Municipals were firmer ahead of a nearly $10 billion new-issue calendar as U.S. Treasury yields rose inside 10 years and equities were up late in the session.
Since the start of 2025, UST yields sold off around 20 basis points but "retraced more than half on the back of the soft December inflation print, leaving UST yields up 5-7bp on the year," said Barclays strategists, led by Mikhail Foux, head of municipal research and strategy.
Ten-year Treasury rates have moved into the 4.75%-5.00% range multiple times since the start of the rate-hiking cycle in 2022 but always found willing buyers, they noted.
"We do not think the outcome will be much different this time around, which implies that the potential total return downside for fixed income in general and munis in particular is likely capped at the moment," Barclays strategists said.
Tax-exempts were "relatively rich" to start the year, leaving "little cushion to absorb the Treasury move," they said.
This has led to negative returns for investment-grade and high-yield munis. IG munis are seeing losses of 0.53% and HY munis are posting returns of negative 0.58%.
However, muni ratios, which have slowly cheapened this year, have become more attractive, Barclays strategists said.
The two-year municipal to UST ratio Friday was at 66%, the five-year at 66%, the 10-year at 68% and the 30-year at 83%, according to Municipal Market Data's 3 p.m. EST read. ICE Data Services had the two-year at 66%, the five-year at 65%, the 10-year at 68% and the 30-year at 81% at 3:15 p.m.
"The near-term outlook will remain challenging, as rate volatility will likely continue, while supply should remain elevated, and we have even started to see some selling pressure from investors, although it has not been overwhelming as of yet," Barclays strategists said.
High yield easily withstood market volatility last year. Still, after generating 6%-plus returns in 2024, in the face of a 70-basis-point Treasury selloff, "it has little cushion — as a result, the high yield index has slightly underperformed the IG index this year so far," Barclays strategists noted.
Meanwhile, some of the "laggards" from 2024 have improved, they noted.
"Both IG and the HY tobacco bonds have outperformed the broader market, and most other sectors, despite the potential for downgrades as a result of changes to S&P's methodology; while electric utilities have been under pressure, likely as a result of the Los Angeles fires, which negatively affected the whole sector," Barclays strategists said.
After Treasuries rallied this week, leading to widening MMD-UST ratios, the muni market has begun to look a bit more attractive, they said.
However, Barclays strategists "still expect rates volatility to remain elevated, supply robust, and fund inflows anemic, at least in the near term, and we would not be in any hurry to start adding risk meaningfully."
New-issue calendar
Issuance for next week remains elevated at an estimated $9.576 billion, with $6.872 billion of negotiated deals and $2.704 billion of competitive deals on tap.
The Regents of the University of California leads the negotiated calendar with $2 billion of general revenue refunding bonds.
The competitive calendar is led by Washington state with $1.175 billion of GOs in four series.
AAA scales
MMD's scale was bumped three basis points: The one-year was at 2.80% (-3) and 2.82% (-3) in two years. The five-year was at 2.92% (-3), the 10-year at 3.15% (-3) and the 30-year at 4.04% (-3) at 3 p.m.
The ICE AAA yield curve was bumped three to four basis points: 2.80% (-3) in 2026 and 2.83% (-3) in 2027. The five-year was at 2.88% (-3), the 10-year was at 3.11% (-4) and the 30-year was at 3.94% (-3) at 3:15 p.m.
The S&P Global Market Intelligence municipal curve was bumped: The one-year was at 2.79% (-3) in 2025 and 2.82% (-3) in 2026. The five-year was at 2.88% (-3), the 10-year was at 3.10% (-2) and the 30-year yield was at 3.96% (-3) at 3 p.m.
Bloomberg BVAL was bumped three to four basis points: 2.75% (-3) in 2025 and 2.81% (-3) in 2026. The five-year at 2.93% (-3), the 10-year at 3.17% (-4) and the 30-year at 3.98% (-4) at 3:15 p.m.
Treasuries were weaker inside 10 years.
The two-year UST was yielding 4.272% (+4), the three-year was at 4.330% (+3), the five-year at 4.414% (+2), the 10-year at 4.612% (flat), the 20-year at 4.917% (-1) and the 30-year at 4.845% (-1) at 3:15 p.m.
