This morning on the trade desk, accounts are distracted by Winter Storm Fern, which has created havoc from Texas to Maine with 24 states declaring emergencies. In addition to widespread power outages, many roads and highways remain impassable and flight cancellations have reached levels not seen since the early days of the Pandemic. Despite the inclement weather, Treasuries rose over the five to 30-year tenors resulting in yields dropping to their lowest levels since last week’s volatility. Following a preliminary announcement by the Commerce Department of stronger than anticipated durable goods orders for November, gains were briefly pared.
Early last week, international events came into focus following instability in the Japanese bond market. Yields surged in the Japanese bond market following a pitch by Japanese Prime Minister Sanae Takaichi to cut taxes on food, which markets interpreted to mean increased government bond issuance. The result was 40-year Japanese yields jumping to the highest level of any maturity of the nation’s sovereign debt in more than three decades. In addition, escalating tensions over the control of Greenland with the threat of tariffs on European goods added to the melee. The municipal bond market responded to the uncertainty with bonds selling-off. As of the end of the day on Tuesday, MMD ultimately cut yields from 2bps in 2027-28 to 7 bps in 2041-56.
Despite the volatility early in the week, rates were relatively unchanged over the week. Treasuries outperformed munis with 30-year Treasury bonds rallying 3.3 bps while 30-year munis sold-off 8.7 bps. The overall result was a flatter Treasury curve and a steeper muni curve. Slopes along the municipal yield curve are steepest from 11 to 12 years, with 27 bps of slope and from 14 to 20-years, with 95 bps of slope. In addition, investors benefit from a steep roll-down over time. Although the municipal yield curve is currently rewarding duration, investors should be cautious when extending to maturities past 20-years, where the long-end becomes very flat. As a result of this flat tail, municipal bond investors can buy maturities under 20-years that yield over 90% of the 30-year curve.
Insights and Strategy
Muni/Treasury ratios for 10-year and shorter maturities have seen significant declines over the past month due to a concentration of retail demand at the front end of the yield curve. However, this is a still an improvement from September, when ratios in the 1-year tenor dropped to as low as 56%. Ratios further out the curve, from 20-years and longer, remain attractive relative to Treasuries due to weaker demand and wider spreads. For investors seeking to maximize curve positioning with relative value, extending to the 19-year part of the municipal yield curve provides over 90% of the 30-year maturity and over 80% of equivalent Treasury yields. In the rich belly of the curve, particularly around 5-years, we are hearing reluctance from institutional investors citing these ratios as unappealing relative to the rest of the curve.
Municipal new issuance volume is expected to be relatively quiet this week, with a just over $4 billion on the calendar. Significant deals include $750 million from the Triborough Bridge & Tunnel Authority and Florida Health Sciences Center Inc. Obligated Group with $369.3 million. Furthermore, states and local governments are planning to issue just under $9 billion in new supply over the next 30 days, according to data compiled by Bloomberg. In addition, the FOMC is scheduled to hold its press conference later this week to brief the markets. Currently, markets expect the Fed to hold rates steady following three straight cuts last year. In addition, the markets will be looking to the Fed for signals about where rates are headed.
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.
January 26, 2026 | Timothy Iltz
Overview
This morning on the trade desk, accounts are distracted by Winter Storm Fern, which has created havoc from Texas to Maine with 24 states declaring emergencies. In addition to widespread power outages, many roads and highways remain impassable and flight cancellations have reached levels not seen since the early days of the Pandemic. Despite the inclement weather, Treasuries rose over the five to 30-year tenors resulting in yields dropping to their lowest levels since last week’s volatility. Following a preliminary announcement by the Commerce Department of stronger than anticipated durable goods orders for November, gains were briefly pared.
Early last week, international events came into focus following instability in the Japanese bond market. Yields surged in the Japanese bond market following a pitch by Japanese Prime Minister Sanae Takaichi to cut taxes on food, which markets interpreted to mean increased government bond issuance. The result was 40-year Japanese yields jumping to the highest level of any maturity of the nation’s sovereign debt in more than three decades. In addition, escalating tensions over the control of Greenland with the threat of tariffs on European goods added to the melee. The municipal bond market responded to the uncertainty with bonds selling-off. As of the end of the day on Tuesday, MMD ultimately cut yields from 2bps in 2027-28 to 7 bps in 2041-56.
Despite the volatility early in the week, rates were relatively unchanged over the week. Treasuries outperformed munis with 30-year Treasury bonds rallying 3.3 bps while 30-year munis sold-off 8.7 bps. The overall result was a flatter Treasury curve and a steeper muni curve. Slopes along the municipal yield curve are steepest from 11 to 12 years, with 27 bps of slope and from 14 to 20-years, with 95 bps of slope. In addition, investors benefit from a steep roll-down over time. Although the municipal yield curve is currently rewarding duration, investors should be cautious when extending to maturities past 20-years, where the long-end becomes very flat. As a result of this flat tail, municipal bond investors can buy maturities under 20-years that yield over 90% of the 30-year curve.
Insights and Strategy
Muni/Treasury ratios for 10-year and shorter maturities have seen significant declines over the past month due to a concentration of retail demand at the front end of the yield curve. However, this is a still an improvement from September, when ratios in the 1-year tenor dropped to as low as 56%. Ratios further out the curve, from 20-years and longer, remain attractive relative to Treasuries due to weaker demand and wider spreads. For investors seeking to maximize curve positioning with relative value, extending to the 19-year part of the municipal yield curve provides over 90% of the 30-year maturity and over 80% of equivalent Treasury yields. In the rich belly of the curve, particularly around 5-years, we are hearing reluctance from institutional investors citing these ratios as unappealing relative to the rest of the curve.
Municipal new issuance volume is expected to be relatively quiet this week, with a just over $4 billion on the calendar. Significant deals include $750 million from the Triborough Bridge & Tunnel Authority and Florida Health Sciences Center Inc. Obligated Group with $369.3 million. Furthermore, states and local governments are planning to issue just under $9 billion in new supply over the next 30 days, according to data compiled by Bloomberg. In addition, the FOMC is scheduled to hold its press conference later this week to brief the markets. Currently, markets expect the Fed to hold rates steady following three straight cuts last year. In addition, the markets will be looking to the Fed for signals about where rates are headed.
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.