Munis weaker but possible 'solid' performance on the horizon

Municipals were weaker Monday, as U.S. Treasury yields rose and equities ended up.

The two-year municipal to UST ratio Monday was at 66%, the five-year at 69%, the 10-year at 73% and the 30-year at 89%, according to Municipal Market Data's 3 p.m. EDT read. ICE Data Services had the two-year at 67%, the five-year at 70%, the 10-year at 74% and the 30-year at 91% at 4 p.m.

The continued onslaught of robust new issuance and UST volatility "further hindered muni performance for the month, but the market began to firm up by the end of the [last] week," said Birch Creek strategists.

However, that may be short-lived as munis were weaker Monday, with yields cut up to four basis points, depending on the curve. UST yields rose even further, with yields moving higher seven to nine basis points.

On the other hand, lighter supply, at an estimated $7.9 billion this week, and still-attractive valuations should allow for solid muni performance this week, said J.P. Morgan strategists, led by Peter DeGroot.

Muni mutual funds saw outflows of $216.4 million last week as investors "continue to pull their investments due to higher yields as well as selling during tax season," said Jason Wong, vice president of municipals at AmeriVet Securities.

However, those outflows were "relatively manageable" and the market managed to generate a decent week of absolute performance, said Daryl Clements, a muni portfolio manager at AllianceBernstein.

In particular, he noted, after a notable period of underperformance the long end of the muni curve found some support last week, with 30-year after-tax spreads tightening by three basis points.

"Longer maturities continue to look quite attractive, although valuations are compelling across the entire curve," Clements said. "That said, given consistent rate volatility, paired with a relatively lackluster flow environment and elevated supply expected to continue, we would not be surprised if valuations remain attractive for the next few weeks."

The benchmark AAA muni curve saw yields rise up to two basis points out to 10 years but fell by five basis points in 30 years, besting treasuries in the longest maturities, Birch Creek strategists said.

By Wednesday afternoon, "after treasuries staged a strong rally post-Fed and the muni market was unchanged to weaker across the curve," the 10-year MMD-UST ratio ended the trading session at its highest level since September 2023, while the 30-year ratio was its widest since March 2023, they said.

"The relative cheapness seemed to spark a renewed interest in the asset class," as dealers noted a broadening of the buyer base, with accounts appearing to "slowly come out of their hiding spots, causing customer purchases to jump by 20%," Birch Creek strategists said.

MMD yields were bumped two to four basis points 20 years and in last week, seeing their first positive session of the month, they noted.

The $2 billion NY Dorm PIT competitive deal saw "a dealer step up with solid levels and most of the balances sold by the end of the week," according to Birch Creek strategists.

"Accounts looked ahead to next week's light primary calendar, which helped boost spirits further," they said.

AAA scales
MMD's scale was cut two basis points throughout most of the curve: The one-year was at 2.62% (unch) and 2.65% (+2) in two years. The five-year was at 2.82% (+2), the 10-year at 3.15% (+2) and the 30-year at 4.16% (unch) at 3 p.m.

The ICE AAA yield curve was cut two to four basis points: 2.69% (+2) in 2026 and 2.67% (+2) in 2027. The five-year was at 2.83% (+2), the 10-year was at 3.15% (+3) and the 30-year was at 4.17% (+3) at 4 p.m.

The S&P Global Market Intelligence municipal curve cut up to a basis point: The one-year was at 2.62% (unch) in 2025 and 2.64% (+1) in 2026. The five-year was at 2.81% (+1), the 10-year was at 3.13% (+1) and the 30-year yield was at 4.16% (unch) at 4 p.m.

Bloomberg BVAL cut one to three basis points: 2.54% (+1) in 2025 and 2.62% (+1) in 2026. The five-year at 2.78% (+2), the 10-year at 3.08% (+3) and the 30-year at 4.14% (+2) at 4 p.m.

Treasuries were weaker.

The two-year UST was yielding 4.032% (+8), the three-year was at 4.011% (+9), the five-year at 4.09% (+9), the 10-year at 4.330% (+8), the 20-year at 4.686% (+7) and the 30-year at 4.658% (+7) near the close.

