Municipals were little changed Friday as U.S. Treasury yields rose and equities ended up.
March had been expected to be difficult due to a "combination of heavy supply, low redemptions, rate volatility, tax-related selling and now fund outflows," said Barclays strategists Mikhail Foux and Grace Cen.
Therefore, they have not been surprised by this week's poor market performance, which might continue for a while.
Muni continued to cheapen this week amid market volatilities and forward uncertainty, said BofA strategists.
The two-year municipal to UST ratio Friday was at 65%, the five-year at 69%, the 10-year at 72% and the 30-year at 91%, according to Municipal Market Data's 3 p.m. EST read. ICE Data Services had the two-year at 67%, the five-year at 69%, the 10-year at 73% and the 30-year at 91% at 4 p.m.
"These ratios are approaching the cheapest levels since the end of 2022," BofA strategists said.
If macro market volatilities decline, the "cheapening process should take a pause in the short term," they said.
As hedging becomes "somewhat easier to handle," dealers and crossover accounts should be more willing to put money to work, according to BofA strategists.
Now that the 10-year AAA muni yield has risen above 3% once more, they noted some refunding deals should be on hold.
Elsewhere, there has been a continued evolution of the muni market regarding its structure, underlying fundamentals and a diversification of credit, said Spencer Kam, a managing director at InspereX.
It's also a bit of a "bifurcated" market at the moment, and then there's the impact of technology on market liquidity, he noted.
"A lot of them are overlapping and intertwined," he said
There has also been a shift in the individual investor allocation mix "whether that be retail investors directly purchasing money bonds or allocating their assets toward a mutual fund, exchange-traded fund or a separately managed account," according to Kam.
Exchange-traded funds grew to $137.6 billion in 2024, up $15 billion from 2023, according to the latest Fed data. Meanwhile, SMAs total $1.6 trillion, according to Bloomberg.
"You've seen a ballooning of investor assets and a change in their approach to how they want to be invested in munis," he said.
Simultaneously, there is also a consolidation of asset managers themselves, he noted.
"There are two different markets: one where institutional investors have the capacity for a specific credit, and one where they don't," Kam said.
And the market's pricing in a large premium on diversification within state-specific credits, leading to "a dislocation of both historical spreads to benchmark curves, as well as a dislocation of the relative value spreads between credits," he said.
New-issue calendar
Issuance for the week of March 17 is at $9.559 billion, with $5.597 billion of negotiated deals and $3.961 billion of competitive deals on tap.
The Dormitory Authority of the State of New York leads the new-issue calendar with $2.041 billion of general purpose state personal income tax revenue bonds in the competitive market, followed by the Metropolitan Transportation Authority with $1.12 billion of climate bond certified transportation revenue refunding green bonds in the negotiated market.
AAA scales
MMD's scale was little changed: The one-year was at 2.61% (unch) and 2.62% (unch) in two years. The five-year was at 2.80% (unch), the 10-year at 3.12% (unch) and the 30-year at 4.21% (-1) at 3 p.m.
The ICE AAA yield curve was cut one to three basis points: 2.65% (+2) in 2026 and 2.64% (+2) in 2027. The five-year was at 2.80% (+2), the 10-year was at 3.12% (+2) and the 30-year was at 4.17% (+1) at 4 p.m.
The S&P Global Market Intelligence municipal curve was cut up to a basis point: The one-year was at 2.65% (+1) in 2025 and 2.66% (+1) in 2026. The five-year was at 2.78% (+1), the 10-year was at 3.12% (unch) and the 30-year yield was at 4.18% (unch) at 4 p.m.
Bloomberg BVAL was cut up to a basis point: 2.55% (+1) in 2025 and 2.62% (+1) in 2026. The five-year at 2.77% (+1), the 10-year at 3.07% (+1) and the 30-year at 4.17% (unch) at 4 p.m.
Treasuries were weaker.
The two-year UST was yielding 4.021% (+6), the three-year was at 4.008% (+6), the five-year at 4.09% (+6), the 10-year at 4.315% (+5), the 20-year at 4.653% (+3) and the 30-year at 4.622% (+3) near the close.
Primary to come
The Metropolitan Transportation Authority (A3/A-/AA/AA/) is set to price Tuesday $1.12 billion of climate bond certified transportation revenue refunding green bonds, Series 2025A. J.P. Morgan.
The Alabama Federal Aid Highway Finance Authority (Aa2/AAA//) is set to price Tuesday $608.455 million of special obligation revenue bonds, consisting of $250 million of Series 2025A, serials 2026-2045, and $358.455 million of Series 2025B, serials 2026-2036. BofA Securities.
