Municipals were firmer Wednesday as billion-dollar-plus deals from Connecticut and Massachusetts priced. U.S. Treasury yields fell out long and equities ended up.
Munis entered the second quarter with "higher yields, a steeper curve, and a market narrative increasingly shaped by uncertainty around inflation, growth, and trade," said GW&K strategists John Fox, Brian Moreland, Kara South and Martin Tourigny.
The market is still in a negative technical period, said Chris Eustance, a portfolio manager at Morgan Stanley Investment Management.
Issuance has picked up and cash flows are coming back but remain still low, he said. "It's your typical March/April time period that we see every year."
Near-term technicals still need to be "worked through," but underlying demand for tax-exempt income remains firm, helped by cheaper valuations and stable credit fundamentals, GW&K strategists said.
Even amid recent volatility, munis continue to behave as one would "expect from one of the more stable corners of fixed income," they said.
The two-year ratio Wednesday was at 78%, the five-year at 79%, the 10-year at 79% and the 30-year at 94%, according to Municipal Market Data's 3 p.m. EDT read. ICE Data Services had the two-year at 80%, the five-year at 79%, the 10-year at 79% and the 30-year at 92% at 4 p.m.
The rise in the 10-year muni-UST ratio to over 75% from around 60% the previous year, has helped restore "some of the relative value that had been missing for much of the past year," they said.
Concurrently, GW&K strategists said the curve steepening shows both "heightened inflation anxiety and a market still anticipating easing on a delayed timeline."
However, in the May, June and July period, things will start to turn around, Eustance noted.
"We're looking at account cash flows that will turn positive, but a lot will depend on other macroeconomic factors, such as tariffs and the tax exemption," he said.
Mutual fund flows, though, remain the "wildcard," Eustance said.
The market continues to see sizable outflows from muni mutual funds.
The Investment Company Institute reported large outflows for the week ending April 16: $3.405 billion, following $3.714 billion of outflows the previous week.
Exchange-traded funds saw inflows of $1.078 billion after $1.402 billion of outflows the week prior, per ICI data.
However, this could be seen as a "rounding error" when compared to the start of the COVID-19 pandemic, when the muni market saw a total of $50 billion of outflows over two weeks, said Craig Brandon, co-head of muni investments at Morgan Stanley Investment Management.
And even with the massive outflows, there were still bids, Eustance said.
"You might not have liked them, but there were bids on bonds. Whereas during [COVID] it was, 'Oh, my goodness, what can I actually sell? And what level are bonds at?'" he said.
Last week was "pretty well organized" in terms of supply, so the market was waiting to see what would get done this week, Eustance said.
This year has seen significantly fewer healthcare and airport deals compared to last year's levels, when both sectors experienced a massive surge, he noted.
Conversely, the market has seen a rush of private higher education issuance as elite and prestigious colleges and universities are afraid their federal funding will be pulled, Eustance said.
These larger institutions have tapped the corporate and the muni taxable market before, so they should be fine, he said.
There could be another "rush" of issuance if the market sees more stability in rates, which is needed going forward, according to Eustance.
There's also the potential loss of the tax exemption — though the buyside does not seem that worried about it happening, unlike issuers, for whom it is a bigger deal — which may prompt issuance to be pulled forward, Brandon said.
However, if all the issuance is accelerated into the first quarter of the year and the tax exemption "survives," then there will be virtually no issuance in the second half or fourth quarter of this year, he said.
"They have a scenario in September where the tax bill's behind us, we figured out the tariff thing. The economy is weakening. The Fed starts cutting. The flows come back into the muni market because everybody wants to be invested and there's nothing to buy because all the issuance happened in the first half of the year. So all of a sudden, munis have the best fourth quarter performance that we've had in years," Brandon said.
In the primary market Wednesday, Barclays priced for institutions Connecticut's (Aa3/AA-/AA-/AA+/) $1.399 billion of GOs with yields bumped throughout most of the curve from Tuesday's retail order. The first tranche, $500 million of Series A bonds, saw 5s of 3/2026 at 3.27% (-3), 5s of 2030 at 3.45% (-8), 5s of 2035 at 3.72% (-11), 5s of 2040 at 4.10% (-10) and 5s of 2045 at 4.53% (-12), callable 3/15/2035.
The second tranche, $599.035 million of Series B refunding bonds, saw 5s of 12/2025 at 3.30% (+2), 5s of 2030 at 3.46% (-8) and 5s of 2035 at 3.74% (-11), noncall.
The third tranche, $300 million of taxable Series A bonds, with 5s of 3/2026 at 4.323%, 4.589s of 2030 at par and 5.149s of 2035 at par.
Jefferies accelerated Massachusetts' (Aa1/AA+/AA+/) $1.099 million of GOs. The first tranche, $700 million of consolidated loan of 2025 Series A bonds, saw 5s of 4/2038 at 3.94%, 5s of 2040 at 4.10%, 5s of 2045 at 4.53%, 5s of 2050 at 4.70% and 5s of 2055 at 4.76%, callable 4/1/2035.
The second tranche, $398.88 million of 2025 Series A refunding bonds, saw 5s of 7/2028 at 3.20%, 5s of 2030 at 3.35%, 5s of 2035 at 3.71% and 5s of 2037 at 3.85%, callable 7/1/2035.
