The war in the Middle East continues to dominate headlines, leading to a high degree of volatility in oil prices and pressuring the stock and the bond markets alike. The Fed funds futures market is currently indicating the Fed will not adjust the overnight lending rate at its meeting later this week. Due to the high degree of uncertainty from the war in the Middle East, this is not surprising. Furthermore, current pricing anticipates the Fed will hold rates steady until January of next year.
Bond investors are currently asking for more compensation for the risk of holding long-dated Treasuries. Over the past week, Treasury yields have increased by approximately 16 bps for the 30-year maturity while the extreme short-end, around 1-month, remains virtually unchanged. Munis have responded similarly, although to a lesser degree, with rates roughly 9 bps higher on the long-end. However, the largest moves in the municipal scale were in the intermediate maturities from 8 to 12-years. As a result, municipal/Treasury ratios have become more appealing in the in the 5 and 10-year tenors with ratios on the long-end and short-end becoming more rich, characterized by lower relative yields. Currently, ratios for maturities shorter than 1-year are back in the 50’s while 30-year munis are now yielding less than 90% of equivalent Treasuries.
Insights and Strategy
Despite shifting muni/Treasury ratios, slopes along the municipal yield curve continue to reward extending duration. Investors are currently incentivized to move out the yield curve with appealingly steep yields in the 10-20 year range, with a slope of 102 bps, versus only 74 bps from 1-10 years. Currently, the steepest slopes on the municipal curve are available from 16 to 20-years where investors can pick-up approximately 51 bps. However, caution is advised for tenors past 20-years, where there is only 25 bps to be gained by extending out to 30-years. It is also notable that although municipal curve slopes remain appealingly steep, they have moderated in certain portions of the curve over the past week.
Although ratios have compressed on the long-end, due to the flat tail, municipal bond investors can currently buy maturities under 20-years that yield almost 90% of the 30-year curve. With muni/Treasury ratios for 10-year maturities, although improved, still quite rich at around 65%. While the yield curve remains very flat over these longer tenors, ratios past 20-years remain attractive relative to Treasuries. For investors seeking to maximize curve positioning with relative value, the 17 to 20-year part of the municipal yield curve has become very tempting with slopes of 12 to 14-bps per year.
The new issue municipal calendar is a bit lighter this week and is expected to bring $8.27 billion of new issues. Notable deals include: Black Belt Energy Gas District, which plans to sell $1.23 billion; New York City Water & Sewer System is scheduled to sell $983.1 million, and Cleveland Clinic Health System Obligated Group is expected to sell $530.8 million. According to LSEG Lipper Global Fund Flows, investors added roughly $216 million to long-term municipal bond funds and $280 million to intermediate maturity funds. Considering current muni/Treasury ratios, it is not surprising that the majority of inflows are going to intermediate and long-term muni funds.
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.
March 16, 2026 | Timothy Iltz
Overview
The war in the Middle East continues to dominate headlines, leading to a high degree of volatility in oil prices and pressuring the stock and the bond markets alike. The Fed funds futures market is currently indicating the Fed will not adjust the overnight lending rate at its meeting later this week. Due to the high degree of uncertainty from the war in the Middle East, this is not surprising. Furthermore, current pricing anticipates the Fed will hold rates steady until January of next year.
Bond investors are currently asking for more compensation for the risk of holding long-dated Treasuries. Over the past week, Treasury yields have increased by approximately 16 bps for the 30-year maturity while the extreme short-end, around 1-month, remains virtually unchanged. Munis have responded similarly, although to a lesser degree, with rates roughly 9 bps higher on the long-end. However, the largest moves in the municipal scale were in the intermediate maturities from 8 to 12-years. As a result, municipal/Treasury ratios have become more appealing in the in the 5 and 10-year tenors with ratios on the long-end and short-end becoming more rich, characterized by lower relative yields. Currently, ratios for maturities shorter than 1-year are back in the 50’s while 30-year munis are now yielding less than 90% of equivalent Treasuries.
Insights and Strategy
Despite shifting muni/Treasury ratios, slopes along the municipal yield curve continue to reward extending duration. Investors are currently incentivized to move out the yield curve with appealingly steep yields in the 10-20 year range, with a slope of 102 bps, versus only 74 bps from 1-10 years. Currently, the steepest slopes on the municipal curve are available from 16 to 20-years where investors can pick-up approximately 51 bps. However, caution is advised for tenors past 20-years, where there is only 25 bps to be gained by extending out to 30-years. It is also notable that although municipal curve slopes remain appealingly steep, they have moderated in certain portions of the curve over the past week.
Although ratios have compressed on the long-end, due to the flat tail, municipal bond investors can currently buy maturities under 20-years that yield almost 90% of the 30-year curve. With muni/Treasury ratios for 10-year maturities, although improved, still quite rich at around 65%. While the yield curve remains very flat over these longer tenors, ratios past 20-years remain attractive relative to Treasuries. For investors seeking to maximize curve positioning with relative value, the 17 to 20-year part of the municipal yield curve has become very tempting with slopes of 12 to 14-bps per year.
The new issue municipal calendar is a bit lighter this week and is expected to bring $8.27 billion of new issues. Notable deals include: Black Belt Energy Gas District, which plans to sell $1.23 billion; New York City Water & Sewer System is scheduled to sell $983.1 million, and Cleveland Clinic Health System Obligated Group is expected to sell $530.8 million. According to LSEG Lipper Global Fund Flows, investors added roughly $216 million to long-term municipal bond funds and $280 million to intermediate maturity funds. Considering current muni/Treasury ratios, it is not surprising that the majority of inflows are going to intermediate and long-term muni funds.
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.