Primary to come
The Department of Airports of the City of Los Angeles (Aa3//AA-/) is set to price Thursday on behalf of the Los Angeles International Airport a $1.534 billion deal, consisting of $1.189 billion of green private activity/AMT subordinate revenue and refunding revenue bonds, serials 2026-2045, terms 2050, 2055; $175.58 million of private activity/AMT subordinate revenue and refunding revenue bonds, 2025 Series B, serials 2026-2045, terms 2050, 2055; and $169.495 million of governmental purpose/Non-AMT subordinate refunding revenue bonds, 2025 Series C, serials 2026-2045. Barclays.

The Public Finance Authority is set to price Wednesday on behalf of the Salina Economic Development Authority, Oklahoma, $1.168 billion of non-rated American Tire Works Project revenue bonds, Series 2025A, term 2056. HilltopSecurities.

The New York City Municipal Water Finance Authority (Aa1/AA+/AA+/) is set to price Tuesday $603.715 million of water and sewer system second general resolution revenue refunding bonds, Fiscal 2025 Series CC, serials 2027-2032, 2037-2039, 2046. Raymond James.

The Board of Regents of the Texas A&M University System (Aaa/AAA/AAA/) is set to price Wednesday $372.15 million of Permanent University Fund refunding bonds, Series 2025A. J.P. Morgan.

The Peralta Community College District, California, (/AA-/AA-/) is set to price Tuesday $361.785 million of GOs, consisting of $118.84 million of tax-exempt Series C-1 bonds, serials 2025-2026, 2043-2045, terms 2050, 2054; $211.785 million of tax-exempt refunding bonds, serials 2025-2039; and $31.16 million of tax-exempt Series C-2 bonds, serial 2025. Siebert Williams Shank.

The Missouri Housing Development Commission (/AA+//) is set to price Wednesday $250 million of non-AMT First Place Homeownership Loan Program single-family mortgage revenue bonds, 2025 Series C (Non-AMT), serials 2026-2037, terms 2040, 2045, 2050, 2055, 2056. Stifel.

The Texas Water Development Board (/AAA/AAA/) is set to price Tuesday $181.535 million of State Revolving Funds revenue bonds, New Series 2025, serials 2026-2046. Raymond James.

Louisiana (Aa3/AA//) is set to price Tuesday $150 million of gasoline and fuels tax second lien revenue refunding bonds, 2025 Series A. Wells Fargo.

The Colorado Health Facilities Authority (//A-/) is set to price Tuesday $148.62 million of Covenant Living Communities and Services revenue bonds, Series 2025A. Ziegler.

Kansas City, Missouri, (Aa2/AA+//) is set to price Thursday $144.315 million of water revenue bonds, Series 2025A. Morgan Stanley.

The Durango School District 9-R, Colorado, (Aa2///) is set to price Wednesday $130 million of Colorado State Intercept Program-insured GOs, serials 2025-2049. RBC Capital Markets.

The Jefferson Public Building Authority (Aa1/AA+//) is set to price Wednesday $106.39 million of School District of the City of Jefferson Project revenue bonds, serials 2036-2055. Raymond James.

Competitive
California is set to sell $212.565 million of non-AMT veterans general obligation bonds in two series: $62.565 million of Series CW bonds at 11:30 a.m. Tuesday and $150 million of Series CX bonds at 11:30 a.m. Tuesday.

Metro, Oregon, is set to sell $200 million of GOs at noon Tuesday.

The Dorchester County School District No. 2, South Carolina, is set to sell $200 million of South Carolina School District Credit Enhancement Program GOs, Series 2025A, at 11 a.m. Tuesday.

Oklahoma City, Oklahoma, is set to sell $160 million of GOs at 9:30 a.m. Tuesday.

The Davis School District Board of Education, Utah, is set to sell $100 million of Utah School District Bond Guaranty Program GOs at 11:30 a.m. Thursday.