts, a shift in thinking to "I'm more comfortable holding longer-dated paper than I maybe would have five years ago or so," he said.
Fund flows
Investors added $1.269 billion to municipal bond mutual funds in the week ended Wednesday, following $1.576 billion of inflows the prior week, according to LSEG Lipper data. This is the sixth time in seven weeks that inflows have topped $1 billion.
High-yield funds saw inflows of $304 million compared to inflows of $232.8 million the previous week.
Tax-exempt municipal money market funds saw inflows of $87.2 million for the week ending Feb. 16, bringing total assets to $142.567 billion, according to the Money Fund Report, a weekly publication of EPFR.
The average seven-day simple yield for all tax-free and municipal money-market funds was 2.10%.
Taxable money-fund assets saw $22.871 billion added, bringing the total to $7.613 trillion.
The average seven-day simple yield was 3.36%.
The SIFMA Swap Index was at 2.22% on Wednesday compared to the previous week's 2.52%.
New-issue market
In the primary market Thursday, Wells Fargo priced for Metro Water Recovery, Colorado, (/AAA//) $136.75 million of sewer improvement bonds, Series 2026A, with 5s of 4/2030 at 2.18%, 5s of 2031 at 2.22%, 5s of 2036 at 2.62%, 5s of 2041 at 3.24%, 5s of 2046 at 3.97% and 5s of 2051 at 4.28%, callable 4/1/2036.
In the competitive market, the Metropolitan Government of Nashville and Davidson County, Tennessee, (Aa2/AA+//AA+/) sold $239.69 million of general obligation improvement bonds, Series 2026C, to BofA Securities, with 4s of 1/2042 at 3.78%, 4.25s of 2046 at 4.29%, and 4.25s of 2047 at 4.36%, callable 1/1/2036.
The issuer also sold $203.1 million of GO improvement bonds, Series 2026A, to Barclays, with 5s of 1/2028 at 2.06%, 5s of 2031 at 2.16% and 5s of 2036 at 2.62%, noncall.
Additionally, the issuer sold $157.88 million of GO improvement bonds, Series 2026B, to Jefferies, with 5s of 1/2037 and 4s of 2041 at 3.55$, callable 1/1/2036.
South Washington County Schools, Minnesota, (Aa1///) sold $215.245 million of GO school building, facilities maintenance, and refunding bonds, Series 2026A, to BofA Securities, with 5s of 2/2027 at 2.08%, 5s of 2031 at 2.22%, 5s of 2036 at 2.67%, 5s of 2041 at 3.30% and 4s of 2046 at 4.148%, callable 2/1/2034.
AAA scales
MMD's scale was unchanged: 2.06% in 2027 and 2.06% in 2028. The five-year was 2.13%, the 10-year was 2.52% and the 30-year was 4.23% at 3 p.m.
The ICE AAA yield curve was little changed: 2.10% (+1) in 2027 and 2.07% (unch) in 2028. The five-year was at 2.10% (+1), the 10-year was at 2.54% (+1) and the 30-year was at 4.21% (unch) at 4 p.m.
The S&P Global Market Intelligence municipal curve was unchanged: The one-year was at 2.06% in 2027 and 2.07% in 2028. The five-year was at 2.13%, the 10-year was at 2.52% and the 30-year yield was at 4.20% at 3 p.m.
Bloomberg BVAL was unchanged: 2.05% in 2027 and 2.04% in 2028. The five-year at 2.09%, the 10-year at 2.49% and the 30-year at 4.08% at 4 p.m.
U.S. Treasuries were flat.
The two-year UST was yielding 3.467% (flat), the three-year was at 3.496% (flat), the five-year at 3.644% (-1), the 10-year at 4.074% (-1), the 20-year at 4.652% (-1) and the 30-year at 4.704% (flat) near the close.
Technology
Fixed-income data and solutions provider DPC DATA and IMTC, a fixed-income investment management technology provider, have integrated DPC's Credit Momentum Score into the IMTC platform, according to a press release.
This gives market participants a "powerful, data-driven signal designed to strengthen credit surveillance, uncover emerging risks, and support more informed investment decisions across municipal and corporate bond," the release said.
DPC DATA's Credit Momentum Score analyzes changes in an issuer's credit profile by assessing fundamental, market and structural indicators.
Embedding this score into IMTC's platform gives users "real-time access to a concise, actionable measure of credit trajectory without leaving their existing investment process," per the release.
The Credit Momentum Score can be accessed through IMTC's suite of tools. "Users can view the score at the issuer or CUSIP level, track changes over time and incorporate the metric into their internal risk frameworks," the release said.
