Curve Commentary: June 23, 2025

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.

Curve Commentary: June 16, 2025

Overview

From the perspective of the trade desk, last week was another challenging week with attentions focused on new deals rather than the secondary market.  Both municipal and Treasury markets responded to last week’s reports of slower growth and lower inflation with yields dropping approximately three to six basis points across both curves.  However, this week escalating overseas tensions in Israel and Iran are placing upward pressure on yields.  Not surprisingly, both Brent and West Texas Intermediate crude oil prices have risen above $70 per barrel sparking concerns of inflation among traders and placing additional upward pressure on long-term yields.  These concerns are in addition to the existing inflationary concerns related to the trade wars, spiraling U.S. debt concerns and traders demanding a higher premium for the risk of lending to governments following Moody’s downgrade of the United States credit rating to ‘Aa1.’  Overall, the yield gap between 10 and 30-year Treasuries has reached the widest levels we have seen since 2021.

Over the past week, attentions on the trade desk have been more focused on the short-end of the curve as accounts look for safety amid global conflict, economic and policy uncertainties.  The municipal curve has responded with steeper slopes in the longer-intermediate tenors with extension risk being rewarded from 2034 all the way out to 2043 with a collective 116 basis points of slope over the 10-year period.  The 2036 maturity now offers over 75% of the 30-year municipal maturity and over 75% of equivalent Treasury yields.  Going out an additional 6 years to 2042 nets an additional 64 basis points of yield, or 90% of the 30-year municipal maturity, and 83% of equivalent Treasury yields.  Slopes on the long-end of the municipal curve taper significantly past 20-years with only a basis point or two of slope on the long-end.

Ratios and Strategy

Muni/Treasury ratios have been relatively balanced over the past week declining on the short-end and increasing on the long-end with the largest changes in the intermediate portion of the curve around 10-years.  Long-term ratios remain appealing, with 20-year munis yielding 87.22% of Treasuries and 30-year munis yielding 92.28% of Treasuries.   Over the past week, we have seen ratios drop down to 65% in the 1-year tenor as investors migrate toward the safety afforded by the shorter end of the yield curve.

Ahead of the upcoming FOMC meeting and the Juneteenth holiday, the municipal market is anticipating a slower week as issuers are scheduled to bring $5.73 billion in new deals to market versus $17 billion last week.  Market technicals remain receptive to strong issuance with LSEG Lipper Global Fund Flows reporting municipal bond mutual funds saw a seventh consecutive week of inflows with $523 million being added to the asset class following $426 million of inflows the prior week.  Long-term muni funds added $72 million while high-yield funds saw an additional $138 million and intermediate funds added $35 million.  In addition, $35.4 billion in municipal bonds are maturing over the next 30-days and an additional $7.8 billion of bond calls has been announced.

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.

Curve Commentary: June 9, 2025

Overview

Last week, the municipal market was flooded by issuance as state and local governments unloaded $20 billion in new deals, marking the largest issuance volume in almost eight years.  The municipal market is anticipating another big week with issuers currently scheduled to bring $17 billion in new deals to market ahead of the upcoming FOMC meeting and the Juneteenth holiday.  However, despite the challenging volume of deals being processed by the market, municipal yields have held steady, even outperforming Treasuries, with a rally of two to three basis points in tenors under ten years and a minor sell-off of one to one and a half basis points out long.  As a result, the MMD municipal yield curve has modestly steepened by about 11 basis points over the past week.  In contrast, Treasuries have flattened from two to 30-years with tenors under ten years selling-off as much as ten basis points as the Treasury market responded to a stronger than expected jobs report and continued policy uncertainties.

From the perspective of the trade desk, this has been another challenging week with attentions focused on new deals rather than the secondary market.  Not surprisingly, secondary trading volumes have progressively slowed as new issue volume has accelerated.  Inquiries have been more focused on the short-end of the curve with investors seeking asylum amid economic and policy uncertainties.  The municipal curve has responded with steeper slopes in the longer-intermediate tenors with 41 basis points of slope from 2034 to 2036, with the 2036 maturity now offering approximately 75% of Treasury yields.  In addition, slopes remain steep from 2040 to 2043, rewarding investors that travel further out the curve with approximately 85% of Treasury yields in 2043.  Slopes on the long-end of the municipal curve taper significantly past 20-years, with a basis point or two of slope on the long-end.  Currently, 20-year munis offer 95% of 30-year yield.

