Municipals weakened further Thursday but saw smaller cuts than Wednesday's rout. U.S. Treasury yields rose slightly out long and equities were mixed near the close.
The two-year municipal to UST ratio Thursday was at 69%, the five-year at 71%, the 10-year at 76% and the 30-year at 91%, according to Municipal Market Data's 3 p.m. EDT read. ICE Data Services had the two-year at 69%, the five-year at 72%, the 10-year at 76% and the 30-year at 92% at 4 p.m.
"Municipals and USTs are in agreement on one topic — higher yields have prevailed all month," said Kim Olsan, senior fixed income portfolio manager at NewSquare Capital.
Following Wednesday's selloff, muni yields were cut even further, with yields rising up to six basis points, depending on the scale. Meanwhile, UST yields rose two basis points out long.
"March's theme has been a one-way trade up in rates, driven by weak fundamentals and a growing list of headwinds," Olsan said.
Dealer inventories reached $15.4 billion, the highest level since mid-December, as distribution has become a "major challenge," she said.
In the near term, Olsan said a lot of factors that moved March's yield curve might not change or improve.
"Given a higher yield range, bidders may relegate spread for absolute yield opportunities that haven't been presented since October 2023 (and that period was short-lived)," she said.
On the short end, generic AAA credits are now 60 basis points higher than they were six months ago, Olsan said.
"Raw yields have trended above 3.00% — essentially higher than where 15-year paper traded at the end of 3Q24," she said.
Washington state GO 5s due 2031 were sold at 3.05%, or 14 basis points above a trade from the past week, Olsan said.
"Of relevance is the new range in TEYs in this part of the curve, as high-grade credits once again can be found with 5.00%-plus TEYs (and ratios in the mid-70% range)," she said.
Intermediate yields have "corrected" 70 basis points from last September's closing values, according to Olsan,
The 10-year AAA MMD spot is at 3.32%, above the 20-year yield from September's end, she said.
"One notch lower in the AA-rated category nets another 20 basis points, where TEYs are near 6.00%," Olsan said.
"A dealer sold Aa2/NR Texas State University 5s due 2035 (callable 2034) at 3.55%, for a ratio of 81% to the 10-year UST," she noted.
Opportunities aren't limited to general market names — balances from the Dormitory Authority of the State of New York personal income tax bonds were "moved in the 5s due 2036 (call 2035) at 3.51%, down eight basis points from the original yield," she said.
For a top-bracket New York buyer, the TEY exceeds 7.00%, she said.
"Value-seekers have long targeted levels above 4.00%, where relative values can approach 100% in high-quality 5% coupons and TEYs exceed 7.00%," Olsan said.
Bonds due 20 years and longer are seeing yields above 4.00% and some credits are trading above 5.00%, she said.
"The nuances of municipal coupon and call structure offer buyers some discretion as to how to allocate for maximum yield," Olsan said.
Trading in Miami Beach GO bonds (Aa2/AA+/) brought 4s due 2049 yielding 4.70%, while a competitive sale of $200 million Aa1/NR Dorchester County, South Carolina, school bonds offered a 4.25s due in 2050 at 4.56%, she said.
"For premium coupon buyers looking for optimal call structure, 20-year yields are materially higher from a few months ago," she said.
The Texas State Water Authority saw Aaa/AAA bonds with a 5% due in 2046 (call 2035) yield 4.27%, or 71 basis points above the issuer's September 2024 pricing of the 20-year 5% coupon.
In the primary market Thursday, Barclays preliminarily priced for the Department of Airports of the City of Los Angeles (Aa3//AA-/) on behalf of the Los Angeles International Airport a $1.669 billion deal. The first tranche, $1.322 billion of green private activity/AMT subordinate revenue and refunding revenue bonds, saw 5s of 5/2026 at 3.41%, 5s of 2030 at 3.80%, 5s of 2035 at 4.21%, 5.25s of 2040 at 4.44%, 5.25s of 2045 at 4.80%, 5.25s of 2050 at 4.87%, 5s of 2055 at 4.99% and 5.5s of 2055 at 4.89%, callable 5/15/2035.
