Municipals were weaker Monday as the asset class had a more subdued reaction than other financial instruments on the news that the United States and China reached an agreement to lower tariffs on each other's exported goods temporarily. This move sent UST yields higher and equities rallied.
The agreement includes "the U.S. reducing its tariffs on China from 145% to 30% (reciprocal tariff 10% plus 20% fentanyl-related tariff) and China reducing its tariff rate from 125% to 10%," Seema Shah, chief global strategist of Principal Asset Management.
Tariff reductions will be in place for 90 days, giving "the market a little pause on the anxiety given how much everything's going to cost," like ongoing capital projects and local governments "stockpiling" goods before the tariffs went into effect, said Alice Cheng, director of municipal credit and investor strategy at Janney.
While uncertainty still looms, the announcement substantially reduces the near-term pressure on the U.S. and Chinese economies and represents a significant de-escalation of trade tensions," Shah said.
The agreement delivered a "major upside surprise to markets," as risk assets have responded positively, she said.
"Market participants are bringing out the enthusiasm and are on the offensive to begin the week by increasing their exposures to U.S. equities, the dollar, cyclical commodities and forecast contracts," said José Torres, senior economist at Interactive Brokers.
However, investors have stepped back from safety trade as "safe havens are being ditched amidst declining interest for instruments with defensive characteristics, namely shares in the utility and consumer staple sectors, Treasuries, gold bars, put options, and volatility call derivatives," he said.
Munis followed USTs higher Monday, with yields rising one to four basis points, depending on the scale, but the asset class outperformed USTs.
Part of the reason for munis moving higher Monday potentially stems from the confidence levels of USTs and how munis react to that, Cheng said.
Furthermore, some sectors have seen their outlooks revised, like Moody's moving its outlook for the airport sector to negative from stable, which can affect how investors think and feel about munis, she noted
Issuance this week is very healthy, and the deals in the market may be "firmer" as the economic data and Federal Reserve rate position are "behind us" for the time being, Cheng said.
This week will "put this newfound stability to the test as a large $13 billion-plus primary calendar arrives amidst ratios that are no longer screening cheap enough for crossover buyers," Birch Creek strategists said.
The two-year ratio Monday was at 72%, the five-year at 72%, the 10-year at 74% and the 30-year at 90%, according to Municipal Market Data's 3 p.m. ET read. ICE Data Services had the two-year at 74%, the five-year at 74%, the 10-year at 75% and the 30-year at 91% at 4 p.m.
Since April 9, when munis were at their cheapest levels compared to USTs, munis have outperformed USTs with the two-year MMD-UST ratio dropping from a high of 87% to 72%, a difference of about 13 percentage points, said Jason Wong, vice president of municipals at AmeriVet Securities.
The five-year ratio has fallen 16 percentage points to 72% from 88%, while the 10-year ratio saw a drop of 15 percentage points to 74% from 89%.
Additionally, the 30-year ratio moved lower to 90% from 101%, a difference of 11 percentage points.
"The outperformance of munis in the past month has shown that buyers saw the relative cheapness of buying munis at higher yields, as the last time we saw the 10-year ratio at 88.14% was in July 2022, in which yields were at 2.64%," Wong said.
While munis are no longer cheap compared to a month ago, "they are still considered cheap if you compare them now to the start of the year when the 10-year ratio was at 68.41%," he said.
Muni yields have rallied on average 45.6 basis points from the highs of April 9, and are closer to flat for 2025, with returns of negative 0.77%, Wong said.
Muni mutual funds saw inflows for the second straight week, with LSEG Lipper reporting $1.1 billion of positive flows.
"The new cash plus a lighter new issue calendar, stable Treasuries, and generous after-tax yields led to strong inquiries from a variety of account types," Birch Creek strategists said.
Due to this, sell pressure faded, with J.P. Morgan reporting a 27% drop in bids wanted compared to the recent five-week average, they said.
Trading volumes also declined, with customer purchases and sales falling 9% and 17%, respectively, Birch Creek strategists noted.