Ratios and Strategy

Muni/Treasury ratios have responded with mixed results over the past week, declining by over two percent on the short-end and remaining practically unchanged on the long -end.  However, long-term ratios remain appealing, with 20-year munis yielding 86.57% of Treasuries and 30-year munis yielding 91.94% of Treasuries.   Over the past week, we have seen ratios dip below 70% to 67.72% in the 5-year tenor, primarily due to the notable sell-off in Treasuries in that part of the curve over the past week.

Year-to-date, long-term municipal issuance is $240.5 billion, which is up 17.8% versus the same time period last year.  Fortunately, market technicals remain receptive to strong issuance with $34.7 billion in bonds maturing over the next 30-days and an additional $12.5 billion in announced bond calls.  In addition, LSEG Lipper Global Fund Flows reported municipal bond mutual funds saw a sixth consecutive week of inflows with $426 million being added to the asset class following $526 million of inflows the prior week.  Long-term muni funds gained $45 million while high-yield funds added $281 million and intermediate funds added $110 million.

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.

Curve Commentary: June 2, 2025

Overview

Long-term US Treasury yields have recently popped-up to their highest level in over a year, driven by the passage of the budget by the US House of Representatives and widespread concerns of escalating deficits.  The biggest deficit driver is the proposed extension of the Tax Cuts and Jobs Act of 2017, which is estimated to add $3.5 to $4.0 trillion to the current deficit, likely requiring the issuance of additional Treasury securities.  However, demand for Treasuries is waning as countries like China and Japan have been decreasing their holdings due to trade tensions and a stronger US dollar.  Yields on 2, 5 and 10-year notes, by comparison, have fallen resulting in a widening gap between the 10-year and the 30-year bond.  Although this gap is widening, it is still within long-term historical averages.

Looking at shorter tenors, the slope of the municipal 2s10s curve has reached 53 bps, the steepest level observed since 2022.  This marks a complete reversal from the minus 50 bps seen last year at about this time, in April 2024, as yield relationships along the curve continue to normalize.  Similarly, the US Treasury 2s10s curve has a slope of 52 bps, which is far more approachable than the minus 108 bps seen in mid-2023.  With steeper slopes shorter on the curve, investors can capture a substantial percentage of 30-year rates over significantly shorter duration exposures.  Currently, 10-year munis are yielding approximately 75% of the 30-year maturity and 18-year munis are yielding approximately 93% of the 30-year maturity.

Ratios and Strategy

Recent yield shifts have resulted in muni/Treasury ratios declining by almost a percent on the short-end and increasing by 1.4% on the long -end.  Although long-term ratios remain appealing, the yield differentials between municipals and Treasuries have tightened over the past month with 5-year ratios declining from over 75% down to 71% as investors move to the shorter end of the curve amid rate volatility.  At the long-end, municipal continue to yield over 90% of equivalent Treasury bonds, which continues to be appealing to investors.  However, as mentioned earlier, compelling values are available at shorter durations with 20-year munis yielding 87% of Treasuries.  Nevertheless, as discussed below, ratios are likely to be range bound as municipals head into the more technically driven portion of the year.

Technical Factors

Year-to-date long-term municipal issuance is $220.5 billion, which is up 17.3% versus the same time period last year.  Issuance is expected to pick-up this week with US state and local governments slated to sell more than $19.1 billion of bonds, which is the highest weekly total this year and one of the largest weekly calendars on record and is expected to accelerate over the next month.  On this week’s calendar, there are multiple billion dollar issues scheduled lead by Indiana University Health is with its $1.5 billion issue and the Commonwealth of Pennsylvania with a $1.17 billion issue. 

Last week, LSEG Lipper Global Fund Flows reported municipal bond mutual funds saw a fifth consecutive week of inflows with $526 million being added to the asset class following $768 million of inflows the prior week.  Long-term municipal funds gained $203 million while high-yield funds added $150 million and intermediate funds added $79 million.  However, despite the inflows, trading volumes fell to the lowest level seen in 2025 last week amid healthy but cooling demand.

