Stalled negotiations in Iran and economic uncertainty have the Treasury market selling-off slightly this morning. After dropping below $80 last week, ICE Brent Futures are now back in the mid $80’s this morning as anxieties in the capital markets regarding recent energy fueled inflation remain elevated. In addition, CPI and PPI are both anticipated to be higher when they are released later this week. The last Fed meeting also left many market participants unconvinced of the Fed’s commitment to fighting inflation. The impression of a stable labor market combined with elevated energy prices continues to sustain a narrative for Fed rate hikes later this year. Fed funds futures are now pricing in the likelihood of a Fed rate hike of 25bp at over 100% by the December 8-9 meeting; which, as of early last week, was thought to occur as soon as October.
ICE Brent Crude Oil Futures
Insights and Strategy
Over this past week, the Treasury curve was relatively unchanged while the municipal curve experienced a notable downward parallel shift. This outperformance in munis is largely related to technical factors, such as recent inflows combined with bond maturities and calls. Furthermore, the new issue municipal calendar, despite being elevated, witnessed underwriting scales being bumped to lower yields with new issues strongly received by the market. Inflation concerns with volatile energy prices continue to hold the long-end of the Treasury curve above 5% for maturities past 15-years. The slope at the long-end of the municipal yield curve, past 20-years, remains relatively flat with a total slope of 30 bps from 21-30-years. Due to this flat tail, municipal bond investors can currently buy 20-year maturities that yield 91% of the 30-year curve versus 73% for 10-year maturities.
Over the past week, Municipal/Treasury ratios have generally declined (richer), with the largest changes occurring around the five-year tenor. However, over the past month we have seen a notable cheapening in ratios, particularly at the short-end of the curve as the market assesses the possibility of the Fed raising rates. One-year ratios are now just above 60% and 10-year ratios are now slightly under 70% of Treasuries and 20-year ratios remain just below 80%. Recent adjustments to yield slopes have resulted in the intermediate portion of the yield curve steepening. Investors seeking to maximize curve positioning with relative value can now go to the 13-year tenor and capture approximately 80% of the 30-year municipal curve. However, ratios in this part of the curve continue to be a challenge for many portfolios with yields in this part of the curve at only 70% of Treasuries. Flattening further out the curve has also made extending maturities less rewarding, but ratios are cheaper with investors capturing 85% of Treasuries at 30-years. Although ratios past 20-years are more attractive, relative to Treasuries, the yield curve is very flat over these longer tenors.
The new issue municipal calendar drops a bit this week with US state and local governments expected to sell around $14.2 billion of bonds. Notable deals include: Sutter Health Obligated Group, which plans to sell $1.6 billion; City of Atlanta GA Department of Aviation has scheduled $1.09 billion; State of Michigan Trunk Line Revenue is expected to offer $706.4 million; and, County of Miami-Dade Seaport Department plans to sell $656.6 million to the market. Last week, investors added approximately $1.3 billion to municipal bond mutual funds, up from $761 million the prior week, according to LSEG Lipper data. Furthermore, redemptions and maturities in the next 30-days are expected to total $25.8 billion, according to data compiled by Bloomberg. Overall, investors continue to support munis but new issue pricings remain in focus.
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.
August 10, 2026 | Timothy Iltz
Overview
Stalled negotiations in Iran and economic uncertainty have the Treasury market selling-off slightly this morning. After dropping below $80 last week, ICE Brent Futures are now back in the mid $80’s this morning as anxieties in the capital markets regarding recent energy fueled inflation remain elevated. In addition, CPI and PPI are both anticipated to be higher when they are released later this week. The last Fed meeting also left many market participants unconvinced of the Fed’s commitment to fighting inflation. The impression of a stable labor market combined with elevated energy prices continues to sustain a narrative for Fed rate hikes later this year. Fed funds futures are now pricing in the likelihood of a Fed rate hike of 25bp at over 100% by the December 8-9 meeting; which, as of early last week, was thought to occur as soon as October.
ICE Brent Crude Oil Futures
Insights and Strategy
Over this past week, the Treasury curve was relatively unchanged while the municipal curve experienced a notable downward parallel shift. This outperformance in munis is largely related to technical factors, such as recent inflows combined with bond maturities and calls. Furthermore, the new issue municipal calendar, despite being elevated, witnessed underwriting scales being bumped to lower yields with new issues strongly received by the market. Inflation concerns with volatile energy prices continue to hold the long-end of the Treasury curve above 5% for maturities past 15-years. The slope at the long-end of the municipal yield curve, past 20-years, remains relatively flat with a total slope of 30 bps from 21-30-years. Due to this flat tail, municipal bond investors can currently buy 20-year maturities that yield 91% of the 30-year curve versus 73% for 10-year maturities.
Over the past week, Municipal/Treasury ratios have generally declined (richer), with the largest changes occurring around the five-year tenor. However, over the past month we have seen a notable cheapening in ratios, particularly at the short-end of the curve as the market assesses the possibility of the Fed raising rates. One-year ratios are now just above 60% and 10-year ratios are now slightly under 70% of Treasuries and 20-year ratios remain just below 80%. Recent adjustments to yield slopes have resulted in the intermediate portion of the yield curve steepening. Investors seeking to maximize curve positioning with relative value can now go to the 13-year tenor and capture approximately 80% of the 30-year municipal curve. However, ratios in this part of the curve continue to be a challenge for many portfolios with yields in this part of the curve at only 70% of Treasuries. Flattening further out the curve has also made extending maturities less rewarding, but ratios are cheaper with investors capturing 85% of Treasuries at 30-years. Although ratios past 20-years are more attractive, relative to Treasuries, the yield curve is very flat over these longer tenors.
The new issue municipal calendar drops a bit this week with US state and local governments expected to sell around $14.2 billion of bonds. Notable deals include: Sutter Health Obligated Group, which plans to sell $1.6 billion; City of Atlanta GA Department of Aviation has scheduled $1.09 billion; State of Michigan Trunk Line Revenue is expected to offer $706.4 million; and, County of Miami-Dade Seaport Department plans to sell $656.6 million to the market. Last week, investors added approximately $1.3 billion to municipal bond mutual funds, up from $761 million the prior week, according to LSEG Lipper data. Furthermore, redemptions and maturities in the next 30-days are expected to total $25.8 billion, according to data compiled by Bloomberg. Overall, investors continue to support munis but new issue pricings remain in focus.
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.