The bond market is showing some relief this morning following three straight nights of the US and Iran halting attacks. After touching $100 last week, ICE Brent Futures are now back to around $90 this morning. However, anxieties in the capital markets remain high as the bond market pays close attention in anticipation of this week’s Fed meeting. Last Thursday, initial jobless claims fell to 187,000, the lowest level since 1969 according to Labor Department data. The impression of a stable labor market combined with elevated oil prices is supporting the narrative for Fed rate hikes later this year. Fed funds futures are now pricing in a Fed rate hike of 25bp at the September 15-16 meeting; which, as of last week, was thought to occur as soon as October.
ICE Brent Crude Oil Futures
Insights and Strategy
In response to last week’s aggressions, the Treasury curve jumped a bit around the policy sensitive two-year tenor while the municipal yield curve generally shifted higher. Inflation concerns with volatile energy prices continue to hold the long-end of the Treasury curve above 5% for maturities past 20-years. With tensions increasing in the Middle East last Thursday and rising oil prices, the municipal yield curve experienced some of the largest cuts in months with yields increasing roughly 12 bps per year from 2027 to 2056. Overall, the municipal curve is now about a 20 bps higher this week following a parallel shift upward with the largest moves around the 15-year tenor and the smallest moves around the 1-year tenor, as investor position defensively. 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 74% for 10-year maturities.
Over the past week, Municipal/Treasury ratios have generally increased (cheapened), with the largest changes occurring from one to 10 years. One-year ratios are now just above 60% and 10-year ratios now over 70% of Treasuries. However, 20-year ratios remain just below 80% and 30-year ratios are well below 90% of Treasuries. For investors seeking to maximize curve positioning with relative value, the 20-year part of the municipal yield curve is attractive with steeper slopes and yields at approximately 80% of Treasuries. However, the shorter end of the yield curve has recently seen slopes steepening with 83 bps of slope from one to 10 years and 50 bps of slope from four to eight years. Although ratios past 20-years are more attractive, relative to Treasuries, the yield curve is very flat over these longer tenors.
The Municipal new issue calendar remains elevated this week with US state and local governments expected to sell around $12.4 billion of bonds. Notable deals include: the Henry Ford Health System Obligated Group, which plans to sell $1.3 billion; Advent Health Obligated Group has scheduled $1.03 billion; Long Island Power Authority is expected to offer $946.1 million; and, County of Harris, Texas has a $665 million deal on the calendar. Last week, municipal bond mutual fund inflows declined significantly from $1.36 billion of inflows the prior week to $174 million last week, according to LSEG Lipper data. 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.
July 27, 2026 | Timothy Iltz
Overview
The bond market is showing some relief this morning following three straight nights of the US and Iran halting attacks. After touching $100 last week, ICE Brent Futures are now back to around $90 this morning. However, anxieties in the capital markets remain high as the bond market pays close attention in anticipation of this week’s Fed meeting. Last Thursday, initial jobless claims fell to 187,000, the lowest level since 1969 according to Labor Department data. The impression of a stable labor market combined with elevated oil prices is supporting the narrative for Fed rate hikes later this year. Fed funds futures are now pricing in a Fed rate hike of 25bp at the September 15-16 meeting; which, as of last week, was thought to occur as soon as October.
ICE Brent Crude Oil Futures
Insights and Strategy
In response to last week’s aggressions, the Treasury curve jumped a bit around the policy sensitive two-year tenor while the municipal yield curve generally shifted higher. Inflation concerns with volatile energy prices continue to hold the long-end of the Treasury curve above 5% for maturities past 20-years. With tensions increasing in the Middle East last Thursday and rising oil prices, the municipal yield curve experienced some of the largest cuts in months with yields increasing roughly 12 bps per year from 2027 to 2056. Overall, the municipal curve is now about a 20 bps higher this week following a parallel shift upward with the largest moves around the 15-year tenor and the smallest moves around the 1-year tenor, as investor position defensively. 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 74% for 10-year maturities.
Over the past week, Municipal/Treasury ratios have generally increased (cheapened), with the largest changes occurring from one to 10 years. One-year ratios are now just above 60% and 10-year ratios now over 70% of Treasuries. However, 20-year ratios remain just below 80% and 30-year ratios are well below 90% of Treasuries. For investors seeking to maximize curve positioning with relative value, the 20-year part of the municipal yield curve is attractive with steeper slopes and yields at approximately 80% of Treasuries. However, the shorter end of the yield curve has recently seen slopes steepening with 83 bps of slope from one to 10 years and 50 bps of slope from four to eight years. Although ratios past 20-years are more attractive, relative to Treasuries, the yield curve is very flat over these longer tenors.
The Municipal new issue calendar remains elevated this week with US state and local governments expected to sell around $12.4 billion of bonds. Notable deals include: the Henry Ford Health System Obligated Group, which plans to sell $1.3 billion; Advent Health Obligated Group has scheduled $1.03 billion; Long Island Power Authority is expected to offer $946.1 million; and, County of Harris, Texas has a $665 million deal on the calendar. Last week, municipal bond mutual fund inflows declined significantly from $1.36 billion of inflows the prior week to $174 million last week, according to LSEG Lipper data. 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.