Over the past week, a combination of tariff announcements, fiscal deficit anxiety and inflation concerns have driven long-term Treasury and municipal bond yields higher. Treasury yields past 10-years have generally risen by 3 to 4 basis points while shorter Treasury yields are generally 1 to 2 basis points lower, resulting in a steeper Treasury curve. The municipal yield curve exhibited a similar steepening with yields under 10-years generally 2 to 4 basis points lower and yields past 10-years generally 3 to 4 basis points higher. Looking at the 2s10s spread, which is the difference between the 10-year yield and the 2-year yield as an indicator of the steepness of the yield curve, the municipal curve has recently reached the steepest slope in over 2-years. This is an invitation for bond investors to extend duration.
Strategy and Insights
Recently, slopes along the municipal curve have steepened significantly from 5 to 7-years, with an overall slope of 27 basis points, and remain steepest from 8 to 13-years, with an overall slope of 74 basis points. Although the 15 to 18-year portion of the curve remains appealing on a relative value basis, the overall slope is less appealing with a slope of only 45 basis points or 11.25 basis points per year. At the longer-end of the yield curve, extension is discouraged by the slope flattening to just a basis point or two per year. However, this flattening does create the opportunity for investors to pick-up 13-year maturities with yields that are 80% of the 30-year municipal yield and 18-year maturities with yields that are over 90% of the 30-year municipal yield.
Muni/Treasury ratios have generally become less attractive over the past week. However, the longer end of the municipal curve remains appealing. Currently, 10-year munis are yielding just under 75% of equivalent Treasuries and 30-year munis are yielding around 92% of equivalent Treasuries. Although ratios are rewarding extension out to the long-end of the yield curve, the slope of the curve flattens out significantly past 20-years to just a basis point or two per year. On a relative basis, positioning around the 13-year maturity yields an intriguing combination of 75% of equivalent Treasuries and 80% of the 30-year municipal curve.
Over the week ahead, municipal issuers are expected to sell more than $14 billion of bonds with year-to-date municipal bond issuance levels eclipsing $300 billion, which is the earliest ever. Some of the larger issues on the calendar are from the California Community Choice Financing Authority, which plans to sell $1 billion in bonds, the City & County of Honolulu, which plans to sell $733.4 million, and the City of Salt Lake Utah Airport, which plans to sell $450 million. This supply will likely be met with strong demand with $23.4 billion in municipal bonds expected to mature in the next 30-days and $5.6 billion in calls announced over the next 30-days.
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.
July 14, 2025 | Timothy Iltz
Overview
Over the past week, a combination of tariff announcements, fiscal deficit anxiety and inflation concerns have driven long-term Treasury and municipal bond yields higher. Treasury yields past 10-years have generally risen by 3 to 4 basis points while shorter Treasury yields are generally 1 to 2 basis points lower, resulting in a steeper Treasury curve. The municipal yield curve exhibited a similar steepening with yields under 10-years generally 2 to 4 basis points lower and yields past 10-years generally 3 to 4 basis points higher. Looking at the 2s10s spread, which is the difference between the 10-year yield and the 2-year yield as an indicator of the steepness of the yield curve, the municipal curve has recently reached the steepest slope in over 2-years. This is an invitation for bond investors to extend duration.
Strategy and Insights
Recently, slopes along the municipal curve have steepened significantly from 5 to 7-years, with an overall slope of 27 basis points, and remain steepest from 8 to 13-years, with an overall slope of 74 basis points. Although the 15 to 18-year portion of the curve remains appealing on a relative value basis, the overall slope is less appealing with a slope of only 45 basis points or 11.25 basis points per year. At the longer-end of the yield curve, extension is discouraged by the slope flattening to just a basis point or two per year. However, this flattening does create the opportunity for investors to pick-up 13-year maturities with yields that are 80% of the 30-year municipal yield and 18-year maturities with yields that are over 90% of the 30-year municipal yield.
Muni/Treasury ratios have generally become less attractive over the past week. However, the longer end of the municipal curve remains appealing. Currently, 10-year munis are yielding just under 75% of equivalent Treasuries and 30-year munis are yielding around 92% of equivalent Treasuries. Although ratios are rewarding extension out to the long-end of the yield curve, the slope of the curve flattens out significantly past 20-years to just a basis point or two per year. On a relative basis, positioning around the 13-year maturity yields an intriguing combination of 75% of equivalent Treasuries and 80% of the 30-year municipal curve.
Over the week ahead, municipal issuers are expected to sell more than $14 billion of bonds with year-to-date municipal bond issuance levels eclipsing $300 billion, which is the earliest ever. Some of the larger issues on the calendar are from the California Community Choice Financing Authority, which plans to sell $1 billion in bonds, the City & County of Honolulu, which plans to sell $733.4 million, and the City of Salt Lake Utah Airport, which plans to sell $450 million. This supply will likely be met with strong demand with $23.4 billion in municipal bonds expected to mature in the next 30-days and $5.6 billion in calls announced over the next 30-days.
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.