From the perspective of the trade desk, last week was another challenging week with attentions focused on new deals rather than the secondary market. Both municipal and Treasury markets responded to last week’s reports of slower growth and lower inflation with yields dropping approximately three to six basis points across both curves. However, this week escalating overseas tensions in Israel and Iran are placing upward pressure on yields. Not surprisingly, both Brent and West Texas Intermediate crude oil prices have risen above $70 per barrel sparking concerns of inflation among traders and placing additional upward pressure on long-term yields. These concerns are in addition to the existing inflationary concerns related to the trade wars, spiraling U.S. debt concerns and traders demanding a higher premium for the risk of lending to governments following Moody’s downgrade of the United States credit rating to ‘Aa1.’ Overall, the yield gap between 10 and 30-year Treasuries has reached the widest levels we have seen since 2021.
Over the past week, attentions on the trade desk have been more focused on the short-end of the curve as accounts look for safety amid global conflict, economic and policy uncertainties. The municipal curve has responded with steeper slopes in the longer-intermediate tenors with extension risk being rewarded from 2034 all the way out to 2043 with a collective 116 basis points of slope over the 10-year period. The 2036 maturity now offers over 75% of the 30-year municipal maturity and over 75% of equivalent Treasury yields. Going out an additional 6 years to 2042 nets an additional 64 basis points of yield, or 90% of the 30-year municipal maturity, and 83% of equivalent Treasury yields. Slopes on the long-end of the municipal curve taper significantly past 20-years with only a basis point or two of slope on the long-end.
Ratios and Strategy
Muni/Treasury ratios have been relatively balanced over the past week declining on the short-end and increasing on the long-end with the largest changes in the intermediate portion of the curve around 10-years. Long-term ratios remain appealing, with 20-year munis yielding 87.22% of Treasuries and 30-year munis yielding 92.28% of Treasuries. Over the past week, we have seen ratios drop down to 65% in the 1-year tenor as investors migrate toward the safety afforded by the shorter end of the yield curve.
Ahead of the upcoming FOMC meeting and the Juneteenth holiday, the municipal market is anticipating a slower week as issuers are scheduled to bring $5.73 billion in new deals to market versus $17 billion last week. Market technicals remain receptive to strong issuance with LSEG Lipper Global Fund Flows reporting municipal bond mutual funds saw a seventh consecutive week of inflows with $523 million being added to the asset class following $426 million of inflows the prior week. Long-term muni funds added $72 million while high-yield funds saw an additional $138 million and intermediate funds added $35 million. In addition, $35.4 billion in municipal bonds are maturing over the next 30-days and an additional $7.8 billion of bond calls has been announced.
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 16, 2025 | Timothy Iltz
Overview
From the perspective of the trade desk, last week was another challenging week with attentions focused on new deals rather than the secondary market. Both municipal and Treasury markets responded to last week’s reports of slower growth and lower inflation with yields dropping approximately three to six basis points across both curves. However, this week escalating overseas tensions in Israel and Iran are placing upward pressure on yields. Not surprisingly, both Brent and West Texas Intermediate crude oil prices have risen above $70 per barrel sparking concerns of inflation among traders and placing additional upward pressure on long-term yields. These concerns are in addition to the existing inflationary concerns related to the trade wars, spiraling U.S. debt concerns and traders demanding a higher premium for the risk of lending to governments following Moody’s downgrade of the United States credit rating to ‘Aa1.’ Overall, the yield gap between 10 and 30-year Treasuries has reached the widest levels we have seen since 2021.
Over the past week, attentions on the trade desk have been more focused on the short-end of the curve as accounts look for safety amid global conflict, economic and policy uncertainties. The municipal curve has responded with steeper slopes in the longer-intermediate tenors with extension risk being rewarded from 2034 all the way out to 2043 with a collective 116 basis points of slope over the 10-year period. The 2036 maturity now offers over 75% of the 30-year municipal maturity and over 75% of equivalent Treasury yields. Going out an additional 6 years to 2042 nets an additional 64 basis points of yield, or 90% of the 30-year municipal maturity, and 83% of equivalent Treasury yields. Slopes on the long-end of the municipal curve taper significantly past 20-years with only a basis point or two of slope on the long-end.
Ratios and Strategy
Muni/Treasury ratios have been relatively balanced over the past week declining on the short-end and increasing on the long-end with the largest changes in the intermediate portion of the curve around 10-years. Long-term ratios remain appealing, with 20-year munis yielding 87.22% of Treasuries and 30-year munis yielding 92.28% of Treasuries. Over the past week, we have seen ratios drop down to 65% in the 1-year tenor as investors migrate toward the safety afforded by the shorter end of the yield curve.
Ahead of the upcoming FOMC meeting and the Juneteenth holiday, the municipal market is anticipating a slower week as issuers are scheduled to bring $5.73 billion in new deals to market versus $17 billion last week. Market technicals remain receptive to strong issuance with LSEG Lipper Global Fund Flows reporting municipal bond mutual funds saw a seventh consecutive week of inflows with $523 million being added to the asset class following $426 million of inflows the prior week. Long-term muni funds added $72 million while high-yield funds saw an additional $138 million and intermediate funds added $35 million. In addition, $35.4 billion in municipal bonds are maturing over the next 30-days and an additional $7.8 billion of bond calls has been announced.
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.