The yield on 30-year Treasuries hit the highest level since 2007 today as investors struggle with inflationary pressures amid inflation that has exceeded the Fed’s target 2% rate for the past five-years. Although both CPI and PPI prints from last week were better than economists had forecast, surging government spending amid stubborn inflation and faint prospects of peace in Iran have markets nervous. In addition, energy prices continue to creep-up, with restricted oil traffic through the Strait of Hormuz. ICE Brent Futures are now back in the low $90’s. Furthermore, the last Fed meeting has 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 96% by the December 8-9 meeting; which, as of earlier this month, was thought to occur as soon as October.
ICE Brent Crude Oil Futures
Insights and Strategy
Over this past week, the Treasury curve is relatively unchanged, with some movement around the policy sensitive two-year tenor and some inflation fueled steepening on the long-end. By comparison, municipal yields have been more stable with ratios driving yields up a bit around the 15 to 20-year tenors. 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.
Municipal/Treasury ratios have generally declined (richer) this past week, with the largest changes occurring around the 10-year tenor. One-year ratios are now just above 60% and 10-year ratios remain 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 having more slope. 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 at approximately 70% of Treasuries. Flattening further out the curve has made extending maturities less rewarding, but ratios are cheaper with investors capturing 85% of Treasuries at 30-years. Although, the yield curve is very flat over these longer tenors with just two to three basis points of slope for maturities past 23-years.
The Municipal the new issue calendar ramps-up again this week with US state and local governments expected to sell around $17.4 billion of bonds. Notable deals include: the City of Los Angeles Department of Airports with $2.71 billion; New York City Transitional Finance Authority Future Tax Secured Revenue has scheduled $1.92 billion; State of Michigan Trunk Line Revenue is expected to offer $706.4 million; and, Los Angeles County Metropolitan Transportation Authority is scheduled to bring $530.6 million to market. Last week, investors added approximately $758 million to municipal bond mutual funds, down from $1.3 billion the prior week, according to LSEG Lipper data. Furthermore, redemptions and maturities in the next 30-days are expected to total $24.3 billion, according to data compiled by Bloomberg. Overall, investors continue to support munis but relative value versus Treasuries is becoming a more significant factor.
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 17, 2026 | Timothy Iltz
Overview
The yield on 30-year Treasuries hit the highest level since 2007 today as investors struggle with inflationary pressures amid inflation that has exceeded the Fed’s target 2% rate for the past five-years. Although both CPI and PPI prints from last week were better than economists had forecast, surging government spending amid stubborn inflation and faint prospects of peace in Iran have markets nervous. In addition, energy prices continue to creep-up, with restricted oil traffic through the Strait of Hormuz. ICE Brent Futures are now back in the low $90’s. Furthermore, the last Fed meeting has 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 96% by the December 8-9 meeting; which, as of earlier this month, was thought to occur as soon as October.
ICE Brent Crude Oil Futures
Insights and Strategy
Over this past week, the Treasury curve is relatively unchanged, with some movement around the policy sensitive two-year tenor and some inflation fueled steepening on the long-end. By comparison, municipal yields have been more stable with ratios driving yields up a bit around the 15 to 20-year tenors. 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.
Municipal/Treasury ratios have generally declined (richer) this past week, with the largest changes occurring around the 10-year tenor. One-year ratios are now just above 60% and 10-year ratios remain 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 having more slope. 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 at approximately 70% of Treasuries. Flattening further out the curve has made extending maturities less rewarding, but ratios are cheaper with investors capturing 85% of Treasuries at 30-years. Although, the yield curve is very flat over these longer tenors with just two to three basis points of slope for maturities past 23-years.
The Municipal the new issue calendar ramps-up again this week with US state and local governments expected to sell around $17.4 billion of bonds. Notable deals include: the City of Los Angeles Department of Airports with $2.71 billion; New York City Transitional Finance Authority Future Tax Secured Revenue has scheduled $1.92 billion; State of Michigan Trunk Line Revenue is expected to offer $706.4 million; and, Los Angeles County Metropolitan Transportation Authority is scheduled to bring $530.6 million to market. Last week, investors added approximately $758 million to municipal bond mutual funds, down from $1.3 billion the prior week, according to LSEG Lipper data. Furthermore, redemptions and maturities in the next 30-days are expected to total $24.3 billion, according to data compiled by Bloomberg. Overall, investors continue to support munis but relative value versus Treasuries is becoming a more significant factor.
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.