Munis sold off on Tuesday, as U.S. Treasuries cheapened and equities ended lower.
Muni yields were cut by five to nine basis points, depending on the scale. USTs cheapened by two to six basis points, with the biggest losses in the two- to five-year portion of the curve.
The muni market selloff is a result of weakness in the UST market, as rising oil prices intensified inflation concerns and increased expectations of the Federal Reserve hiking rates, leading to a global bond rout that pushed the 10-year UST to its highest levels since January 2025.
The pressures on USTs, combined with heavy supply, pushed munis into a selloff, said Chris Brigati, managing director and CIO at SWBC. Cash is still flowing into accounts, but muni supply has outweighed demand for the past few weeks, hurting the secondary market.
"New deals are being priced to get placed in the market, and they are doing so pretty consistently at relaxed levels to bring the buyers in," Brigati said. "That means there's not a lot of attention being put on the secondary market."
The U.S. and Iran have continued bombing the Strait of Hormuz, pushing oil prices higher, which is inflationary, Brigati said; Federal Reserve Chair Kevin Warsh may respond with a rate hike. In Brigati's eyes, the 10-year UST yield is likely to reach 5%.
"We've got all these factors piling up, saying rates could go higher, and there's a little bit of trepidation in the bond market to step in at these levels. The levels are very attractive from a historical standpoint, but they can become more attractive," Brigati said. That could culminate in "a continued selloff for the bond market."
Munis may become around 10 basis points richer or cheaper for brief periods, Brigati said, but if UST yields stay the same or move higher, munis will have to follow the broader trend.
New-issue market
In the primary market Tuesday, Jefferies priced for the Texas Transportation Commission (Aaa///AAA/) $934.755 million of state of Texas general obligation mobility fund and refunding bonds, Series 2026-A, with 5s of 10/2027 at 2.61%, 5s of 2028 at 2.72%, 5s of 2036 at 3.64%, 5s of 2041 at 4.25% and 5s of 2044 at 4.43%, callable 10/2036.
In the competitive market, the Dormitory Authority of the State of New York (Aa1//AA+/) sold $384.415 million of state sales tax revenue bonds, Series 2026A, to Wells Fargo Bank, with 5s of 3/2047 at 4.74%, 5s of 2051 at 4.91% and 5s of 2053 at 4.97%, callable 3/2036.
The authority sold $333.1 million of state sales tax revenue bonds, Series 2026A, to J.P. Morgan Securities, with 5s of 3/2039 at 4.01%, 5s of 2041 at 4.28% and 5s of 2046 at 4.64%, callable 3/2036.
The authority sold $365.42 million of state sales tax revenue bonds, Series 2026A, to BofA Securities, with 5s of 3/2028 at 2.62%, 5s of 2031 at 2.98%, 5s of 2036 at 3.56%, and 5s of 2038 at 3.87%, callable 3/2036.
DASNY sold $356.88 million of climate bond certified state sales tax revenue bonds, Series 2026B, to Jefferies, with 5s of 3/2053 at 4.97%, 5s of 2056 at 5.016%, and 5s of 2057 at 5.024%, callable 3/2036.
DASNY sold $383.24 million of climate bond certified state sales tax revenue bonds, Series 2026B to Jefferies, with 5s of 3/2058 at 5.04% and 5s of 2061 at 5.07%, callable 3/2036.
The issuer sold $53.68 million of taxable state sales tax revenue bonds, Series 2026C, to Wells Fargo, with all bonds priced at par: 4.72s of 3/2030, 4.77s of 2031 and 5.22s of 2036, noncall.
