Municipal yields continued to climb higher Monday as U.S. Treasuries were weaker and equities ended mixed.
Municipal yields were cut one to eight basis points, depending on the scale, while UST yields rose, pushing 10-, 20- and 30-year yields to yearly highs.
"Fixed income is beginning 2025 where it left off 2024, which is to say yields are moving higher," said Daryl Clements, a municipal portfolio manager at AllianceBernstein.
With the Federal Reserve holding rates steady in January and most likely not cutting in March, yields continue to drift higher, he said.
"Further impacting yields is the uncertainty regarding the new administration and the impact of higher inflation and federal deficits," Clements said.
The muni market also faces an elevated new-issue calendar, which may put additional pressure on yields, he noted. Bond Buyer 30-day visible supply sits at $17.57 billion.
While higher yields lead to short-term negative returns, higher yields provide greater levels of income, according to Clements.
"Given that income is the engine of a bond, the bigger the engine, the larger return expectations will be," he said.
The muni market started the first full week of the year with a "positive tone as year-end tax-driven outflows were put to bed and flows turns positive," Birch Creek strategists noted in a weekly report.
The uptick in demand also stemmed from a light calendar and the reinvestment capital that hit the market on Jan. 1, they noted.
"However, as UST yields climbed and next week's sizable primary calendar came into focus, investors were hit with a dose of reality," Birch Creek strategists said. "With valuations at levels that are unattractive for crossover buyers and forecasters calling for a record year of issuance, it will be difficult for the IG market to stand its ground absent a major shift lower in Treasury yields, which seems less and less likely by the day."
While the muni market, helped by fresh capital, outperformed in all major tenors except for the 30-year, benchmark yields rose eight to 17 basis points, they said.
Despite rising yields, ratios remain on the "rich side" with ratios richening across the curve to 1 to 1.6 percentage points in the two to 10-year maturity range and 0.52 percentage points in the 30-year maturity, said Jason Wong, vice president of municipals at AmeriVet Securities.
The two-year municipal to UST ratio Monday was at 66%, the five-year at 65%, the 10-year at 67% 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 64%, the 10-year at 67% and the 30-year at 81% at 4 p.m.
The
"The strong jobs data further pushes back any rate cuts to late third quarter or early fourth quarter of 2025," Wong said.
With the consumer price index set to be released Wednesday, "forecasts are showing a third straight month of acceleration of inflation which could push back another rate cut event further and push yields even higher," he noted.
"It seems there will be a bit of a tug of war playing out throughout the year as the heavy supply forecast coupled with revamped Treasury expectations is likely to challenge performance, but the move to higher yields may prove attractive enough for investors to shift capital back into the market," Birch Creek strategists said.
AAA scales
MMD's scale was cut four to eight basis points: The one-year was at 2.86% (+8) and 2.89% (+5) in two years. The five-year was at 2.99% (+4), the 10-year at 3.22% (+5) and the 30-year at 4.11% (+5) at 3 p.m.
The ICE AAA yield curve was cut one to five basis points: 2.84% (+1) in 2026 and 2.89% (+4) in 2027. The five-year was at 2.95% (+4), the 10-year was at 3.17% (+4) and the 30-year was at 4.00% (+4) at 4 p.m.
The S&P Global Market Intelligence municipal curve was cut: The one-year was at 2.91% (+6) in 2025 and 2.92% (+5) in 2026. The five-year was at 2.96% (+5), the 10-year was at 3.16% (+5) and the 30-year yield was at 4.02% (+5) at 4 p.m.
Bloomberg BVAL was cut four to six basis points: 2.84% (+6) in 2025 and 2.88% (+5) in 2026. The five-year at 3.00% (+5), the 10-year at 3.26% (+4) and the 30-year at 4.08% (+4) at 4 p.m.
Treasuries were weaker.
The two-year UST was yielding 4.399% (+2), the three-year was at 4.493% (+3), the five-year at 4.610% (+4), the 10-year at 4.793% (+3), the 20-year at 5.053% (+3) and the 30-year at 4.970% (+2) at the close.
Primary to come
The Triborough Bridge and Tunnel Authority (A1/A+//AA/) is set to price
The Orlando Health Obligated Group (/A+/AA-/) is set to price Thursday $1.225 billion of hospital revenue bonds: $824.77 million of Series A bonds through the Orlando County Health Facilities and $400 million of Series B taxable corporate CUSIPs through the health obligated group.
The Airport Commission of the city and county of San Francisco (A1/AA-/A+/) is set to price Tuesday $996.335 million of San Francisco International Airport second series revenue bonds, consisting of $870.76 million of Series A AMT bonds, serials 2029-2036, term 2055; $108.41 million of Series B non-AMT/governmental purposes revenue bonds, serials 2037, 2053; and $17.165 million of Series C taxables, serials 2025. Ramirez.
