Municipals are firmer in spots Thursday as U.S. Treasuries saw gains and equities end down.
The two-year muni-UST ratio Thursday was at 69%, the five-year at 65%, the 10-year at 67% and the 30-year at 88%, according to Municipal Market Data's 3 p.m. EDT read. ICE Data Services had the two-year at 68%, the five-year at 64%, the 10-year at 66% and the 30-year at 87% at a 4 p.m. read.
While this was a blockbuster week for issuance, supply may start to slow down, as this year was a "front run" on questions related to the One Big Beautiful Bill Act, said Derek Plaski, associate portfolio manager and senior investment analyst at Federated Hermes.
However, it's possible December may see heavier-than-usual issuance, he said.
Gross supply over the next two months will be $88 billion and issuance will end the year at $578 billion, or up 16% year-over-year, said Peter Block, managing director of credit strategy at Ramirez.
Fund flows, which have been robust, are supportive of the market, Plaski said.
Treasury rates drive the muni market and flows coincide with that in a way, he said.
"Flows are strong now, but I think there is some worry, if we were to see Treasury rates back up meaningfully, would that change the momentum of flows," Plaski said.
Munis benefit from a "powerful" seasonal tailwind into yearend, said BlackRock's Patrick Haskell, head of the municipal bonds group; James Schwartz, head of municipal credit research; and Sean Carney, CIO of municipal bond funds.
Historically, October has been a challenging month due to robust supply, averaging negative 0.46% return over the past decade; however, this usually sets up robust rebounds in November and December as supply levels abate, they said.
Over the last 10 years, November has been the best month for munis, averaging gains of 1.26%, while December ranks fourth at 0.64%, BlackRock strategists said.
"Together, these effects have made the fourth quarter the top-performing period of the year, averaging a total return of 1.44%," they said.
BlackRock strategists expect a similar dynamic in 2025, with "October's potential weakness providing opportunities to add exposure ahead of expected strength later in the quarter," BlackRock strategists said.
Meanwhile, Treasury rates may serve as a potential headwind for the rest of the year, Plaski said.
With the "blackout" on data, there's a lot of uncertainty about where the Treasury rates will end up and how the Treasury market will respond to new data, according to Plaski.
Another potential challenge is the prolonged duration of the government shutdown. The longer it goes on, the more pronounced effect it will have, which could eventually spill over into munis in a meaningful way, he said.
In 2026, the macro backdrop will be "dominated by a generally strong U.S. economy with weakening labor markets, sticky inflation, AI-obsession [and] fraught politics," Block said.
The Treasury curve will continue to steepen: Three to four Federal Reserve rate cuts next year, along with the end of quantitative tightening and heavy T-bill issuance, "anchors front-end rates with slightly lower rangebound rates through ~10yrs," he said.
In the primary market Thursday, BofA Securities priced for San Francisco (Aa2/AA/AA+/) $271.275 million of multiple capital improvement projects refunding certificates of participation, Series 2025-R1, with 5s of 4/2026 at 2.46%, 5s of 2030 at 2.29%, 5s of 2035 at 2.61%, 5s of 2040 at 3.35% and 5s of 2041 at 3.49%, callable 4/1/2035.
Siebert Williams Shank priced for Austin (A1/A+//AA-/) $229.15 million of AMT airport system revenue refunding bonds, with 5s of 11/2026 at 3.11%, 5s of 2030 at 3.24%, 5s of 2035 at 3.59%, 5s of 2040 at 4.03% and 5s of 2044 at 4.42%, callable 11/15/2035.
In the competitive market, Montgomery County, Maryland, (Aaa/AAA/AAA/) sold $280 million of GO consolidated public improvement bonds of 2025, Series A, to J.P. Morgan, with 5s of 10/2026 at 2.57%, 5s of 2030 at 2.49%, 5s of 2035 at 2.87%, 4s of 2040 at 3.75%, and 4.125s of 2045 at 4.18%, callable 10/1/2033.
Fund flows
Investors added $1.266 billion to municipal bond mutual funds in the week ended Wednesday, following $744.3 million of inflows the prior week, according to LSEG Lipper data.
High-yield funds saw small inflows of $277 million compared to inflows of $0.3 million the previous week.
Tax-exempt municipal money market funds saw inflows of $2.494 billion for the week ending Nov. 4, bringing total assets to $140.892 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 rose to 2.70%.
Taxable money-fund assets saw $117.5 billion added, bringing the total to $7.36 trillion.
The average seven-day simple yield was at 3.73%.
The SIFMA Swap Index was at 2.68% on Wednesday compared to the previous week's 3.22%.
AAA scales
MMD's scale was bumped up to four basis points: 2.54% (-2) in 2026 and 2.46% (unch) in 2027. The five-year was 2.41% (-2), the 10-year was 2.75% (-3) and the 30-year was 4.14% (-4) at 3 p.m.
The ICE AAA yield curve was mixed: 2.56% (+1) in 2026 and 2.49% (+2) in 2027. The five-year was at 2.43% (-1), the 10-year was at 2.76% (-2) and the 30-year was at 4.11% (-1) at 4 p.m.
The S&P Global Market Intelligence municipal curve was bumped one to three basis points: The one-year was at 2.54% (-1) in 2025 and 2.44% (-2) in 2026. The five-year was at 2.39% (-1), the 10-year was at 2.75% (-1) and the 30-year yield was at 4.12% (-3) at 3 p.m.
Bloomberg BVAL was bumped one to three basis points: 2.52% (-1) in 2025 and 2.47% (-1) in 2026. The five-year at 2.38% (-2), the 10-year at 2.71% (-3) and the 30-year at 4.06% (-3) at 4 p.m.
Treasuries saw gains.
The two-year UST was yielding 3.563% (-7), the three-year was at 3.574% (-7), the five-year at 3.686% (-8), the 10-year at 4.09% (-7), the 20-year at 4.658% (-6) and the 30-year at 4.684% (-5) near the close.
