Municipals were little changed Thursday as mutual funds continued to see inflows. U.S. Treasury yields rose and equities ended down.
The two-year municipal to UST ratio Thursday was at 62%, the five-year at 64%, the 10-year at 67% and the 30-year at 86%, according to Municipal Market Data's 3 p.m. EST read. ICE Data Services had the two-year at 62%, the five-year at 64%, the 10-year at 67% and the 30-year at 85% at 4 p.m.
While UST yields rose up to five basis points out long Thursday, the current rally "that has taken the 30-year UST closer to where the 10-year yield traded a week ago has not impacted the same range in munis," said Kim Olsan, senior fixed income portfolio manager at NewSquare.
"There was follow-through tax-exempt trading at firmer levels but the long end was unable to garner additional performance," she said.
The 10-year MMD yield is 10 basis points off from 2.75%, its annual average, but the 30-year AAA spot would need to rise another 20 basis points to reach the average of 3.72%, she said.
"Secondary flows have responded to better demand, which appears to moving out the curve to presumably capture generous yield pickups," Olsan said.
Maturities past 12 years have captured 55% of all tax-exempt volume — up 5% to 7% over the last month — during Tuesday and Wednesday's trading session, according to data from the Municipal Securities Rulemaking Board.
"High-quality names like state GOs due in 20 years can be bought with price-protected 5% coupons behind 3.5%, where TEYs approach 6%," Olsan said.
Trades in Ohio GOs 5s due 2043 (call 2034) at 3.61% "represent about 60 basis points of additional yield vs. where the name would trade with a 10-year maturity," she said.
Long-end interest has impacted the primary market, as for the second time this week a deal was upsized.
The South Carolina Public Service Authority's issue was upsized to $1 billion-plus from $650 million on Tuesday, while the New York City Municipal Water Finance Authority deal was increased to $950 million from $600 million. For the latter, the 2043 and 2052 maturities each increased by $125 million, Olsan said.
"A term bond due in 2055 was finalized as a 5.25% coupon to yield 4.19% — with TEYs for both a 21% corporate buyer (5.30%) and top-bracket New York buyer (8.72%) holding interesting appeal," she said.
As the market deals with "heightened volatility," the upcoming March issuance/redemption cycle may offer opportunities, Olsan said.
"Negative supply in the coming month may help certain credits and have more of a neutral effect on others," she said.
New York carries an estimated negative $2.21 billion balance, Olsan said.
"Owing to the strong results of the NYC Water pricing, in-state buyers will have to vie for product in coming weeks," she said.
New Jersey, which has a net negative supply of $1.06 billion, has a "similar tone" to New York once supply and redemptions are factored in, Olsan noted.
"The value of the in-state exemption remains paramount for buyers, forcing negative spreads to AAA spots in many cases," she said.
California is the "other specialty state with a large negative supply projection — reinforcing ultra-tight spreads for buyers," Olsan said.
Among general market names, credit spreads' response in March may be mixed, she said.
Texas supply is expected to "fall short of redemptions" by $908 million, according to Olsan.
"Due to the prevalence of school debt carrying the valuable Aaa/AAA PSF backing," spreads may tighten on a marginal basis, she said, noting indicative 20-year PSF spreads have tightened about five basis points over the last month.
A similar effect may happen to local Texas AA-rated and AAA-rated credits, she said.
Conversely, Pennsylvania's net supply will be positive by $451 million, leading to a possible widening in the state's GOs, she said.
In the primary market Thursday, Barclays priced for the Massachusetts Development Finance Agency (Aa3/AA-/NR/NR/) $184.8 million of Boston University issue refunding revenue bonds, Series 2025B-2, with 4s of 10/2048 at 4.25% and 5s of 2048 at 4.09%, callable 4/1/2035.
In the competitive market, the Florida Department of Transportation (Aa2/AA/AA/) sold $205.65 million of turnpike revenue refunding bonds, Series 2025A, to Jefferies, with 5s of 7/2026 at 2.55%, 5s of 2030 at 2.68%, 5s of 2035 at 2.98% and 5s of 2038 at 3.14%, callable 7/1/2035.
Fund flows
Investors added $785.5 million to municipal bond mutual funds in the week ending Wednesday, following $546.2 million of inflows the prior week, according to LSEG Lipper data.
High-yield funds saw inflows of $419.7 million compared to the previous week's inflows of $184 million.
Tax-exempt municipal money market funds saw inflows of $4.06 billion for the week ending Feb. 25, bringing total assets to $131.116 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 2.46%.
Taxable money-fund assets saw $40.688 billion pulled.
The average seven-day simple yield was at 4.03%.
The SIFMA Swap Index fell to 1.86% Wednesday compared to the previous week's 2.91%.
AAA scales
MMD's scale was little changed: The one-year was at 2.54% (unch) and 2.54% (-2) in two years. The five-year was at 2.63% (unch), the 10-year at 2.86% (-1) and the 30-year at 3.93% (+1) at 3 p.m.
The ICE AAA yield curve was cut up to a basis point: 2.59% (unch) in 2026 and 2.55% (+1) in 2027. The five-year was at 2.63% (+1), the 10-year was at 2.87% (+1) and the 30-year was at 3.83% (+1) at 4 p.m.
The S&P Global Market Intelligence municipal curve was unchanged: The one-year was at 2.60% in 2025 and 2.60% in 2026. The five-year was at 2.66%, the 10-year was at 2.89% and the 30-year yield was at 3.85% at 4 p.m.
Bloomberg BVAL was unchanged: 2.49% in 2025 and 2.55% in 2026. The five-year at 2.63%, the 10-year at 2.86% and the 30-year at 3.86% at 4 p.m.
Treasuries were weaker out long.
The two-year UST was yielding 4.064% (-1), the three-year was at 4.042% (flat), the five-year at 4.086% (flat), the 10-year at 4.278% (+2), the 20-year at 4.589% (+3) and the 30-year at 4.558% (+5) near the close.