Primary to come
The Regents of the University of California (Aa2/AA/AA/) is set to price Thursday $2 billion of general revenue refunding bonds, 2025 Series BZ. Morgan Stanley.
The Idaho Health Facilities Authority (/A/A+/) is set to price Wednesday $572.09 million of St. Luke's Health System Project revenue bonds, consisting of $388.79 million of Series 2025A, $91.95 million of Series 2025B and $91.35 million of Series 2025C. J.P. Morgan.
The Massachusetts Clean Water Trust (Aaa/AAA/AAA/) is set to price Thursday $541.155 million of State Revolving Fund bonds, consisting of $261.77 million of Series 2026A green bonds, serials 2026-2042; $146.61 million of Series 2026B sustainability bonds, serials 2039-2045; and $132.775 million of Series 2025 green bonds, serials 2026-2037. Jefferies.
Portland, Oregon, (Aa2/AA//) is set to price Thursday $508.935 million of second lien sewer system revenue refunding bonds, consisting of 422.365 million of Series A, serials 2025-2044, terms 2049, 2054, and $86.57 million of Series B, serials 2026-2031. BofA Securities.
The Massachusetts Development Finance Agency (/BBB+/A-/) is set to price Thursday $337.825 million of UMass Memorial Health Care Obligated Group revenue refunding bonds, Series N, consisting of $237.825 million of Series N-1, and $100 million of Series N-2. Morgan Stanley.
The Maryland Health and Higher Educational Facilities Authority (A2/A//) is set to price Wednesday $300.96 million of University of Maryland Medical System revenue bonds, consisting of $227.915 million of Series A and $73.045 million of Series B. Morgan Stanley.
The Connecticut Housing Finance Authority (Aaa/AAA//) is set to price Thursday $300 million of social housing mortgage finance program bonds, consisting of $100 million of 2025 Subseries A-1 bonds, serials 2025-2029, terms 2044, 2049, 2051, and $200 million of 2025 Subseries A-2 taxables, serials 2029-2036, terms 2039, 2044,2047, 2055. RBC Capital Markets.
The South Dakota Housing Development Authority (Aaa/AAA//) is set to price Thursday $200 million of homeownership mortgage bonds, consisting of $160 million of Series A non-AMT bonds, serials 2029-2030, 2036-2037, terms 2040, 2045, 2050, 2055, and $40 million of Series B taxables, serials 2026-2036. BofA Securities.
The Washington Health Care Facilities Authority (A2//A+/) is set to price Wednesday $172.075 million of Fred Hutchinson Cancer Center revenue bonds, Series 2025A, serials 2026-2045. BofA Securities.
Long Beach, California, (Aa2/AA+//) is set to price Thursday $119.945 million of non-AMT harbor revenue and revenue refunding bonds, Series 2025A, serials 2026-2042. BofA Securities.
Competitive
Washington state (Aaa/AA+/AA+/) is set to sell $89.185 million of various purpose GOs, Series 2025C - Bid Group 1, at 10:15 a.m. eastern Wednesday; $319.525 million of various purpose GOs, Series 2025C - Bid Group 2, at 10:45 a.m. Wednesday; $344.06 million of various purpose GOs, Series 2025C - Bid Group 3, at 11:15 a.m. Wednesday; and $422.65 million of motor vehicle, fuel tax and vehicle-related fees GO bonds, Series 2025D, at 11:45 a.m. Wednesday.
Fairfax County, Virginia, (Aaa/AAA/AAA/) is set to sell $377.815 million of public improvement bonds, Series 2025A, at 10:15 a.m. Wednesday.
Mecklenburg County, North Carolina, (Aaa/AAA/AAA/) is set to sell $278.555 million of GO school bonds, Series 2025B, at 11 a.m. Wednesday.
Nevada (Aa1/AA+/AA+/) is set to sell $174.9 million of GO limited tax of capital improvement and cultural affairs refunding bonds, Series 2025A, at 11:30 a.m. Wednesday.
Greenwich, Connecticut, is set to sell $120 million of GO anticipation notes, Issue of 2025, at 11:30 a.m. eastern Thursday.
