The Bureau of Labor Statistics released its Employment Situation report last week that noted fewer-than-expected jobs added and a drop in the unemployment rate to 4.2%. Recently, anxieties have been high regarding the potential for rate hikes under new Fed Chairman Kevin Warsh. Following last week’s report, fed funds futures are now anticipating the Fed will hike rates 25bp in December which was previously thought to occur as soon as October. Declining geopolitical tensions and oil prices combined with a more dovish outlook for the Fed could create an accommodative environment for the record issuance we have seen in the municipal market this year.
Implied Overnight Rate & Number of Hikes/Cuts
Insights and Strategy
Treasury curves steepened a bit over the past week, while the municipal yield curve is almost unchanged. Currently, the slope of 10 to 30-year municipal curve is at the tightest levels seen in over a year. This flattening is the result of longer maturities responding to declining inflation expectations. When comparing the municipal yield curve to the Treasury curve, the first 6 months stand-out with the inverted shape of the municipal curve contrasting starkly with the steeply sloped Treasury curve. Although the yield curve has flattened from 10 to 30-years, Investors continue be rewarded for extending out the yield curve with the steepest yields in the 19-21-year maturity range. The slope at the long-end of the municipal curve, past 20-years, remains relatively flat with a total slope of 32 bps from 21-30-years. Due to this flat tail, municipal bond investors can currently buy 20-year maturities that yield 90% of the 30-year curve versus 70% for 10-year maturities.
Municipal/Treasury ratios have generally decreased (richened), ratios are now one to two percent lower than a week ago. Notably, one-year ratios are well below 60%. Ratios on the long-end for 20-years and longer, are now meaningfully lower. Municipals have recently fallen well below several important reference points along the curve. Ratios for 10-year municipal yields are now well under 70% of Treasuries, 20-year ratios are below 80% and 30-year ratios are below 90% of Treasuries. For investors seeking to maximize curve positioning with relative value, the 19 to 21-year part of the municipal yield curve is attractive with slopes of 10 to 13-bps per year and yields around 80% of Treasuries. Although ratios past 20-years are more attractive, relative to Treasuries, the yield curve is very flat over these longer tenors.
Following last week’s holiday closures, the Municipal the new issue calendar is significantly higher with US state and local governments expected to sell around $15.1 billion of bonds. Notable deals include: Aquarion Water Authority Water System Revenue Bonds with $2.37 billion, California State University has scheduled $1.8 billion, Massachusetts Port Authority is expected to offer $812 million and Massachusetts Bay Transportation Authority Sales Tax Revenue has $767.4 million on the calendar. In addition, technical conditions remain supportive of the primary market. Last week, municipal bond investors added approximately $1.7 billion to municipal-bond funds, according to LSEG Lipper Global Fund Flows.
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 6, 2026 | Timothy Iltz
Overview
The Bureau of Labor Statistics released its Employment Situation report last week that noted fewer-than-expected jobs added and a drop in the unemployment rate to 4.2%. Recently, anxieties have been high regarding the potential for rate hikes under new Fed Chairman Kevin Warsh. Following last week’s report, fed funds futures are now anticipating the Fed will hike rates 25bp in December which was previously thought to occur as soon as October. Declining geopolitical tensions and oil prices combined with a more dovish outlook for the Fed could create an accommodative environment for the record issuance we have seen in the municipal market this year.
Implied Overnight Rate & Number of Hikes/Cuts
Insights and Strategy
Treasury curves steepened a bit over the past week, while the municipal yield curve is almost unchanged. Currently, the slope of 10 to 30-year municipal curve is at the tightest levels seen in over a year. This flattening is the result of longer maturities responding to declining inflation expectations. When comparing the municipal yield curve to the Treasury curve, the first 6 months stand-out with the inverted shape of the municipal curve contrasting starkly with the steeply sloped Treasury curve. Although the yield curve has flattened from 10 to 30-years, Investors continue be rewarded for extending out the yield curve with the steepest yields in the 19-21-year maturity range. The slope at the long-end of the municipal curve, past 20-years, remains relatively flat with a total slope of 32 bps from 21-30-years. Due to this flat tail, municipal bond investors can currently buy 20-year maturities that yield 90% of the 30-year curve versus 70% for 10-year maturities.
Municipal/Treasury ratios have generally decreased (richened), ratios are now one to two percent lower than a week ago. Notably, one-year ratios are well below 60%. Ratios on the long-end for 20-years and longer, are now meaningfully lower. Municipals have recently fallen well below several important reference points along the curve. Ratios for 10-year municipal yields are now well under 70% of Treasuries, 20-year ratios are below 80% and 30-year ratios are below 90% of Treasuries. For investors seeking to maximize curve positioning with relative value, the 19 to 21-year part of the municipal yield curve is attractive with slopes of 10 to 13-bps per year and yields around 80% of Treasuries. Although ratios past 20-years are more attractive, relative to Treasuries, the yield curve is very flat over these longer tenors.
Following last week’s holiday closures, the Municipal the new issue calendar is significantly higher with US state and local governments expected to sell around $15.1 billion of bonds. Notable deals include: Aquarion Water Authority Water System Revenue Bonds with $2.37 billion, California State University has scheduled $1.8 billion, Massachusetts Port Authority is expected to offer $812 million and Massachusetts Bay Transportation Authority Sales Tax Revenue has $767.4 million on the calendar. In addition, technical conditions remain supportive of the primary market. Last week, municipal bond investors added approximately $1.7 billion to municipal-bond funds, according to LSEG Lipper Global Fund Flows.
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.