The second tranche, $179.51 million of private activity/AMT subordinate revenue and refunding revenue bonds, 2025 Series B, saw 5s of 5/2026 at 3.41%, 5s of 2030 at 3.80%, 5s of 2035 at 4.21%, 5.25s of 2040 at 4.44%, 4.5s of 2045 at 4.90%, 5.25s of 2050 at 4.87% and 5.5s of 2055 at 4.89%, callable 3/15/2035.
The third tranche, $167.77 million of governmental purpose/non-AMT subordinate refunding revenue bonds, 2025 Series C, saw 5/2026 at 2.61%, 5s of 2030 at 2.88%, 5s of 2035 at 3.29%, 5s of 2040 at 3.69% and 5s of 2045 at 4.15%, callable 5/15/2035.
Morgan Stanley priced for Kansas City, Missouri, (Aa2/AA+//) $144.315 million of water revenue bonds, Series 2025A, with 5s of 12/2025 at 2.81%, 5s of 2030 at 3.09%, 5s of 2035 at 3.60%, 5s of 2040 at 4.01%, 5s of 2045 at 4.39% and 5s of 2049 at 4.55%, callable 12/1/2034.
In the competitive market, the Kansas Development Finance Authority (Aa3/A+//) sold $100.45 million of revenue bonds, Series 2025A, to Wells Fargo with 5s of 5/2026 at 2.89%, 5s of 2030 at 3.21%, 5s of 2035 at 3.63%, 4s of 2040 at 4.226% and 4.5s of 2045 at 4.694%, callable 5/1/2033.
The Davis School District Board of Education, Utah, (Aaa///) sold $100 million of Utah School District Bond Guaranty Program GOs to BofA Securities, with 5s of 6/2026 at 2.80%, 5s of 2030 at 3.07%, 5s of 2035 at 3.50%, 4s of 2039 at 3.94% and 4.375s of 2045 at 4.39%, callable 6/1/2035.
Fund flows
Investors pulled $573.3 million from municipal bond mutual funds in the week ending Wednesday, following $216.4 million of outflows the prior week, according to LSEG Lipper data. This marks three consecutive weeks of outflows.
High-yield funds saw inflows of $147.7 million compared to the previous week's inflows of $316.2 million.
Tax-exempt municipal money market funds saw inflows of $2.65 billion for the week ending March 25, bringing total assets to $135.111 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 fell to 2.83%.
Taxable money-fund assets saw $5.666 billion added.
The average seven-day simple yield remained at 4%.
The SIFMA Swap Index fell to 2.87% on Wednesday compared to the previous week's 3.28%.
AAA scales
MMD's scale was cut up to three basis points: The one-year was at 2.66% (unch) and 2.75% (unch) in two years. The five-year was at 2.93% (unch), the 10-year at 3.32% (+2) and the 30-year at 4.31% (+2) at 3 p.m.
The ICE AAA yield curve was cut five to six basis points: 2.76% (+5) in 2026 and 2.78% (+5) in 2027. The five-year was at 2.97% (+5), the 10-year was at 3.33% (+5) and the 30-year was at 4.31% (+5) at 4 p.m.
The S&P Global Market Intelligence municipal curve cut up to three basis points: The one-year was at 2.66% (unch) in 2025 and 2.73% (+2) in 2026. The five-year was at 2.93% (+1), the 10-year was at 3.29% (+2) and the 30-year yield was at 4.40% (+2) at 4 p.m.
Bloomberg BVAL cut up to three basis points: 2.59% (unch) in 2025 and 2.69% (unch) in 2026. The five-year at 2.91% (+1), the 10-year at 3.25% (+2) and the 30-year at 4.28% (+2) at 4 p.m.
Treasuries were slightly weaker out long.
The two-year UST was yielding 3.995% (-2), the three-year was at 3.994% (-2), the five-year at 4.095% (flat), the 10-year at 4.364% (+1), the 20-year at 4.745% (+2) and the 30-year at 4.723% (+2) near the close.
