Last week, the municipal market was flooded by issuance as state and local governments unloaded $20 billion in new deals, marking the largest issuance volume in almost eight years. The municipal market is anticipating another big week with issuers currently scheduled to bring $17 billion in new deals to market ahead of the upcoming FOMC meeting and the Juneteenth holiday. However, despite the challenging volume of deals being processed by the market, municipal yields have held steady, even outperforming Treasuries, with a rally of two to three basis points in tenors under ten years and a minor sell-off of one to one and a half basis points out long. As a result, the MMD municipal yield curve has modestly steepened by about 11 basis points over the past week. In contrast, Treasuries have flattened from two to 30-years with tenors under ten years selling-off as much as ten basis points as the Treasury market responded to a stronger than expected jobs report and continued policy uncertainties.
From the perspective of the trade desk, this has been another challenging week with attentions focused on new deals rather than the secondary market. Not surprisingly, secondary trading volumes have progressively slowed as new issue volume has accelerated. Inquiries have been more focused on the short-end of the curve with investors seeking asylum amid economic and policy uncertainties. The municipal curve has responded with steeper slopes in the longer-intermediate tenors with 41 basis points of slope from 2034 to 2036, with the 2036 maturity now offering approximately 75% of Treasury yields. In addition, slopes remain steep from 2040 to 2043, rewarding investors that travel further out the curve with approximately 85% of Treasury yields in 2043. Slopes on the long-end of the municipal curve taper significantly past 20-years, with a basis point or two of slope on the long-end. Currently, 20-year munis offer 95% of 30-year yield.
Ratios and Strategy
Muni/Treasury ratios have responded with mixed results over the past week, declining by over two percent on the short-end and remaining practically unchanged on the long -end. However, long-term ratios remain appealing, with 20-year munis yielding 86.57% of Treasuries and 30-year munis yielding 91.94% of Treasuries. Over the past week, we have seen ratios dip below 70% to 67.72% in the 5-year tenor, primarily due to the notable sell-off in Treasuries in that part of the curve over the past week.
Year-to-date, long-term municipal issuance is $240.5 billion, which is up 17.8% versus the same time period last year. Fortunately, market technicals remain receptive to strong issuance with $34.7 billion in bonds maturing over the next 30-days and an additional $12.5 billion in announced bond calls. In addition, LSEG Lipper Global Fund Flows reported municipal bond mutual funds saw a sixth consecutive week of inflows with $426 million being added to the asset class following $526 million of inflows the prior week. Long-term muni funds gained $45 million while high-yield funds added $281 million and intermediate funds added $110 million.
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 9, 2025 | Timothy Iltz
Overview
Last week, the municipal market was flooded by issuance as state and local governments unloaded $20 billion in new deals, marking the largest issuance volume in almost eight years. The municipal market is anticipating another big week with issuers currently scheduled to bring $17 billion in new deals to market ahead of the upcoming FOMC meeting and the Juneteenth holiday. However, despite the challenging volume of deals being processed by the market, municipal yields have held steady, even outperforming Treasuries, with a rally of two to three basis points in tenors under ten years and a minor sell-off of one to one and a half basis points out long. As a result, the MMD municipal yield curve has modestly steepened by about 11 basis points over the past week. In contrast, Treasuries have flattened from two to 30-years with tenors under ten years selling-off as much as ten basis points as the Treasury market responded to a stronger than expected jobs report and continued policy uncertainties.
From the perspective of the trade desk, this has been another challenging week with attentions focused on new deals rather than the secondary market. Not surprisingly, secondary trading volumes have progressively slowed as new issue volume has accelerated. Inquiries have been more focused on the short-end of the curve with investors seeking asylum amid economic and policy uncertainties. The municipal curve has responded with steeper slopes in the longer-intermediate tenors with 41 basis points of slope from 2034 to 2036, with the 2036 maturity now offering approximately 75% of Treasury yields. In addition, slopes remain steep from 2040 to 2043, rewarding investors that travel further out the curve with approximately 85% of Treasury yields in 2043. Slopes on the long-end of the municipal curve taper significantly past 20-years, with a basis point or two of slope on the long-end. Currently, 20-year munis offer 95% of 30-year yield.
Ratios and Strategy
Muni/Treasury ratios have responded with mixed results over the past week, declining by over two percent on the short-end and remaining practically unchanged on the long -end. However, long-term ratios remain appealing, with 20-year munis yielding 86.57% of Treasuries and 30-year munis yielding 91.94% of Treasuries. Over the past week, we have seen ratios dip below 70% to 67.72% in the 5-year tenor, primarily due to the notable sell-off in Treasuries in that part of the curve over the past week.
Year-to-date, long-term municipal issuance is $240.5 billion, which is up 17.8% versus the same time period last year. Fortunately, market technicals remain receptive to strong issuance with $34.7 billion in bonds maturing over the next 30-days and an additional $12.5 billion in announced bond calls. In addition, LSEG Lipper Global Fund Flows reported municipal bond mutual funds saw a sixth consecutive week of inflows with $426 million being added to the asset class following $526 million of inflows the prior week. Long-term muni funds gained $45 million while high-yield funds added $281 million and intermediate funds added $110 million.
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.