Municipals were steady to firmer in spots Thursday as the muni market continued its recovery from last week's volatile swings. U.S. Treasury yields rose and equities were mixed late in the session.
Muni yields were bumped up to five basis points, while UST yields saw yields rise three to six basis points.
The two-year ratio Thursday was at 80%, the five-year at 80%, the 10-year at 79% and the 30-year at 93%, according to Municipal Market Data's 1 p.m. EDT read. ICE Data Services had the two-year at 79%, the five-year at 79%, the 10-year at 79% and the 30-year at 94% at 2 p.m.
"Macro market volatilities fell further this week in a continued choppy recovery," said BofA strategists.
This week, the UST market seemed to be working in a "normal mode," with the 10-year UST falling 26 basis points from a high of 4.59% last week to 4.33% to end the week, they said.
"This removes the sharp decline and then sharp rise, that occurred during the first two weeks of April," BofA strategists said. "However, while the 90-day tariff negotiations with many countries are underway, there is no shortage of uncertainties on the tariffs front during the process."
There remains the potential for a long-term impact on inflation and a recession, especially in the second half of the year, they noted.
Federal Reserve Chair Jerome Powell "continued his emphasis on price stability facing a stiff tariff impact and conveyed a wait-and-see approach" on Wednesday, BofA strategists noted.
Following large yield spikes for the first three days of last week, the market has recovered around 40% of the yield damage, they said.
Credit spreads "widened slightly" this week as the market began to assess the potential damage to the economy in the future, they said.
The recovery so far is due to declines in volatility, BofA strategists said.
"The recovery in munis will be better in May after tax season weakness, as long as Treasury market trading remains normal," while the muni market recovery will likely lag Treasuries for the remainder of April.
Compared with recent history, they noted "tax-exempts remain quite cheap, especially AAs which significantly underperformed in the sell-off last week, and the yield differential between the AAA and AA rating buckets has reached its highest level since December 2023," said Barclays strategists Mikhail Foux and Grace Cen.
"Even though we continue to like the long end, it seems that the belly of the curve has underperformed the most since early March (the 5s10s slope has steepened 10bp, while the 10s30s curve has flattened 10bp), and investors who are more concerned about extending duration should be able to find value here," they said.
While the 5s10s curve somewhat flattened this month, Barclays strategists began to "warm up" to this part of the curve.
Even though it may not currently have strong enough demand from institutional and crossover investors at the moment, like the long end, they believe this could change.
"It is hard to imagine the muni market performing extremely well in the next couple of weeks as the 30-day visible supply remains at one of its highest levels in recent history, while tax-related selling should continue to negatively affect fund flows for now, and rate volatility is unlikely to dissipate any time soon," Barclays strategists said.
However, in the medium term, they remain "sanguine" on the market direction, as last week felt "like a capitulation to us," and heading into summer, the outlook is "much rosier."
Fund flows
Investors pulled $1.258 billion from municipal bond mutual funds in the week ended Wednesday, following $3.302 billion of outflows the prior week, according to LSEG Lipper data. This marks six consecutive weeks of outflows.
High-yield funds saw outflows of $522.3 million compared to the previous week's outflows of $759.2 million.
Tax-exempt municipal money market funds saw outflows of $3.037 billion for the week ending April 15, bringing total assets to $132.953 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 3.43%.
Taxable money-fund assets saw $154.567 billion pulled.
The average seven-day simple yield was at 4.01%.
The SIFMA Swap Index fell to 4.37% on Wednesday compared to the previous week's 4.41%.
New-issue calendar
The new-issue calendar boasts several large deals from several state GOs and two Los Angeles issuers.
Connecticut leads the negotiated calendar with $1.651 billion of GOs, followed by Massachusetts with $1.07 billion of GOs.
The competitive calendar is led by Washington with $493.125 million of GOs in two series.
AAA scales
MMD's scale was bumped three to five basis points: The one-year was at 3.00% (-3) and 3.02% (-3) in two years. The five-year was at 3.15% (-3), the 10-year at 3.44% (-5) and the 30-year at 4.46% (-3) at 1 p.m.
The ICE AAA yield curve was bumped up to a basis point: 3.04% (unch) in 2026 and 3.01% (unch) in 2027. The five-year was at 3.11% (unch), the 10-year was at 3.41% (-1) and the 30-year was at 4.44% (-1) at 2 p.m.
Bloomberg BVAL was bumped up to a basis point: 2.85% (-1) in 2025 and 2.92% (-1) in 2026. The five-year at 3.08% (-1), the 10-year at 3.40% (-1) and the 30-year at 4.45% (-1) at 2 p.m.
Treasuries saw losses.
The two-year UST was yielding 3.8% (+3), the three-year was at 3.799% (+3), the five-year at 3.939% (+4), the 10-year at 4.326% (+5), the 20-year at 4.833% (+6) and the 30-year at 4.799% (+6) near the close.