Siebert Williams Shank priced for institutions New York City Municipal Water Finance Authority's (Aa1/AA+/AA+/) $649.565 million of water and sewer system second general resolution revenue bonds, Fiscal 2025 Series DD, with yields little changed from Tuesday's retail order: 5s of 6/2028 at 3.21% (+3), 5s of 2035 at 3.74% (+2), 5s of 2039 at 4.12% (+1), 5.5s of 2039 at 4.03% (-1) and 4s of 2039 at 4.25% (unch), callable 6/15/2035.
J.P. Morgan priced for the North Carolina Department of State Treasurer (Aa3/AA//) $441.515 million of grant anticipation revenue vehicle bonds and refunding bonds, with 5s of 3/2026 at 3.263%, 5s of 2040 at 3.52%, 5s of 2035 at 3.89% and 5s of 2040 at 4.16%, callable 3/1/2035.
Barclays priced for the Western Michigan University Board of Trustees $162.77 million of general revenue bonds, Series 2025A, with 5s of 11/2025 at 3.33%, 5s of 2030 at 3.47%, 5s of 2035 at 3.84%, 5s of 2040 at 4.29%, 5s of 2045 at 4.72%, 5.25s of 2049 at 4.84% and 5.25s of 2054 at 4.93%, callable 5/15/2035.
RBC Capital Markets priced for Waco, Texas, (Aa1/AA+//) $128.65 million of combination tax and revenue certificates of obligation, with 5s of 2/2026 at 3.25%, 5s of 2030 at 3.44%, 5s of 2035 at 3.77%, 5s of 2040 at 4.17%, 5s of 2045 at 4.57%, 5.25s of 2050 at 4.71% and 5.25s of 2055 at 4.81%, callable 2/1/2035.
In the competitive market, Washington (Aaa/AA+/AA+/) sold $362.44 million of various purpose GO refunding bonds, Series R-2025D, to BofA Securities, with 5s of 8/2025 at 3.25%, 5s of 2030 at 3.25%, 5s of 2035 at 3.62% and 5s of 2040 at 4.03%, callable 8/1/2035.
AAA scales
MMD's scale was bumped 10 basis points: The one-year was at 3.00% (-10) and 3.02% (-10) in two years. The five-year was at 3.15% (-10), the 10-year at 3.47% (-10) and the 30-year at 4.52% (-10) at 3 p.m.
The ICE AAA yield curve was bumped four to five basis points: 3.09% (-4) in 2026 and 3.07% (-4) in 2027. The five-year was at 3.17% (-4), the 10-year was at 3.48% (-5) and the 30-year was at 4.52% (-5) at 4 p.m.
The S&P Global Market Intelligence municipal curve was bumped nine to 10 basis points: The one-year was at 3.00% (-9) in 2025 and 3.02% (-9) in 2026. The five-year was at 3.15% (-9), the 10-year was at 3.47% (-10) and the 30-year yield was at 4.51% (-9) at 4 p.m.
Bloomberg BVAL was bumped eight to 10 basis points: 2.89% (-8) in 2025 and 2.97% (-8) in 2026. The five-year at 3.14% (-8), the 10-year at 3.46% (-8) and the 30-year at 4.50% (-10) at 4 p.m.
Treasuries saw gains 10 years and out.
The two-year UST was yielding 3.832% (+3), the three-year was at 3.866% (+3), the five-year at 4.004% (+1), the 10-year at 4.378% (-3), the 20-year at 4.858% (-5) and the 30-year at 4.829% (-4) near the close.
Primary to come
Los Angeles (/AA-/AA/) is set to price Thursday $803.375 million of wastewater system subordinate revenue bonds, consisting of $197.135 million of Series A bonds, $145.475 million of taxable Series B bonds and $460.765 million of Series C refunding bonds. Goldman Sachs.
Mesa, Arizona, (A1/AA//) is set to price Thursday $277.74 million of utility systems revenue obligations, serials 2026-2045, term 2049. BofA Securities.
The Illinois Finance Authority (A3//A-/) is set to price Thursday $271.98 million of Silver Cross Hospital and Medical Centers revenue refunding bonds, consisting of $201.98 million of Series A, $35 million of Series B-1 and $35 million of Series B-2. Barclays.
The Florida Local Government Finance Commission is set to price $231.19 million of non-rated Convivial Jacaranda Trace Project senior living revenue refunding bonds, consisting of $227.89 million of Series A and $3.3 million of Series B. Ziegler.
The National Finance Authority is set to price $199.775 million of non-rated special revenue bonds, serial 2033. Wells Fargo.
The Dormitory Authority of the State of New York (A3/A//) is set to price Thursday $165.31 million of Barnard College revenue bonds, Series 2025A, serials 2029-2045, terms 2050, 2055. Goldman Sachs.
Raleigh, North Carolina, (Aaa/AAA/AAA/) is set to price Thursday $143.355 million of GOs, consisting of $118.355 million of GO public improvement and refunding bonds, Series 2025A, serials 2026-2045, and $25 million of taxable GO housing bonds, Series 2025B, serials 2026-2040, term 2045. BofA Securities.
The New Mexico Mortgage Finance Authority (Aaa///) is set to price Thursday $100 million of Class I tax-exempt non-AMT single-family mortgage program bonds, Series C, serials 2026-2037, terms 2040, 2045, 2050, 2055, 2056. RBC Capital Markets.
Competitive
Clark County School District, Nevada, (A1/AA-//) is set to sell $200 million limited tax GO building bonds, Series 2025A, at 11:30 a.m. Thursday.
