Muni yields fell Monday, following a U.S. Treasury rally, while equities ended up as market participants signaled their confidence in
Muni yields were bumped up to seven basis points, depending on the scale, while USTs rallied up to 15, with both seeing the biggest gains out long, in the first full trading session since hedge fund founder Scott Bessent's nomination for Treasury Secretary was announced.
"The initial market reaction suggests that the choice of Bessent in this crucial role is seen by financial market participants as an anchor of stability and responsibility in the Trump cabinet," according to a UBS report.
Markets could see that "the risks of higher inflation and interest rates are implicit constraints on the Trump policy agenda, with the eventual policy outcomes potentially less inflationary than some investors previously feared," UBS strategists noted.
While they do not rule out the possibility of further volatility, they expect UST yields to fall in 2025 after rising 65 basis points over the past two months.
The muni market "continued its streak of performance [last week], rising each week so far in November," said Birch Creek strategists.
"Strong demand for tax-exempt income has been a key factor in muni relative outperformance as of late, with after-tax spreads tightening over the last month," said Daryl Clements, a portfolio manager at AllianceBerstein.
Munis have done a "complete 180" compared to October, where munis saw losses of 1.46% for the month, bringing year-to-date returns below 1%, said Jason Wong, vice president of municipals at AmeriVet Securities.
With just one week remaining in November, munis are seeing gains of 0.88%, pushing year-to-date returns to 1.69%, he noted.
High-yield munis are returning +1.05% month-to-date and +6.96% year-to-date. Taxables are returning -0.22% so far in November, but +2.19% in 2024.
With this rally, munis have outperformed, as USTs are in the red at 0.59%, with a marginal gain of 0.76% year-to-date.
"With munis outperforming this month, munis continue to be expensive when compared to Treasuries, more in particularly in the long end as the 30-year ratio hit its richest point since January of 2022," he said.
The two-year municipal to UST ratio Monday was at 61%, the five-year at 63%, the 10-year at 67% and the 30-year at 83%, according to Refinitiv Municipal Market Data's 3 p.m. EST read. ICE Data Services had the two-year at 61%, the five-year at 61%, the 10-year at 65% and the 30-year at 80% at 3:30 p.m.
After the volatile last few weeks, things were "relatively range-bound" last week in the muni market, Clements said.
Muni yields saw slight bumps last week throughout most tenors, largely matching treasuries, Birch Creek strategists said.
While last week was one of a handful of weeks left this year with a "notable" primary calendar, demand for munis remained strong, Birch Creek strategists said.
The market absorbed that supply week, as
"Longer-dated and high-yield funds reaped the lion's share of those inflows — as has been the theme all year," he said.
Meanwhile, short-duration funds lost assets, Birch Creek strategists said.
"This bore out in the trade activity," they said.
There was a jump in customer bids wanted, but most of that increase was seen in bonds 10 years and in, Birch Creek strategists said.
On the other hand, customer purchases increased 12% above recent averages and were led by 10- to 20-year bonds, they said.
Supply this week comes in at a paltry $1.4 billion.
As yearend approaches, supply will continue to dwindle, though the first two weeks of December may see a rebound in issuance.
There are some larger deals already on the calendar.
Coming on the heels of a trio of upgrades, the
The Sales Tax Securitization Corp., Illinois, is set to price the week of Dec. 2 $679.68 million of refunding sales tax securitization bonds.
The Dormitory Authority of the State of New York is set to price the week of Dec. 9 around $2.5 billion of new-money and refunding state sales tax revenue bonds.
The Chicago Transit Authority is set to price the week of Dec. 9 $600 million of sales tax receipts revenue bonds.
The Metropolitan Water Reclamation District of Greater Chicago is set to price Dec. 10 $500 million various GOs.
Primary to come:
The Westfield Washington Multi-School Building Corp., Indiana, (/AA+//) is set to price Tuesday $303.815 million of Indiana State Aid Intercept Program-insured ad valorem property tax first mortgage bonds, consisting of $188.61 million of Series 2024A, serials 2027-2044, and $115.205 million Series 2024B, serials 2027-2044. Stifel.
The Aerotropolis Regional Transportation Authority, Colorado, is set to price Tuesday $205.25 million of non-rated special revenue bonds, terms 2044, 2054. Jefferies.
The State of New York Mortgage Agency (Aa1///) is set to price Tuesday (retail order period Monday) $88.08 million of non-AMT homeowner mortgage revenue social bonds, terms 2039, 2044, 2049, 2054. Barclays.
Competitive
Andover, Massachusetts, (/AAA//) is set to sell $39.365 million of GO municipal purpose loan of 2024 bonds at 11 a.m. eastern Tuesday.