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.

Curve Commentary: May 27, 2025

Overview

In the period following the announced tariffs on April 2nd, Municipal bonds have fared better than Treasury bonds, with 30-year Treasury bonds selling-off by 44 basis points while similar municipals sold-off by only 32 basis points.  However, it is in the 15-year portion of the Treasury curve where investors are most unsettled as the Treasury bond market backed-up 54 basis points versus only 23 basis points in municipals.  The result is flattening on the longer end of the Treasury curve with a slope of only 7 basis points from 15 to 30-years.  Treasury bonds are responding to the long-term inflation outlook, national debt concerns and consumer anticipation of steeper price pressures with uncertainty leading to flattening on the long-end.  The municipal curve has evolved to become more consistently sloped with longer duration municipals responding more to technical factors such as new issuance and fund flows.

Ratios and Strategy

Over the past week we have seen some steepening on the longer-end of the intermediate portion of the municipal curve with slopes increasing 34 basis points from 9 to 11 years.  The 15 to 18 year tenor of the municipal curve also continues to offer investors reward for extension, with yields climbing 45 basis points from 2040 to 2043.  This portion of the curve offers a combination of relatively steep slope and meaningful yield, allowing investors to lock-in over 93% of the yield on the 30-year municipal maturity and approximately 85% of equivalent Treasury yields.

Although long-term ratios remain appealing, the yield differentials between municipals and Treasuries has tightened over the past month, with 5-year ratios declining from over 80% to just over 70%, as investors migrate to the shorter end of the curve amid rate volatility.  Over the past week, ratios have tightened on both the extreme long-end and the short-end with widening in the middle with the largest moves around the 10-year mark.  At the long-end, municipal bonds are still yielding over 90% of Treasury bonds, which is continues to be appealing to investors.

Municipal credit spreads remain relatively stable with modest widening as recession fears have been rekindled amidst day-to-day tariff and economic uncertainty and the downgrade of U.S. sovereign credit.  Credit spreads measure the difference in basis points between credit ratings.  This spread reflects the additional return investors demand for the credit risk associated with investing in lower rated bonds.  Of the investment grade ratings, ‘BBB’ spreads have widened the most, post Liberation Day, by approximately 10 basis points while ‘A’ credit spreads have widened by 7 basis points and ‘AA’ credit spreads have widened by 3 basis points.  Although credit spreads continue to reward risk, they are noticeably tighter than they were at the end of 2023, when ‘BBB’ credit spreads were 125 basis points versus their current 94 basis points.

Technical Factors

Last week LSEG Lipper Global Fund Flows reported municipal bond mutual funds saw $768 million of inflows following $769 million of inflows the prior week.  The new issue calendar is a little lighter this week, due to the holiday, with an estimated $9.5 billion versus $15 billion last week.  New Jersey Turnpike Authority has $1.75 billion in revenue bonds on the calendar and Omaha Public Power District is scheduled to sell $503 million in electric system revenue bonds.  Year-to-date, municipal issuers have sold $210 billion, which is up 14.8% from last year at this time.  However, there is speculation that issuance may slow this summer due decreased likelihood of the elimination of the tax-exemption on municipal bonds following the passage of the “Big Beautiful Bill” by the House Budget Committee last week.

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.

Curve Commentary: May 19, 2025

Overview

This morning municipal bonds are selling-off following Friday’s downgrade of the US Treasury by Moody’s from ‘AAA’ to ‘Aa1.’  In early trading yields extended over 5% for 20 and 30-year Treasury bonds, although yields have since settled back under 5% for both tenors.  Moody’s downgrade was prompted by their concern of a decade of increasing debt and interest payments to levels significantly higher than similarly rated sovereigns and by successive US administrations that failed to agree with Congress on measures to reverse the trend.  In addition, Moody’s commented the ratio of total US public debt to the size of the economy has reached 98% of GDP in 2024 and anticipates the federal debt burden will reach 134% of GDP by 2035.  Moody’s also changed its outlook on the US economy from negative to stable and commented that it expects US GDP growth to slow in the short-term as the economy adjusts to higher tariffs, but that it does not expect long-term growth to be significantly affected.