The Plano Independent School District, Texas, (Aaa/AAA//) is set to price Thursday $607.3 million of PSF-insured unlimited tax school building bonds, serials 2026-2045. RBC Capital Markets.
The Jacksonville Electric Authority (Aa1/AA+/AA+/) is set to price Tuesday $533.255 million of water and sewer system revenue bonds, Series A, serials 2025, 2030-2045, terms 2050, 2055. BofA Securities.
The Miami-Dade County School Board, Florida, (A1///) is set to price Tuesday $410.77 million of certificates of participation, serials 2026-2032. BofA Securities.
The Los Angeles Department of Water and Power (Aa2/AA+/AA+/) is set to price Wednesday $371.05 million of water system revenue bonds, Series A, serials 2029-2045, 2048, 2051, 2055. BofA Securities.
The Cypress-Fairbanks Independent School District, Texas, (Aaa/AAA//) is set to price Tuesday $350.925 million of PSF-insured unlimited tax refunding bonds, serials 2028-2040. RBC Capital Markets.
The Dallas Independent School District, Texas, (Aaa///) is set to price Tuesday $339.54 million of PSF-insured multi-modal unlimited tax school building bonds. Loop Capital Markets
The Idaho State Building Authority (Aaa//AA+/) is set to price Thursday $310.59 million of school modernization facilities fund sales tax revenue education bonds. J.P. Morgan Securities.
The Regents of the University of Colorado (Aa1//AA+/) is set to price Thursday $300 million of Series 2025A university enterprise revenue bonds and Series 2025B refunding university enterprise revenue bonds. Wells Fargo.
The Pennsylvania Higher Educational Facilities Authority (Aa1/AA+//) is set to price Tuesday $270 million of the Trustees of the University of Pennsylvania revenue bonds, Series A, serials 2035, 2045, 2055. Goldman Sachs.
The Allen Independent School District, Texas, (Aaa/AAA//) is set to price Tuesday $205.94 million of PSF-insured unlimited tax school building bonds, serials 2026-2050. RBC Capital Markets.
The Trustees of Purdue University (Aaa/AAA//) is set to price Wednesday $200 million of Purdue University student facilities system revenue refunding bonds, Series A. RBC Capital Markets.
The Iowa Finance Authority (/AAA/AAA/) is set to price Wednesday $186.845 million of state revolving fund tax-exempt and taxable green revenue bonds, consisting of $146.715 million of tax-exempt green bonds, serials 2033-2044, terms 2049, 2054, and $40.13 million of taxables, serials 2027-2033. BofA Securities.
The city of
Salt Lake City, Utah, (Aa1/AAA//) is set to price Tuesday $178.865 million of public utilities revenue bonds. Piper Sandler.
The Texas Department of Housing and Community Affairs (Aaa/AA+//) is set to price Tuesday $175 million of residential mortgage revenue and refunding non-AMT bonds, Series 2025A. Jefferies.
Adams 12 Five Star Schools, Colorado, (Aa1/AA//) is set to price Tuesday $170.33 million of Colorado State Intercept Program- insured GOs, serials 2025-2026, 2035, 2036-2044. RBC Capital Markets.
Alaska (Aa3///) is set to price Wednesday $120.29 million of international airport systems revenue refunding, consisting of $61.395 of Series 2025A bonds, serials 2026-2035; and $58.895 million of Series 2025B forward delivery bonds, serials 2026-2035. Goldman Sachs.
Clemson University (Aa3///) is set to price Tuesday $120.145 million of athletic facilities bonds, consisting of $83.61 million of Series A revenue bonds and $36.535 million of Series B refunding revenue bonds. Morgan Stanley.
The Paradise Valley Unified School District No. 69, Arizona, (Aa1//AAA/) is set to price Wednesday $104.905 million of bonds, consisting of $69.1 million of Series A school improvement bonds and $35.805 million of refunding bonds. Piper Sandler.
The Sunnyvale Independent School District, Texas, (/AAA//) is set to price Wednesday $101.115 million of PSF-insured unlimited tax building and refunding bonds. Piper Sandler.
Competitive:
San Francisco is set to sell $552.495 million of taxable GOs on Tuesday in three sales, consisting of $233.02 million of taxable GOs at 11 a.m. eastern, $173.32 million of taxable GOs at 11:30 a.m. eastern and $146.155 million of taxable GOs at noon eastern.
The Board of Regents of Iowa is set to sell $252 million of University of Iowa Healthcare hospital system revenue bonds at 11 a.m. eastern Wednesday.