AAA scales
MMD's scale was cut two basis points: The one-year was at 2.87% (+2) and 2.88% (+2) in two years. The five-year was at 2.96% (+2), the 10-year at 3.31% (+2) and the 30-year (+2) at 4.40% at 3 p.m.
The ICE AAA yield curve saw cuts of three to four basis points: 2.86% (+4) in 2026 and 2.88% (+3) in 2027. The five-year was at 2.98% (+4), the 10-year was at 3.30% (+4) and the 30-year was at 4.40% (+3) at 4 p.m.
The S&P Global Market Intelligence municipal curve was cut one to two basis points: The one-year was at 2.87% (+1) in 2025 and 2.88% (+2) in 2026. The five-year was at 2.97% (+2), the 10-year was at 2.31% (+2) and the 30-year yield was at 4.39% (+2) at 4 p.m.
Bloomberg BVAL was cut one to two basis points: 2.84% (+1) in 2025 and 2.89% (+1) in 2026. The five-year at 3.01% (+1), the 10-year at 3.32% (+2) and the 30-year at 4.39% (+2) at 4 p.m.
Treasuries were weaker.
The two-year UST was yielding 3.996% (+10), the three-year was at 3.991% (+11), the five-year at 4.012% (+10), the 10-year at 4.464% (+8), the 20-year at 4.931% (+7) and the 30-year at 4.901% (+7) near the close.
Primary to come
The New York City Transitional Finance Authority (Aa1/AAA/AAA/) is set to price Wednesday $1.493 billion of future tax secured subordinate bonds, consisting of $650 million of tax-exempts, Fiscal 2025 Series I, Subseries I-1; $300 million of taxables, Fiscal 2025 Series I, Subseries I-2; $481.295 million of tax-exempt refunding bonds, Fiscal 2025 Series J, Subseries J-1; $40.615 million of taxables, Fiscal 2025 Series J, Subseries J-; and $20.79 million of tax-exempt refunding bonds, Fiscal 2025 Series K. Jefferies.
The
The National Finance Authority (/A+//) is set to price Wednesday $855 million of Winston-Salem Sustainable Energy Partners revenue bonds, consisting of $769.63 million of Series A bonds, serials 2030-2035, 2041-2045, terms 2050, 2055, and $85.37 million of taxable Series B bonds, serial 2035. RBC Capital Markets.
The Harris County Hospital District (Aa1///AA+/) is set to price Tuesday $839.55 million of limited tax bonds. Jefferies.
The Black Belt Energy Gas District (/A-//) is set to price $659.2 million of gas project revenue bonds, 2025 Series A, serials 2027-2032, 2055. J.P. Morgan.
The Washington State Housing Finance Commission is set to price Thursday $519.765 million of nonprofit revenue bonds, consisting of $487.215 million of BAM-insured Series 2025A bonds (/AA//), serials 2029-2040, terms 2045, 2050, 2055, 2060, 2064, and $32.55 million of subordinate Series 2025B bonds (nonrated), term 2064. Barclays.
The California Infrastructure and Economic Development Bank (Aa3/AA//) is set to price Tuesday $485.915 million of UCSF Clinical and Life Sciences Building revenue bonds, serials 2031-2045, terms 2050, 2055, 2059. Goldman Sachs.
The Beaverton School District No. 48J, Oregon, (Aa1/AA+//) is set to price Tuesday $403.583 million of GOs, consisting of $162.073 million of Series A, serials 2031-2048, and $241.51 million of Series B, serials 2026-2029, 2044, 2049-2053. Piper Sandler.
The New Jersey Economic Development Authority is set to price Wednesday $300 million of non-rated Repauno Port & Rail Terminal Project dock and wharf facility revenue bonds. Morgan Stanley.
Seattle (Aaa/AA+//) is set to price Wednesday $257.72 million of water system improvement and refunding revenue bonds, serials 2025-2045, terms 2050, 2055. BofA Securities.
