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.
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.
April 21, 2025 | Timothy Iltz
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.
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.