Municipals were firmer Friday ahead of the first full week of the New Year and ahead of a $5 billion-plus new-issue calendar while U.S. Treasuries saw modest losses and equities made gains.
Triple-A yields fell up to seven basis points on the one-year, depending on the scale, while UST yields rose two to four basis points across the curve.
Investment-grade tax-exempt yields rose more than 30 basis points last month, and reached attractive enough levels to bring more investors to the muni market, said Mikhail Foux, managing director and head of strategy and research at Barclays.
"While we were somewhat cautious about performance in January 2025, we had expected a year-end rally that did not materialize," Foux said. "Thus, we are becoming a bit more optimistic, as supply might start slower than investors expected: 30-day visible supply is still rather subdued, and there are a number of important economic data releases in the next several weeks, a holiday, and a January [Federal Open Market Committee] meeting, which might keep some issuers on the sidelines."
Bond Buyer 30-day visible supply sits at $9.95 billion. Investors will be greeted with $5.18 billion of supply in the first full week of 2025.
The negotiated calendar is led by $1 billion of energy supply revenue bonds from the Southeast Energy Authority, followed by $850 million of GOs from the San Diego Community College District.
The Tri-County Regional Vocation Technical School District, Massachusetts, leads the competitive calendar with $144 million of GO school project loan chapter 70B bonds.
As muni yields rose across the curve in December by an average of 37 basis points, with the largest increases in the 15–20 year range, munis are still rich to USTs, said Jason Wong, vice president of municipals at AmeriVet Securities.
With yields rising overall in 2024, munis cheapened compared to USTs in the two–10-year ranges, with the two-year ratio rising by 7.53 percentage points to 65.83%, the five-year ratio by 8.96 percentage points to 66.01% and the 10-year ratio by 10.71 percentage points to 68.93%, Wong noted.
"Munis continue to remain historically expensive but many are overlooking this as yields continue to be attractive to investors," Wong said.
The two-year municipal to UST ratio Friday was at 65%, the five-year at 65%, the 10-year at 66% and the 30-year at 81%, according to Municipal Market Data's 3 p.m. EST read. ICE Data Services had the two-year at 65%, the five-year at 64%, the 10-year at 66% and the 30-year at 80% at 4 p.m.
Heavy redemptions and coupon payments this month should help "stabilize" the market, Foux noted.
January's redemptions will fall 25% from December's total but will be a "modest surge" of redemption demand this week and next as issuers will pay out $16.3 billion of $11.8 billion of interest as of Jan. 1, said Pat Luby, head of municipal strategy at CreditSights.
The states with the largest redemptions this month are Illinois at $5.7 billion, Texas at $2.5 billion and New Jersey with $2.4 billion, he noted.
Muni mutual funds
"January's performance is typically mixed — at times investors could make a lot of money (like they did in 2020 or 2023), but could also lose quite a bit (like in 2018 and 2022)," he said.
However, in most years, muni returns have not been "impressive," with the asset class seeing gains of only 0.4% on average over the past decade, Foux said.
This year "will be an interesting pocket of time for munis as we will have a new administration which could change tax exemption for municipal bonds which will impact overall supply," Wong said.
This possibility, along with the Fed's uncertain monetary policy, will cause some unease and apprehension in the markets, he said.
The Fed may pause Q1 as it continues to try to contain inflation and a strong jobs market, making the Fed even more cautious and data-dependent this year, Wong noted.
AAA scales
MMD's scale was bumped up to six basis points: The one-year was at 2.77% (-6) and 2.76% (-2) in two years. The five-year was at 2.84% (-2), the 10-year at 3.04% (-2) and the 30-year at 3.89% (unch) at 3 p.m.
The ICE AAA yield curve was bumped up to seven basis points: 2.82% (-7) in 2026 and 2.78% (-3) in 2027. The five-year was at 2.79% (-3), the 10-year was at 3.00% (-3) and the 30-year was at 3.81% (unch) at 4 p.m.
The S&P Global Market Intelligence municipal curve was bumped up to two basis points: The one-year was at 2.82% (-2) in 2025 and 2.77% (unch) in 2026. The five-year was at 2.82% (-1), the 10-year was at 3.02% (-1) and the 30-year yield was at 3.82% (unch) at 4 p.m.
Bloomberg BVAL was bumped one basis point: 2.92% (-1) in 2025 and 2.77% (-1) in 2026. The five-year at 2.84% (-1), the 10-year at 3.07% (-1) and the 30-year at 3.79% (-1) at 4 p.m.
Treasuries were weaker.
The two-year UST was yielding 4.279% (+4), the three-year was at 4.318% (+4), the five-year at 4.411% (+4), the 10-year at 4.599% (+4), the 20-year at 4.887% (+4) and the 30-year at 4.818% (+4) at the close.
Primary to come
The Southeast Energy Authority (A1///) is set to price Monday $1 billion of energy supply revenue bonds, Series 2025A, serials 2026-2035, 2056. Goldman Sachs.
The San Diego Community College District (Aa1/AAA//) is set to price Thursday $850 million of Election of 2024 GO dedicated unlimited ad valorem property tax bonds, consisting of $700 million of Series A-1 and $150 million of Series A-2. RBC Capital Markets.
The Conroe Independent School District (Aaa/AAA//) is set to price Wednesday $588.815 million of unlimited tax school building bonds, Series 2025. Piper Sandler.
The Board of Regents of the University of Texas System is set to price Wednesday $400 million of revenue financing system bonds, Series 2025A. RBC Capital Markets.
The Utah Housing Corp. (Aa2///) is set to price Wednesday $225 million of single-family mortgage bonds, consisting of $74 million of Series A non-AMT bonds, serials 2026-2037, terms 2040, 2045, 2050, 2055, 2055, and $151 million of Series B taxable, serials 2026-2036, terms 2040, 2045, 2050, 2055, 2055. BofA Securities.
The Ohio Water Development Authority (Aaa/AAA//) is set to price Wednesday $200 million of Fresh Water Revolving Fund water development revenue bonds, Series 2025A, serials 2027-2037, term 2044. Huntington Securities.
San Antonio, Texas, (Aa1/AA+/AA/) is set to price Tuesday $183.045 million of water system junior lien revenue refunding bonds, Series 2025A, serials 2027-2039. Siebert Williams Shank.
The South Carolina State Housing Finance and Development Authority (Aaa///) is set to price Wednesday $173 million of non-AMT mortgage revenue bonds, Series 2025A, serials 2026-2037, terms 2040, 2045, 2050, 2055, 2055. BofA Securities.
The Pittsburgh Water and Sewer Authority is set to price $144.25 million of water and sewer system revenue bonds, consisting of $131.405 million of first lien bonds, Series 2025A, and $12.845 million of subordinate bonds, Series 2025B. BofA Securities.,
The Public Finance Authority (//A+/) is set to price $131.475 million of Kahala Nui Project revenue bonds, Series 2025. HJ Sims.
The Kentucky Housing Corp. (Aaa///) is set to price Thursday $100 million of single-family mortgage revenue bonds, consisting of $40 million of Series A non-AMT bonds, serials 2026-2037, terms 2040, 2045, 2049, 2055, and $60 million of Series B taxables, serials 2026-2036, terms 2040, 2045, 2050, 2053, 2055. BofA Securities.
Competitive
The Tri-County Regional Vocation Technical School District, Massachusetts, is set to sell $140 million of GO school project loan chapter 70B bonds at 11 a.m. eastern Tuesday.