The San Diego Unified School District (Aa2//AAA/AAA/) is set to price Tuesday $509.18 million of GO refunding bonds, consisting of $108.2 million of Series R-8A, $40.45 million of Series R-8B, $30.305 million of Series SR-5A, $46.705 million of Series SR-5B, $253.025 million of Series ZR-6A and $30.495 million of Series ZR-6B. Jefferies.
The Pennsylvania Economic Development Financing Authority (A2/A/A/) is set to price Wednesday $387.3 million of fixed-rate mode UPMC revenue refunding bonds, Series 2025B, serials 2026-2045, terms 2050, 2055. RBC Capital Markets.
The authority is also set to price Wednesday $312.55 million of term-rate mode UPMC revenue bonds, Series 2025A. Barclays.
The National Finance Authority is set to price Monday $348.539 million of Series 2025-1 municipal certificates, consisting of $293.644 million of Class A-1 bonds (/AA-//), serial 2041; $45.31 million of Class A-2 bonds (/BBB//), serial 2041; and $9.585 million of subordinate Class B bonds (/NR//), serial 2041. BofA Securities.
Core Natural Resources is set to price Wednesday $98.1 million of non-rated AMT solid waste disposal facility revenue bonds through the Pennsylvania Economic Development Financing Authority, $102.865 million of non-rated none-AMT port facilities refunding revenue bonds through the Maryland Economic Development Corp. and $106.355 million of non-rated AMT solid waste disposal facility revenue bonds through the West Virginia Economic Development Authority. Jefferies.
The Grossmont Healthcare District, California, (Aa2///) is set to price Tuesday $166.105 million of 2025 GO refunding bonds, Series F, serials 2025-2027, 2032-2040. Goldman Sachs.
The Illinois Housing Development Authority (Aaa///) is set to price Tuesday $150 million of non-AMT social revenue bonds, 2025 Series A, serial 2036, terms 2045, 2050, 2055. Barclays.
The Public Finance Authority (/BBB-//) is set to price Thursday $145.16 million of Lindenwood Education System educational facilities revenue bonds, consisting of $130.16 million of tax-exempt Series 2025A bonds, serials 2025-2035, term 2040; and $15 million of taxable Series 2025B bonds, serials 2027-2029 RBC Capital Markets.
The Arlington Higher Education Finance Authority (Aaa/AAA//) is set to price Tuesday $139.35 million of PSF-insured Riverwalk Education Foundation education revenue bonds, serials 2026-2045, terms 2050, 2055, 2060. Baird.
The Janesville School District (Aa2///) is set to price Tuesday $139.3 million of GO promissory notes, Series 2025B, serials 2026-2045. Baird.
Hamilton County, Ohio, (Baa3/BBB-//) is set to price Thursday $137.225 million of UC Health hospital facilities revenue refunding bonds, Series 2025A, serials 2030-2045, term 2051. RBC Capital Markets.
UC Health (Baa3/BBB-//) is set to price Thursday $122.464 million of taxable corporate CUSIPs, Series 2025B, serials 2035,2040. RBC Capital Markets.
The Illinois Housing Development Authority (Aaa///) is set to price Tuesday $116.665 million of taxable social revenue bonds, 2025 Series B, serials 2026-2037, term 2041. Loop Capital Markets.
Competitive
The Dormitory Authority of the State of New York is set to sell $2.041 billion of general purpose state personal income tax revenue bonds in five series: $577.68 million of tax-exempt Series 2025A Bidding Group 1 bonds at 10:15 a.m. Thursday; $533.915 million of tax-exempt Series 2025A Bidding Group 2 bonds at 10:45 a.m. Thursday; $437.43 million of tax-exempt Series 2025A Bidding Group 3 bonds at 11:15 a.m. Thursday; $435.43 million of tax-exempt Series 2025A Bidding Group 4 bonds at 11:45 a.m. Thursday; and $56.965 million of taxable Series 2025B bonds at 12:15 p.m. Thursday.
New York is set to sell $541.145 million of GOs in three series: $339.285 million of tax-exempts, Series 2025A, at 10:15 a.m. Tuesday; $193.35 million of tax-exempt refunding bonds, Series 2025C, at 10:45 a.m. Tuesday; and $8.51 million of taxables, Series 2025B, at 11:15 a.m. Tuesday.
Wake County, North Carolina, is set to sell $271.845 million of GO public improvement bonds, Series 2025A, at 11 a.m. Tuesday.
The Franklin Public School District, Wisconsin, is set to sell $145 million of GO school facility improvement bonds, Series 2025A, at 10:30 a.m. Wednesday.