Ratios and Strategy

The change in Treasury ratings puts relative value with the municipal market into question with the possibility to disrupting traditional relationships between the two markets.  Although the impact on municipals is far more muted than the impact on Treasury Bonds, we are still seeing municipals selling-off 2.5 bps across the 20 to 30-year tenors versus Treasury bonds selling-off 7 to 8 bps in the same range.  As a result, muni/Treasury ratios continue to grind lower with ratios now in the high 60’s on the short-end of the curve.  

On a relative basis, the draw to longer durations is decreasing as the justification for extension shifts to the stability of municipal credit ratings rather than improved ratios.  As an asset class, municipal bonds now offer greater credit appeal versus similarly or even lower rated Treasury obligations. However, with 20-year municipals yielding 85% of their Treasury equivalents and 30-year municipals yielding over 90% of equivalent Treasury bonds, there is still a progressive benefit to the tax exemption.  From the perspective of the Charlotte trading desk, tighter ratios make it more difficult to bid aggressively on secondary offerings with a  narrower margin for error.

Unlike recent weeks, Treasury bonds and municipals are shifting in a similar manner with intermediate yields adjusting slightly lower while longer yields adjust higher resulting in a similar steepening in both curves.  The municipal curve starts to steepen at around the 9-year maturity with steepening extending out to the 15 to 17 year portion of the curve.  Overall, there is over 90 bps of steepening in this range with a slope of approximately 11bps per year, meaning that investors are rewarded for assuming duration risk in this part of the curve.  In addition, the 17 year portion of the municipal curve also offers 90% of the yield on the 30-year municipal maturity and approximately 80% of 20-year Treasury bond yields.  However, yields flatten-out meaningfully on the long-end with slopes of just a few basis points per year over the last 10-years. 

Last week, LSEG Lipper Global Fund Flows reported that investors added $769 million to municipal bond funds.  Long-term muni funds gained $337 million while intermediate funds saw inflows of $161 million and high-yield funds added $140 million.  Overall, the fund flows point to less risk appetite as investors return to the safety of intermediate investment-grade bonds.  In addition, municipal issuance remains brisk offering incoming money a variety of choice with $12.7 billion of new issuance over this week from issuers ranging from State of Kansas to local school districts.

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.

Curve Commentary: May 12, 2025

Overview

This morning’s announcement of a reprieve in the trade war between the US and China sparked a seven-basis point increase in the 10-year Treasury yield as traders pushed back the timing of possible interest-rate cuts.  The trade war has been the biggest driver of rates in the capital markets this year, marking a significant shift from the previous focus on the Fed.  Last week, the Fed held rates steady at 4.25% to 4.5% and cited the trade talks as a key factor amid concerns of increased unemployment and higher inflation.  Volatility from the trade war has been elevated in the Treasury bond market with trading surging 25% in April to a record $1.323 trillion in average daily turnover, which almost doubled to $2.44 billion on the peak day with trade war volatility driving position unwinds.

Not surprisingly, uncertainty in the municipal bond market also remains uncharacteristically high.  Last week, LSEG Lipper Global Fund Flows reported that investors added $1.1 billion to municipal bond funds.  As a result, technical conditions improved in the muni market last week as robust supply was met with solid demand.  Long-term muni funds gained $597 million while intermediate funds saw inflows of $96 million and high-yield funds added $348 million.  Overall, the fund flows point to risk-on as investors migrate to the long-end of the curve and riskier assets.  From the perspective of the Charlotte trade desk, trades this morning have been a little soft but ratios have recently compressed and inventory struggles to keep pace with demand.

Although the Treasury bond yield curve has steepened slightly over the last week, with the long-end selling-off five basis points, the municipal bond yield curve has responded with a two to four basis point parallel shift lower.  The steepening Treasury bond yield curve combined with mixed inflation signals greatly complicates the timing of future policy moves.  Further adding to the uncertainty, the Treasury curve has sold-off 18-20 bps in the policy sensitive 2-4 year portion of the curve. This move points to potential flattening of Treasury bond yields as investors struggle with where to position.

