Although last week was a holiday week, there was a steady stream of potentially impactful headlines ranging from escalating tensions in the Middle East to an FOMC meeting. Although Fed officials left interest rates unchanged at last week’s meeting, the conflict in the middle east has disrupted air traffic, rattled global markets, and raised concerns of oil prices and inflation. However, Treasury bond yields generally slid last week amid elevated recession concerns following a disappointing release of data by the Census Bureau indicating retail sales dropped by 0.9% in May, significantly below the 0.6% contraction previously estimated by economists surveyed by Dow Jones.
Ratios and Strategy
Over the past week, Treasury yields slid roughly 10-basis points from 5 to 30-years with a steeper dip of 20 basis points around the 15-year mark. While municipal yields held relatively steady with declines of approximately 3 basis points for maturities within 10-years and only a basis point a year on longer tenors. As a result, muni/Treasury ratios have generally become more attractive with ratios enticing investors to extend portfolio durations with significantly higher ratios on longer maturities. Currently, 10-year munis are yielding over 75% of equivalent Treasuries and 30-year munis are yielding almost 93% of equivalent Treasuries. The slope of the municipal yield curve is also rewarding extension with multiple spans along the yield curve in excess of 10 basis points per year. The steepest slopes have formed around the 10-year maturity, with an overall slope of 43 basis points from 9 to 11-years. Further out the municipal yield curve, slopes remain steep from 15 to 18-years, with an overall slope of 45 basis points. Slopes after this point taper off dramatically to just a basis point or two on the extreme long-end. The flattening on the longer-end of the yield curve allows investors to buy 17-year maturities with yields that are 90% of 30-year maturities.
Secondary trading volumes slowed last week as attentions were divided by the short week. However, municipal market technicals remain accommodative, with last week’s approximately $6 billion municipal calendar was taken down with relative ease amid $32 billion in bonds maturing over the next 30-days and an additional $7.5 billion in announced bond calls. LSEG Lipper Global Fund Flows reported municipal bond mutual funds experienced their eighth consecutive week of inflows, albeit with a modest $110.5 million being added to the asset class. High-yield funds saw an additional $57.7 million compared to the previous week’s $138 million. This week, the calendar has expanded to $11.8 billion in new issues to close-out June as one of the highest supply months seen in recent years. Year-to-date, municipal issuance has reached $265 billion, which is 19.4% ahead of last -year at this time.
Herbert J. Sims & Co. Inc. is a SEC registered broker-dealer, a member of FINRA, SIPC. The information contained herein has been prepared based upon publicly available sources believed to be reliable; however, HJ Sims does not warrant its completeness or accuracy and no independent verification has been made as to its accuracy or completeness. The information contained has been prepared and is distributed solely for informational purposes and is not a solicitation or an offer to buy or sell any security or instrument or to participate in any trading or investment strategy, and is subject to change without notice. All investments include risks. Nothing in this message or report constitutes or should be construed to be accounting, tax, investment or legal advice.
June 23, 2025 | Timothy Iltz
Overview
Although last week was a holiday week, there was a steady stream of potentially impactful headlines ranging from escalating tensions in the Middle East to an FOMC meeting. Although Fed officials left interest rates unchanged at last week’s meeting, the conflict in the middle east has disrupted air traffic, rattled global markets, and raised concerns of oil prices and inflation. However, Treasury bond yields generally slid last week amid elevated recession concerns following a disappointing release of data by the Census Bureau indicating retail sales dropped by 0.9% in May, significantly below the 0.6% contraction previously estimated by economists surveyed by Dow Jones.
Ratios and Strategy
Over the past week, Treasury yields slid roughly 10-basis points from 5 to 30-years with a steeper dip of 20 basis points around the 15-year mark. While municipal yields held relatively steady with declines of approximately 3 basis points for maturities within 10-years and only a basis point a year on longer tenors. As a result, muni/Treasury ratios have generally become more attractive with ratios enticing investors to extend portfolio durations with significantly higher ratios on longer maturities. Currently, 10-year munis are yielding over 75% of equivalent Treasuries and 30-year munis are yielding almost 93% of equivalent Treasuries. The slope of the municipal yield curve is also rewarding extension with multiple spans along the yield curve in excess of 10 basis points per year. The steepest slopes have formed around the 10-year maturity, with an overall slope of 43 basis points from 9 to 11-years. Further out the municipal yield curve, slopes remain steep from 15 to 18-years, with an overall slope of 45 basis points. Slopes after this point taper off dramatically to just a basis point or two on the extreme long-end. The flattening on the longer-end of the yield curve allows investors to buy 17-year maturities with yields that are 90% of 30-year maturities.
Secondary trading volumes slowed last week as attentions were divided by the short week. However, municipal market technicals remain accommodative, with last week’s approximately $6 billion municipal calendar was taken down with relative ease amid $32 billion in bonds maturing over the next 30-days and an additional $7.5 billion in announced bond calls. LSEG Lipper Global Fund Flows reported municipal bond mutual funds experienced their eighth consecutive week of inflows, albeit with a modest $110.5 million being added to the asset class. High-yield funds saw an additional $57.7 million compared to the previous week’s $138 million. This week, the calendar has expanded to $11.8 billion in new issues to close-out June as one of the highest supply months seen in recent years. Year-to-date, municipal issuance has reached $265 billion, which is 19.4% ahead of last -year at this time.
Herbert J. Sims & Co. Inc. is a SEC registered broker-dealer, a member of FINRA, SIPC. The information contained herein has been prepared based upon publicly available sources believed to be reliable; however, HJ Sims does not warrant its completeness or accuracy and no independent verification has been made as to its accuracy or completeness. The information contained has been prepared and is distributed solely for informational purposes and is not a solicitation or an offer to buy or sell any security or instrument or to participate in any trading or investment strategy, and is subject to change without notice. All investments include risks. Nothing in this message or report constitutes or should be construed to be accounting, tax, investment or legal advice.