Last Wednesday, the Treasury Department announced that it would increase buybacks of long-term bonds through its extended debt repurchase program. The announcement was made after long-term Treasury yields hit the highest levels we have seen on nearly 20-years. The move initially prompted a Treasury market rally, however Treasuries later sold-off as the market questioned the potential impact of increasing buyback operations from $2 billion to at least $4 billion in the $31.5 trillion Treasury market. Furthermore, investors remain cautious amid stubbornly high inflation, mounting federal debt, and a new Federal Reserve chairman inclined to remain quiet. 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 earlier this month, was thought to occur as soon as October. Furthermore, this week bond traders will be paying attention to the GDP and personal consumption expenditures price index on Wednesday and Kevin Warsh’s first Jackson Hole Economic Policy Summit as Fed Chairman.
Implied Overnight Rate & Number of Hikes/Cuts
Insights and Strategy
Over this past week, the Treasury curve experienced a rally on the long-end while municipal bonds sold-off for periods past 4-years. Recent issuance trends and adjustments to yield slopes have resulted in the intermediate portion of the municipal yield curve having more slope. While inflation concerns, driven by 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 28 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.
Not surprisingly, municipal/Treasury ratios have generally increased (cheaper) this past week, with the largest changes occurring around the 20-year tenor. One-year ratios continue to hover over 60%, 10-year ratios remain just under 70% of Treasuries and, despite significant cheapening last week, 20-year ratios remain just below 80%. Investors seeking to maximize curve positioning with relative value can now go to the 13-year tenor and capture over 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 over 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 drops this week from $17.4 billion last week to a more palatable, but still robust $12.9 billion. Notable deals include: the City of Portland, which plans to sell $585.6 million of water system revenue bonds; the Commonwealth of Pennsylvania has scheduled $533.6 million; City of San Antonio, Texas is expected to offer $488 million; and, Pennsylvania State University is on the calendar with $458.4 million. Last week, investors added approximately $838 million to municipal bond mutual funds, up from $758 million the prior week, according to LSEG Lipper data. Furthermore, redemptions and maturities in the next 30-days are expected to total $22.5 billion, according to data compiled by Bloomberg. Overall, investors continue to support munis but opportunities along the yield curve are currently favoring shorter strategies.
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 24, 2026 | Timothy Iltz
Overview
Last Wednesday, the Treasury Department announced that it would increase buybacks of long-term bonds through its extended debt repurchase program. The announcement was made after long-term Treasury yields hit the highest levels we have seen on nearly 20-years. The move initially prompted a Treasury market rally, however Treasuries later sold-off as the market questioned the potential impact of increasing buyback operations from $2 billion to at least $4 billion in the $31.5 trillion Treasury market. Furthermore, investors remain cautious amid stubbornly high inflation, mounting federal debt, and a new Federal Reserve chairman inclined to remain quiet. 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 earlier this month, was thought to occur as soon as October. Furthermore, this week bond traders will be paying attention to the GDP and personal consumption expenditures price index on Wednesday and Kevin Warsh’s first Jackson Hole Economic Policy Summit as Fed Chairman.
Implied Overnight Rate & Number of Hikes/Cuts
Insights and Strategy
Over this past week, the Treasury curve experienced a rally on the long-end while municipal bonds sold-off for periods past 4-years. Recent issuance trends and adjustments to yield slopes have resulted in the intermediate portion of the municipal yield curve having more slope. While inflation concerns, driven by 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 28 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.
Not surprisingly, municipal/Treasury ratios have generally increased (cheaper) this past week, with the largest changes occurring around the 20-year tenor. One-year ratios continue to hover over 60%, 10-year ratios remain just under 70% of Treasuries and, despite significant cheapening last week, 20-year ratios remain just below 80%. Investors seeking to maximize curve positioning with relative value can now go to the 13-year tenor and capture over 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 over 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 drops this week from $17.4 billion last week to a more palatable, but still robust $12.9 billion. Notable deals include: the City of Portland, which plans to sell $585.6 million of water system revenue bonds; the Commonwealth of Pennsylvania has scheduled $533.6 million; City of San Antonio, Texas is expected to offer $488 million; and, Pennsylvania State University is on the calendar with $458.4 million. Last week, investors added approximately $838 million to municipal bond mutual funds, up from $758 million the prior week, according to LSEG Lipper data. Furthermore, redemptions and maturities in the next 30-days are expected to total $22.5 billion, according to data compiled by Bloomberg. Overall, investors continue to support munis but opportunities along the yield curve are currently favoring shorter strategies.
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.