Municipals were little changed Thursday as U.S. Treasury yields were a touch weaker 10 years and in, and equities ended up.
The two-year muni-UST ratio Thursday was at 64%, the five-year at 65%, the 10-year at 74% 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 62%, the five-year at 67%, the 10-year at 73% and the 30-year at 93% at a 4 p.m. read.
The market has seen some "weirdness" in the muni curve, said Craig Brandon, co-head of muni investments at Morgan Stanley Investment Management.
Five-year munis are up 269 basis points year-to-date, while long munis (+22 years) are off 370 basis points.
Additionally, the 5s30s AAA MMD curve slope is currently at 200 basis points, nearly 100 basis points steeper year-to-date, while the 5s30s UST curve slope is 94 basis points, 54 basis points steeper since Jan. 1.
Munis are the only fixed-income asset class seeing losses year-to-date, as corporate investment grades, bank loans and Treasuries are up, Brandon said. And yet, the long muni index (+22 years) is down almost 4%.
"What is causing the muni market to significantly underperform everything else?" he asked.
Supply is one potential cause, as issuers came to market en masse during the first half of the year with $280 billion of issuance.
Part of the reason was fear over the elimination of the tax exemption, which led market participants to encourage issuers to frontload supply. However, the "One Big Beautiful Bill" passed and the tax exemption remains intact.
The increased costs of capital projects, due in part to inflation, the drying up of pandemic-era aid and a backlog of issuance are also factors.
There's potential for a slowdown in supply now that the tax bill has passed, with the muni tax exemption still in place, Brandon noted.
If the Federal Reserve starts cutting rates in the fourth quarter, "we get a rate rally, we get all this money back into the muni market, and issuance slows down," he said.
"So are we going to get back a lot of this underperformance now that the tax bill is behind us?" Brandon asked.
The 22-plus muni index is underperforming the five-year index by 639 basis points.
"Is that where you position right now, or is the curve just going to continue to steepen?" Brandon asked.
Besides supply, fund flows could be causing the steepening of the muni curve, he noted.
Fund flows are going into separately managed accounts and exchange-traded funds, and neither vehicle likes the long end of the curve, preferring not to extend past 15 years, Brandon said.
"Then the question becomes: Are we seeing an inherent structural change to the muni market, or is this just a temporary steepening driven by oversupply driven by the tax bill?" he said, noting the answer is unclear at the moment.
In the primary market Thursday, Goldman Sachs priced for institutions California State University Trustees' (Aa2/AA-//) $1.617 million of Series A systemwide revenue bonds, with 5s of 11/2026 at 2.35%, 5s of 2030 at 2.48%, 5s of 2035 at 3.21%, 5s of 2040 at 4.01%, 5s of 2045 at 4.49%, 5.25s of 2050 at 4.68%, 4.625s of 2056 at 4.859% and 5.25s of 2056 at 4.75%, callable 11/1/2035.
Siebert Williams Shank priced for the Spring Independent School District, Texas, (Aaa/AAA//) $590.865 million of PSF-insured unlimited tax school building and refunding bonds, with 5s of 8/2026 at 2.53%, 5s of 2030 at 2.69%, 5s of 2035 at 3.44%, 5s of 2040 at 4.15%, 5.25s of 2045 at 4.58%, 5.25s of 2050 at 4.77% and 5.25s of 2055 at 4.84%, callable 8/15/2035.
Morgan Stanley priced for the Local Building Authority of Alpine School District, Utah, (Aa2//AA+/) $201.045 million of West School District lease revenue bonds, with 5s of 3/2029 at 2.57%, 5s of 2030 at 2.66%, 5s of 2035 at 3.39% 5s of 2040 at 4.17% and 5s of 2045 at 4.61%, callable 3/15/2035.
Ramirez priced for the Flour Bluff Independent School District, Texas, (/AAA//) $188.27 million of PSF-insured unlimited tax school building bonds, with 5s of 8/2025 at 2.70%, 5s of 2030 at 2.77%, 5s of 2035 at 3.49%, 5s of 2040 at 4.22%, 5s of 2045 at 4.69%, 4.75s of 2050 at 4.93% and 5.25s of 2055 at 4.87%, callable 2/15/2035.
In the competitive market, Miami-Dade County, Florida, (Aa2/AA//) sold $242.535 million of BuildingBetter Communities Program GO refunding bonds, Series 2025A, to BofA Securities, with 5s of 7/2026 at 2.48%, 5s of 2030 at 2.63% and 5s of 2035 at 3.37%, noncall.
Fund flows
Investors added $431.8 million to municipal bond mutual funds in the week ended Wednesday, following $958.2 million of inflows the prior week, according to LSEG Lipper data.
High-yield funds saw inflows of $137.1 million compared to $344.7 million the previous week.
Tax-exempt municipal money market funds saw inflows of $970.4 million for the week ending July 8, bringing total assets to $139.226 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 fell to 1.41%.
Taxable money-fund assets saw $3.187 billion pulled, bringing the total to $6.89 trillion.
The average seven-day simple yield was at 3.98%.
The SIFMA Swap Index was at 1.63% on Wednesday compared to the previous week's 1.62%.
AAA scales
MMD's scale was unchanged: The one-year was at 2.46% and 2.46% in two years. The five-year was at 2.55%, the 10-year at 3.22% and the 30-year at 4.55% at 3 p.m.
The ICE AAA yield curve saw cuts 10 years and out: 2.44% (-3) in 2026 and 2.39% (-2) in 2027. The five-year was at 2.61% (-1), the 10-year was at 3.17% (+1) and the 30-year was at 4.53% (+1) at 4 p.m.
The S&P Global Market Intelligence municipal curve was unchanged: The one-year was at 2.46% in 2025 and 2.47% in 2026. The five-year was at 2.56%, the 10-year was at 3.21% and the 30-year yield was at 4.54% at 4 p.m.
Bloomberg BVAL was little changed: 2.48% (-1) in 2025 and 2.50% (-1) in 2026. The five-year at 2.60% (unch), the 10-year at 3.16% (unch) and the 30-year at 4.54% (unch) at 4 p.m.
Treasuries were narrowly mixed.
The two-year UST was yielding 3.869% (+2), the three-year was at 3.832% (+2), the five-year at 3.928% (+2), the 10-year at 4.345% (+1), the 20-year at 4.86% (flat) and the 30-year at 4.864% (-1) just before the close.