Ratios and Strategy

Slopes along the municipal bond yield curve progressively steepen from 6 to 17 years with the 15 to 17-year portion of the curve having the steepest slope of 11bps/year.  The 15-17 year portion of the municipal curve also offers approximately 90% of the yield on the 30-year muni maturity and approximately 80% of 20-year Treasury bond yields.  However, yields flatten-out meaningfully on the long-end with slopes of one to three basis points over the last nine-years.

Over the past month, Muni/Treasury ratios have compressed by over nine percentage points on the short-end.   Ratios have also compressed on the long-end, but at about half the rate of the short-end with 30-year ratios compressing 4.6% over the past month.  Relative to 10-year historic means, ratios have once again become rich with the greatest disparity on the short-end with historic ratios of 95.72% versus 70.2% currently.  As in the past, these tighter ratios will weigh on investor decisions and we may see stronger sympathies by munis to moves in the Treasury bond market.

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.

Curve Commentary: May 5, 2025

Overview

Over the past week, yields in the municipal and Treasury markets have moved in opposite directions as uncertainty and volatility continue to be prominent themes in the fixed income markets. Based upon guidance from the Fed, traders are betting policymakers will remain in wait-and-see mode until there’s more clarity on tariffs. As a result, the longer policy uncertainty persists, the greater the potential economic impact. Although, the futures market is pricing in over a 98% chance the Federal Reserve will leave rates unchanged at their meeting later this week, the market is anticipating a 25 bps cut as soon as the July 30 meeting. In addition, the market is anticipating three rate cuts this year which seems questionable given job gains reported by the BLS last week and the Fed’s previous comments regarding timing. Nevertheless, the primary concern is not whether or not the fed cuts rates, but rather the specific language used by the Fed in its message and the potential volatility should the Fed indicate increased likelihood of a recession. Although we are seeing more confidence in the long-end of the yield curve, particularly in municipals, investors remain cautious amid the uncertainty.

Ratios and Strategy

Treasury tenors past one-year saw yields increase over the past week while municipal yields across the curve dropped lower. The reason for this divergence can largely be attributed to market technical, with municipal bond mutual funds and ETFs recording strong inflows amid a somewhat lighter calendar. Slopes along the muni curve continue to be steepest around the 9-12-year tenor of the curve, with a slope of 24 bps over 4-years, and the 15-17-year tenor of the curve, with a slope of 33 bps over a period of just 3-years. The 15-17 year tenor of the municipal curve offers an appealing combination of a relatively steep slope and meaningful yield, allowing investors to lock-in over 90% of the yield on the 30-year municipal maturity and over 80% of equivalent Treasury yields.

Although long-term ratios remain appealing, the yield differential between long-term muni and Treasuries has widened over the past week. Although ratios dropped throughout the yield curve, they experienced their largest moves in the 5-10-year range. Despite declines experienced over the past month, ratios have become dramatically more appealing on the short-end of the curve from 65.84% last month to over 70% this past week. At the long-end, municipal bonds are still yielding over 90% of Treasury bonds, which is continues to be appealing to investors.

Last week LSEG Lipper Global Fund Flows reported municipal bond mutual funds experienced $1.567 billion of inflows following seven consecutive weeks of outflows. This is the largest inflow figure since January and is partly responsible for driving yields lower on the long-end of the municipal yield curve. The new issue calendar is a little lighter this week with an anticipated $9 billion in new supply, excluding deals considered day-to-day, with the Massachusetts Institute of Technology planning to sell $750 million, Dartmouth Health Obligated Group selling $420 million and the Indianapolis Bond Bank selling $285 million.

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.

Curve Commentary: April 28, 2025

Overview

Over the past week, the fixed income markets continue to react to the uncertainty created by on-again/off-again tariff announcements and the de-escalation of tensions between the President and the Fed.  Treasury bonds have outperformed municipals, particularly on the long end of the yield curve, were yields on Treasury bonds have dropped 20 bps versus a 5 bps decline on municipals.  The strong moves in Treasury bonds are driven by a resurgence in risk appetite while municipals are responding to improved muni/Treasury ratios.  However, last week the term premium, which is the additional yield required on longer maturities, hit 80 bps which is the highest level we have seen in over a decade.  Although we are seeing more confidence in the long-end of the yield curve, investors remain cautious amid the uncertainty.

