Municipals saw extended losses Tuesday with yields rising over 25 basis points as selling pressure continued and more deals were postponed due to tariff-induced market volatility. U.S. Treasuries were weaker five years and out and equities saw early morning gains erased to end down.
Muni yields rose by 19 to 27 basis points Tuesday, depending on the curve. The past two trading sessions have pushed high-grade yields up more than 60 basis points on parts of the curve and moved muni to UST ratios higher.
The two-year municipal to UST ratio Tuesday was at 80%, the five-year at 81%, the 10-year at 83% and the 30-year at 96%, according to Municipal Market Data's 3 p.m. EDT read. ICE Data Services had the two-year at 80%, the five-year at 82%, the 10-year at 83% and the 30-year at 98% at 4 p.m.
A 50-basis-point sell-off over two days is not something usually seen in munis, with Jim Quealy, director of municipal trading at Appleton Partners, saying the sell-off is a "bit overdone."
Monday started with some weakness in the muni market, which has likely been amplified by exchange-traded fund selling, exaggerating the weakness in the market through Tuesday, said Whitney Fitts, director of municipal portfolio management at Appleton.
BlackRock's iShares National Muni Bond ETF saw outflows of $93.9 million on Monday after $201.78 million of outflows on Friday, sending the ETF to a 52-week low, according to Bloomberg.
"It's a bit of self-fulfilling prophecy of when the big ETFs are selling, the buyers know that and are bidding at lower levels," Quealy said. "And it just keeps going as they have outflows from the funds there. It's forced selling into a weakening market. You get that cyclical effect of whether it is the ETF selling that's making the market go down or the lack of buyers that's making the market go down."
Along with the negative fund flows, which are driving selling, increased selling can be on the bid side as well, as the market is seeing fewer bids on items, said JB Golden, executive director and a portfolio manager at Advisors Asset Management.
"It looks like dealers are very reluctant to do too much and likely being told to keep their inventories light as well," he said.
The rout in the muni market has been a "perfect storm," with tariffs serving as the catalyst that "blew the doors off," Golden said.
However, the muni market was already struggling with a change in the supply landscape with issuers coming to market as pandemic aid dried up, the legislative risk building and April being a low reinvestment month, he said.
"The market was already set up for a little bit of weakness, and so the tariffs exponentially magnified some of the concerns that were already in the background," Golden said.
Furthermore, the massive cuts to yields are driven, in part, by odd lot trading, as there is not a lot of block trading happening, said Matthew Smith, founder and CEO of Spline Data.
This has some parallels to the trading activity during COVID, with the exception of the rate market not rallying, he said.
"COVID was different, because a lot of folks hedged with Treasuries on the sell side, and with Treasuries rallying as much as they did during COVID, it took a lot of people out of the market. That's not so much the case right now, but people are still expressing similar market widths as they were leading up to COVID. It's pretty dicey," Smith said.
There has also been a massive increase in the dispersion of prints, he noted.
"Typically, we'd see odd lots [trade] within a tight range of where we
expect them; that's not so much [the case lately]," he said. "We've seen
this dispersion almost triple, indicating the bid [stack] is not as
thick as it typically is."
The large calendar the market expected this week has been a "bit challenging," as market volatility has led muni issuers to postpone some deals or retail order periods and move others to the day-to-day calendar, Fitts said.
Postponed deals in the negotiated market include a $981 million deal from Bon Secours Mercy Health; a $181 million deal from Howell Public Schools, Michigan; a $212 million from the Colorado Bridge and Tunnel Enterprise; a $161 million deal from the Arizona Board of Regents; a $123 million deal from the Colorado Housing and Finance Authority; $103 million from the Duval County School Board, Florida; and a $125 million deal from the Indianapolis Local Public Improvement Bond Bank.
A $351 million deal from Louisiana was postponed in the competitive market, according to market participants.
The Port Authority of New York and New Jersey was set to hold a retail period Tuesday, but that has been pushed to Wednesday morning.
"There's just a wait-and-see type thing," said Peter Block, managing director of credit strategy at Ramirez. "Issuers don't want to price in a volatile market. Nobody does; they want some certainty."
Tuesday did offer some positives — equities saw the largest gains since November in the morning, though stocks ended down, and short-term USTs were firmer at the close — as market participants feel like there may be some resolution on the horizon, he said.
It just becomes a matter of who blinks first: Trump, Federal Reserve Chairman Jerome Powell or China's top leader Xi Jinping, he noted.
At some point, one of them will have to make concessions, and the market is waiting to see who "blinks" first, Block said.
Issuance
In the primary market Tuesday, Loop Capital Markets priced and repriced for New York City (Aa2/AA/AA/AA+/) $1.572 billion of GOs. The first tranche, $1.5 billion of Fiscal 2025 Series G, Subseries G-1, saw 5s of 2/2027 at 3.10%, 5s of 2030 at 3.34%, 5s of 2035 at 3.81%, 5s of 2040 at 4.32%, 5.25s of 2045 at 4.70%, 5.25s of 2050 at 4.82% and 5.25s of 2053 at 4.87%, callable 8/1/2035.
