The capital markets continue to focus on developments in the Middle East, amid heightened uncertainty, as the April 7 deadline for massive strikes on Iranian energy infrastructure looms. Daily volatility remains high as the market vacillates back and forth from anticipating a relatively short end to the war to threats of intensive and prolonged attacks. The bond market ended last week with Treasury yields jumping three to four basis points across maturities on Friday, following significantly stronger-than-expected March payrolls data. The unemployment rate ticked lower from 4.4% to 4.3%, which helped dispel anxieties of a softening labor market.
Over the past month, the Bloomberg US Municipal Bond Index (LMBITR) dropped 2.32% through March 31, which is the biggest monthly decline since September 2023. As a result, year-to-date gains were essentially erased with the LMBITR index declining 0.18% through the end of the first quarter. Generally speaking, high yield munis and shorter maturities were the better performing bond sectors with high yield tobacco bonds returning 1.47% and the one to two-year maturity bucket returning 0.64%. By comparison the Treasury market was less impacted as demonstrated by only a 1.67% drop in the Treasury index through the end of the quarter.
Insights and Strategy
Over the past month, the biggest moves in Treasury yields have been around the 2 to 5 year portion of the yield curve with yields now about 50bps higher than a month ago. For munis, the biggest moves in yields have been around the 6 to 13-year year portion of the yield curve where yields are now around 50bps higher than they were a month ago. In addition, bond traders are currently betting the Federal Reserve will keep interest rates steady this year, on signs of a stabilizing US labor market and uncertainty about the economic impact of war in the Middle East.
Municipal/Treasury ratios have increasingly become more appealing around the 10-year tenor with ratios now over 70%. As a result, this has become a significantly more appealing portion of the curve to position with ratios declining slightly over the past week. Muni/Treasury ratios for maturities shorter than 1-year are now yielding almost 65% of Treasuries, while 30-year munis continue to yield over 90% of equivalent Treasuries. Although ratios past 20-years are attractively priced relative to Treasuries, the yield curve remains very flat over these longer tenors. Due to the flat tail, municipal bond investors can currently buy maturities under 20-years that yield almost 90% of the 30-year curve.
Despite shifting muni/Treasury ratios, slopes along the municipal yield curve continue to reward extending duration. Investors are rewarded for extending out the yield curve with appealingly steep yields with 2s10s (the yield differential between 2-year and 10-year munis) now around 64 bps, which is over double the spread at the start of the year. However, 10s20s and 10s30s have both compressed from their mid-February highs, indicating flattening in these portions of the yield curve. Overall, the yield curve remains steepest around both the 10-year and 20-year maturities. As discussed above, the yield curve becomes increasingly flat past 20-years, with a total slope of 37 bps from 20-30-years. For investors seeking to maximize curve positioning with relative value, the 18 to 21-year part of the municipal yield curve has become very tempting with slopes of 12 to 13-bps per year yields approaching 85% of Treasuries.
This week, US state and local governments are expected to sell more than $9.8 billion of bonds. Notable deals include: Vanderbilt University Medical Center Obligated Group, which plans to sell $1.26 billion of bonds; City of Austin TX Airport System Revenue, which is scheduled to sell $1.18 billion; and, State of California is on the calendar with a $740.4 million issue. HJ Sims will also be in the market with Explore Academy Albuquerque, which is expected to include $49.73 million in tax-exempt bonds and $1.8 million in taxable bonds. This week, markets will be closely following durable goods orders for February on Tuesday, followed by the third estimate of fourth-quarter gross domestic product and PCE inflation data for February on Thursday. Markets will also be parsing the minutes from the March Federal Reserve meeting for clues on the Fed’s future rate path, which are scheduled to be released on Wednesday.
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 6, 2026 | Timothy Iltz
Overview
The capital markets continue to focus on developments in the Middle East, amid heightened uncertainty, as the April 7 deadline for massive strikes on Iranian energy infrastructure looms. Daily volatility remains high as the market vacillates back and forth from anticipating a relatively short end to the war to threats of intensive and prolonged attacks. The bond market ended last week with Treasury yields jumping three to four basis points across maturities on Friday, following significantly stronger-than-expected March payrolls data. The unemployment rate ticked lower from 4.4% to 4.3%, which helped dispel anxieties of a softening labor market.
Over the past month, the Bloomberg US Municipal Bond Index (LMBITR) dropped 2.32% through March 31, which is the biggest monthly decline since September 2023. As a result, year-to-date gains were essentially erased with the LMBITR index declining 0.18% through the end of the first quarter. Generally speaking, high yield munis and shorter maturities were the better performing bond sectors with high yield tobacco bonds returning 1.47% and the one to two-year maturity bucket returning 0.64%. By comparison the Treasury market was less impacted as demonstrated by only a 1.67% drop in the Treasury index through the end of the quarter.
Insights and Strategy
Over the past month, the biggest moves in Treasury yields have been around the 2 to 5 year portion of the yield curve with yields now about 50bps higher than a month ago. For munis, the biggest moves in yields have been around the 6 to 13-year year portion of the yield curve where yields are now around 50bps higher than they were a month ago. In addition, bond traders are currently betting the Federal Reserve will keep interest rates steady this year, on signs of a stabilizing US labor market and uncertainty about the economic impact of war in the Middle East.
Municipal/Treasury ratios have increasingly become more appealing around the 10-year tenor with ratios now over 70%. As a result, this has become a significantly more appealing portion of the curve to position with ratios declining slightly over the past week. Muni/Treasury ratios for maturities shorter than 1-year are now yielding almost 65% of Treasuries, while 30-year munis continue to yield over 90% of equivalent Treasuries. Although ratios past 20-years are attractively priced relative to Treasuries, the yield curve remains very flat over these longer tenors. Due to the flat tail, municipal bond investors can currently buy maturities under 20-years that yield almost 90% of the 30-year curve.
Despite shifting muni/Treasury ratios, slopes along the municipal yield curve continue to reward extending duration. Investors are rewarded for extending out the yield curve with appealingly steep yields with 2s10s (the yield differential between 2-year and 10-year munis) now around 64 bps, which is over double the spread at the start of the year. However, 10s20s and 10s30s have both compressed from their mid-February highs, indicating flattening in these portions of the yield curve. Overall, the yield curve remains steepest around both the 10-year and 20-year maturities. As discussed above, the yield curve becomes increasingly flat past 20-years, with a total slope of 37 bps from 20-30-years. For investors seeking to maximize curve positioning with relative value, the 18 to 21-year part of the municipal yield curve has become very tempting with slopes of 12 to 13-bps per year yields approaching 85% of Treasuries.
This week, US state and local governments are expected to sell more than $9.8 billion of bonds. Notable deals include: Vanderbilt University Medical Center Obligated Group, which plans to sell $1.26 billion of bonds; City of Austin TX Airport System Revenue, which is scheduled to sell $1.18 billion; and, State of California is on the calendar with a $740.4 million issue. HJ Sims will also be in the market with Explore Academy Albuquerque, which is expected to include $49.73 million in tax-exempt bonds and $1.8 million in taxable bonds. This week, markets will be closely following durable goods orders for February on Tuesday, followed by the third estimate of fourth-quarter gross domestic product and PCE inflation data for February on Thursday. Markets will also be parsing the minutes from the March Federal Reserve meeting for clues on the Fed’s future rate path, which are scheduled to be released on Wednesday.
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.