This afternoon, the yield differential between 30-year Treasury bonds and 30-year ‘AAA’ municipals compressed to just 24 basis points from 39 basis points last Monday.  Inside of 2-years, municipals and Treasury bonds remain essentially unchanged.  Past 2-years, Treasury yields progressively flattened as investors extended out the yield curve to take advantage of steeper slopes.  Slopes along the muni curve continue to be steepest around the 9-11-year tenor of the curve, with a slope of 24 bps over 3-years, and the 14-18-year tenor of the curve, with a slope of 48 bps over 5-years.  The 14-18 year tenor of the municipal curve continues to offer a combination of relatively steep slope and meaningful yield, allowing investors to lock-in over 90% of the yield on the 30-year muni maturity and over 86% of equivalent Treasury yields.

Ratios and Strategy

Muni/Treasury yields continue to converge at the long-end resulting in increasingly compelling muni/Treasury ratios.  Over the past week, ratios dropped at the short-end, but steadily progressed further out the curve.  However, over the past month, ratios have become dramatically more appealing on the short-end from 65.84% last month to 75% this past week.  Over the past 10-years, the mean 30-year muni/Treasury ratio is 94.43%.  At the long-end, municipal bonds are now yielding 94.29% of Treasury bonds, which is very appealing compared to historic averages.

Fund Flows and Calendar

Last week was the seventh consecutive week of outflows from municipal bond mutual funds.  Amid the busy trading week, LSEG Lipper Global Fund Flows reported $1.1 billion migrated out of long-term muni funds and $142 million left high-yield funds while intermediate munis saw inflows of $7 million.  Given the conservative nature of intermediate funds, this move is not surprising.  This week the new issue calendar, excluding deals considered day-to-day, includes $14.6 billion in new supply with the District of Columbia planning to sell $1.49 billion, the East Bay Municipal Utility District selling $1.09 billion and Los Angeles Department of Water & Power selling $993.5 million.

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.

Curve Commentary: April 21, 2025

Overview

This morning, investor sentiment remains resilient with secondary trades executing at relatively tight levels.  Volatility has been uncharacteristically high following Liberation Day resulting in pricing discovery as investors test MMD spreads and question evaluated prices.  Current market dynamics remain challenging to manage from a trading perspective due to the combination of economic uncertainty, fund flows and the strength of recent moves.  

Municipal yields and Treasury yields continue to move in opposite directions.  Over the past week, Treasury bonds sold-off on the long-end of the curve as investors price-in macroeconomic concerns of mounting inflationary pressures from tariffs and economic uncertainty.  In contrast, municipal bonds rallied on the long-end as investors took advantage of more appealing ratios and sentiment the sell-off the previous week was overdone.  Treasury bonds on the shorter end of the curve in the two to four-year tenor, which tend to be more policy sensitive, fell by nine basis points as the market continues to struggle with on-again/off-again tariffs.

Ratios and Strategy

In aggregate, weekly yield movement at the long-end of the curve widened by approximately 12 bps with Treasury bond yields moving up by 7 basis point and municipal yields dropping by 5 basis points, almost splitting the difference.  Immediately following Liberation Day, long-term muni and Treasury bond yields converged on the long-end, resulting in more appealing muni/Treasury ratios.  However, over the past week, yields diverged as long-term Treasury bonds sold-off and long-term munis rallied.  The 15-17 year portion of the municipal curve continues to offer a combination of relatively steep slope and meaningful yield, allowing investors to lock-in over 90% of the yield on the 30-year muni maturity and yields eclipsing 80% of equivalent Treasury bonds.

Trade Volume and Calendar

Despite being a holiday week, secondary market activity remained high.  Last week was the sixth consecutive week of outflows from municipal bond mutual funds.  Amid the busy trading week, LSEG Lipper Global Fund Flows reported $1.4 billion migrated out of long-term muni funds and $522 left high-yield funds while intermediate munis saw inflows of $163 million.  Given the conservative nature of intermediate funds, this move is not surprising.  This week the new issue calendar, excluding deals considered day-to-day, includes $14.2 billion in new supply with the State of Connecticut planning to sell $1.6 billion, the Commonwealth of Massachusetts selling $1.07 billion and Los Angeles Unified School District selling $965 million.

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