The second tranche, $71.645 million of Fiscal 2012 Series D, Subseries D-3A, saw 5s of 10/2027 at 3.10%, 5s of 2028 at 3.18%, 5s of 2037 at 4.03% and 5s of 2039 at 4.22%, callable 10/1/2035.
Ramirez priced for the California State Public Works Board (Aa3/A+/AA-/) $585.92 million of various capital projects lease revenue bonds, 2025 Series A, with 5s of 4/2026 at 3.00%, 5s of 2030 at 3.21%, 5s of 2035 at 3.74%, 5s of 2040 at 4.20%, 5s of 2045 at 4.56% and 5s of 2050 at 4.67%, callable 4/1/2035.
In the competitive market, Gaston County, North Carolina, (Aaa/AA+//) sold $179.5 million of GOs to BofA Securities, with 5s of 3/2026 at 3.01%, 5s of 2030 at 3.20%, 5s of 2035 at 3.60%, 4.5s of 2040 at 4.25 and 4.5s of 2045 at 4.49%, callable 3/1/2035.
AAA scales
MMD's scale was cut 20 to 25 basis points: The one-year was at 2.98% (+25) and 3.00% (+25) in two years. The five-year was at 3.17% (+25), the 10-year at 3.54% (+22) and the 30-year at 4.54% (+20) at 3 p.m.
The ICE AAA yield curve was cut 20 to 27 basis points: 3.01% (+26) in 2026 and 3.05% (+27) in 2027. The five-year was at 3.18% (+25), the 10-year was at 3.51% (+22) and the 30-year was at 4.54% (+20) at 4 p.m.
The S&P Global Market Intelligence municipal curve was cut 21 to 25 basis points: The one-year was at 2.99% (+25) in 2025 and 3.00% (+25) in 2026. The five-year was at 3.16% (+24), the 10-year was at 3.52% (+21) and the 30-year yield was at 4.51% (+21) at 4 p.m.
Bloomberg BVAL was cut 19 to 25 basis points: 2.89% (+25) in 2025 and 2.98% (+25) in 2026. The five-year at 3.18% (+25), the 10-year at 3.50% (+22) and the 30-year at 4.50% (+19) at 4 p.m.
Treasuries were weaker out long.
The two-year UST was yielding 3.708% (-6), the three-year was at 3.739% (-3), the five-year at 3.888% (+2), the 10-year at 4.261% (+8), the 20-year at 4.78% (+12) and the 30-year at 4.731% (+11) near the close.
Primary to come
The Aurora Public Schools Joint School District No. 28J (Aa2/AA//) is set to price Wednesday $450 million of Colorado State Intercept Program-insured GOs, serials 2025-2026, 2033-2047. Stifel.
The Broward County School Board, Florida, (Aa3/AA/A+/) is set to price Wednesday $308.89 million deal: $206.045 million of COPs, Series 2025A, and $102.845 million of Assured Guaranty-insured GO school refunding bonds, serials 2026-2032. J.P. Morgan.
Wake County, North Carolina, (Aa1/AA+/AA+/) is set to price Wednesday $276.825 million of limited obligation bonds, consisting of $266.185 million of Series 2025A, serials 2026-2044, and $10.64 million of Series 2025B, serials 2026-2044. J.P. Morgan.
The Connecticut Health and Educational Facilities Authority (A3/A-//) is set to price Wednesday $188.78 million of Quinnipiac University Issue revenue refunding bonds, Series O, serials 2026-2036, 2041-2045. Barclays.
The Inglewood Unified School District, California, (A3//AA+/) is set to price Wednesday $165 million of Election of 2020 GOs, Series B, serials 2026-2043. Stifel.
The STC Metropolitan District No. 2, Colorado, is set to price Thursday a $155.155 million deal: $87 million of Assured Guaranty-insured Series 2025A-1 bonds (A1/AA//), $46.445 million of non-rated Series 2025A-2 bonds and $21.71 million of non-rated Series 2025B bonds. D.A. Davidson.
The Capital Projects Finance Authority is set to price Thursday $129.64 million of Millenia Orlando Project senior living revenue bonds, Series 2025A. H.J. Sims.
The San Bernardino City Unified School District, California, (/AA//) is set to price Wednesday a $125 million deal: $95 million of COPs and $30 million of GO refunding bonds. Baird.
Competitive
Anne Arundel County, Maryland, is set to sell $267.545 million of GOs at 10:45 a.m. Wednesday and $151.59 million of GOs at 11:15 a.m. Wednesday.
The Tennessee State School Bond Authority is set to sell $160.495 million of higher educational facilities second program bonds, 2025 Series A, at 10 a.m. Wednesday.
The Charleston County School District, South Carolina, is set to sell $154.325 million of GO bond anticipation notes, Series 2025B, at 11 a.m. Thursday.
The Berkeley Unified School District, California, is set to sell $150 million of Election of 2020 GOs, Series E and Series F, at 11:15 a.m. Wednesday.
