Inflation is showing signs of heating-up as the first inflation report under new Federal Reserve chief Kevin Warsh was released last week showing April consumer prices reached their highest level in almost three years. The personal consumption expenditures price index ticked-up to 3.8% for the 12-month period ended in April, almost double the Fed’s 2% target. However, this was not unexpected, as economists surveyed by Dow Jones forecasted a 3.8% rate. In the Treasury Market, inflation expectations have increased anticipation the Fed will hike rates, resulting in the gap between five-year and 30-year yields narrowing to the skinniest levels seen in more than a year. As a result, we have seen short and intermediate Treasuries underperform over the past month. However, fund flows in the muni market remain robust, with investors adding approximately $2.3 billion last week, according to LSEG Lipper Global Fund Flows. As a result, munis have held their ground better than Treasuries over the past month.
Insights and Strategy
Investors continue to be incentivized to extend out the yield curve with the steepest yield slopes in the 18-21-year maturity range and an overall slope of 49 bps. However, slopes at the long-end of the municipal yield curve remain very flat with only 30 bps of slope from 21 to 30 years. Due to this flat tail, municipal bond investors can currently buy 20-year maturities that yield over 90% of the 30-year curve versus less than 70% for 10-year maturities.
Due to the outperformance of munis, Municipal/Treasury ratios have generally declined over the past week. Municipal bonds have continued to price at richer levels as ratios fall well below several important reference points along the curve. Ratios for 10-year municipal yields are now 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 11 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.
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.
June 1, 2026 | Timothy Iltz
Overview
Inflation is showing signs of heating-up as the first inflation report under new Federal Reserve chief Kevin Warsh was released last week showing April consumer prices reached their highest level in almost three years. The personal consumption expenditures price index ticked-up to 3.8% for the 12-month period ended in April, almost double the Fed’s 2% target. However, this was not unexpected, as economists surveyed by Dow Jones forecasted a 3.8% rate. In the Treasury Market, inflation expectations have increased anticipation the Fed will hike rates, resulting in the gap between five-year and 30-year yields narrowing to the skinniest levels seen in more than a year. As a result, we have seen short and intermediate Treasuries underperform over the past month. However, fund flows in the muni market remain robust, with investors adding approximately $2.3 billion last week, according to LSEG Lipper Global Fund Flows. As a result, munis have held their ground better than Treasuries over the past month.
Insights and Strategy
Investors continue to be incentivized to extend out the yield curve with the steepest yield slopes in the 18-21-year maturity range and an overall slope of 49 bps. However, slopes at the long-end of the municipal yield curve remain very flat with only 30 bps of slope from 21 to 30 years. Due to this flat tail, municipal bond investors can currently buy 20-year maturities that yield over 90% of the 30-year curve versus less than 70% for 10-year maturities.
Due to the outperformance of munis, Municipal/Treasury ratios have generally declined over the past week. Municipal bonds have continued to price at richer levels as ratios fall well below several important reference points along the curve. Ratios for 10-year municipal yields are now 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 11 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.
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.