The New Jersey Higher Education Student Assistance Authority is set to price Thursday $257.3 million of AMT student loan revenue and refunding bonds, consisting of $23.12 million of Series 1A (/AA//), serials 2027-2035; $178.88 million of Series 1B (/AA//), serials 2027-2035, term 2045; $28 million of Series 1C (/BBB//), serial 2055; and $27.3 million of Series 3 (/AA//, serials 2027-2035. RBC Capital Markets.
The Northside Independent School District, Texas, (Aaa/AAA//) is set to price Wednesday $200 million of PSF-insured variable rate unlimited tax school building bonds, Series 2020, term 2050. Baird.
Whiting, Indiana, (A1/A-//) is set to price Tuesday $200 million of non-AMT Bp Products North America Inc. Project environmental facilities revenue bonds, Series 2008, serial 2044. J.P. Morgan.
The North Dakota Housing Finance Agency (Aa1///) is set to price Wednesday $200 million of non-AMT social housing finance program bonds, 2025 Series A, serials 2026-2037, terms 2040, 2045, 2050, 2053, 2056. RBC Capital Markets.
The South Carolina State Housing Finance and Development Authority (Aaa///) is set to price Wednesday $178 million of non-AMT mortgage revenue bonds, Series 2025 B, serials 2026-2037, terms 2040, 2045, 2050, 2055, 2055. BofA Securities.
The Arizona Board of Regents (Aa3/AA-//) is set to price Tuesday $160.83 million of University of Arizona System revenue and revenue refunding bonds, consisting of $118.745 million of Series A, serials 2027-2045, terms 2050, 2055, and $42.085 million of Series B, serials 2027-2045. J.P. Morgan.
The Bedford City School District, Ohio, (/AA//) is set to price Thursday $158.13 million of BAM-insured GO school improvement bonds, serials 2025-2045, terms 2050, 2055, 2058. Piper Sandler.
The Southern California Public Power Authority (/AA-/AA-/) is set to price Wednesday $138.06 million of Canyon Power Project refunding revenue bonds, consisting of $51.165 million of 2025 Series A, serials 2028-2036, and $86.895 million of 2025 Series B, term 2040. Wells Fargo.
The Burbank Unified School District, California, (Aa2///) is set to price Tuesday $132.925 million of GOs, consisting of $80 million of Election of 2024 bonds, serials 2026, 2033-2045, terms 2050, 2054, and $52.925 million of 2025 refunding GOs, serials 2025-2034. Raymond James.
The Waco Education Finance Corp. (/A+/AA-/) is set to price Wednesday $132.1 million of fixed-rate Baylor University issue revenue bonds, consisting of $84.315 million of tax-exempt Series 2025A bonds, serials 2031-2037, 2039-2041, 2043-2045, terms 2050, 2055, and $47.785 million of taxable Series 2025B bonds, serial 2030. BofA Securities.
The Massachusetts Development Finance Agency (/A+//) is set to price Wednesday $127 million of Brandeis University issue revenue bonds, consisting of $20 million of Series T-1, serials 2028-2035, and $107 million of Series T-2, serial 2055. Barclays.
Competitive
Nassau County, New York, (Aa2/AA/AA/) is set to sell $277.715 million of general improvement bonds, 2025 Series A, at 10 a.m. Wednesday.
The Fremont Unified School District, California, (Aa2///) is set to sell $250 million of Election of 2024 GOs, Series A, at 12:30 p.m. Thursday.
Clark County, Nevada, (Aa2/AA-//) is set to sell $202.71 million of highway revenue improvement and refunding bonds at 11:30 a.m. Tuesday.
Celina, Texas, (Aa1/AA//) is set to sell $144.91 million of tax and waterworks and sewer system revenue certificates of obligation at 11 a.m. Tuesday.
Orange County, Florida, (/AAA/AAA/) is set to sell $140.33 million of water and wastewater utility revenue bonds at 11 a.m. Tuesday.
Monmouth County, New Jersey, (Aaa//AAA/) is set to sell $138.72 million of GOs at 10:45 a.m. Wednesday.
St. Lucie County, Florida, (Aa2/AA//) is set to sell $122.615 million of non-ad valorem revenue bonds, Series 2025A, at 10:30 a.m. Wednesday.
