Today marks the 41st day of the longest government shutdown in US history, and it appears a resolution is potentially close at hand. On Sunday, eight Senate Democrats joined Republicans in a push to advance a short-term funding measure that would extend government funding through January. However, the legislation still requires a final vote by the Senate and needs to pass the House before the shutdown can end. Following this news, the Treasury market has slid with 10-year Treasuries rising as much as 5 basis points to near 4.15% amid optimism . Some caution is also warranted since the re-opening may potentially trigger volatility as a surge of delayed data releases. This absence of government data has made policymakers more cautious about cutting rates, which will likely fade as data is released upon re-opening. The Fed funds futures market is currently pricing-in a 65% chance of a 25 basis-point cut in December. This is down significantly from just a few weeks ago when the implied probability was closer to 95%.
While Treasuries have generally sold-off month-to-date, particularly on the longer-end of the curve where the market has sold-off as much as 6 basis points, municipal bonds have held firmly with yields staying within a basis point of November 1 yields. Over the past week, mixed labor data has driven volatility in Treasuries with Munis being more resistant due to reinvestment demand and continued inflows from institutions. However, the one- to six-year yield municipal yield curve remains inverted, which is an important consideration for investors managing bond portfolios. However, this also creates opportunities for swaps, particularly for those investors with losses on the short-end that would like to extend duration.
Insights and Strategy
Although the municipal yield curve continues to reward duration, the long-end has become very flat with steadily declining slopes from 20 to 30-years and only a basis point or so per year past 25-years. However, as a result of this flat tail, municipal bond investors can buy maturities under 20-years that yield over 90% of the 30-year curve. Slopes along the municipal yield curve are currently steepest around the 17-year tenor, with almost 75 bps in slope from 13 to 19-years. This is a significant change from earlier last month, when the steepest slopes were around the 10-year tenor. This shift increases the reward to investors for extending from the 10-year range to the 15-20-year range. Despite recent uncertainty regarding a December rate cut, this steepness is likely to persist amid government shutdown uncertainty and demand for longer durations.
The muni/Treasury ratio is a widely watched measure that provides a sense of how tax-exempt munis fare against taxable fixed-income options. Crossover investors, which seek to identify the best opportunities in the fixed income universe on an after-tax basis, closely follow this ratio. Over the past month, the biggest moves have been in maturities under 1-year and around the 10-year mark where ratios have become over 3% richer, with ratios now around 67%. Although this part of the curve had become significantly more appealing from a relative value perspective, ratios are now less appealing. From a historical perspective, the 10-year mean for the 10-year maturity is 82.69%. On the other hand, the 1-year tenor has become over 3% more attractive with ratios now approximately 70%, but the 10-year mean for this part of the curve is 94.57%. For investors seeking to maximize curve positioning with relative value, the 18-year part of the municipal yield curve currently provides almost 90% of the 30-year maturity and over 80% of equivalent Treasury yields.
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.
November 10, 2025 | Timothy Iltz
Overview
Today marks the 41st day of the longest government shutdown in US history, and it appears a resolution is potentially close at hand. On Sunday, eight Senate Democrats joined Republicans in a push to advance a short-term funding measure that would extend government funding through January. However, the legislation still requires a final vote by the Senate and needs to pass the House before the shutdown can end. Following this news, the Treasury market has slid with 10-year Treasuries rising as much as 5 basis points to near 4.15% amid optimism . Some caution is also warranted since the re-opening may potentially trigger volatility as a surge of delayed data releases. This absence of government data has made policymakers more cautious about cutting rates, which will likely fade as data is released upon re-opening. The Fed funds futures market is currently pricing-in a 65% chance of a 25 basis-point cut in December. This is down significantly from just a few weeks ago when the implied probability was closer to 95%.
While Treasuries have generally sold-off month-to-date, particularly on the longer-end of the curve where the market has sold-off as much as 6 basis points, municipal bonds have held firmly with yields staying within a basis point of November 1 yields. Over the past week, mixed labor data has driven volatility in Treasuries with Munis being more resistant due to reinvestment demand and continued inflows from institutions. However, the one- to six-year yield municipal yield curve remains inverted, which is an important consideration for investors managing bond portfolios. However, this also creates opportunities for swaps, particularly for those investors with losses on the short-end that would like to extend duration.
Insights and Strategy
Although the municipal yield curve continues to reward duration, the long-end has become very flat with steadily declining slopes from 20 to 30-years and only a basis point or so per year past 25-years. However, as a result of this flat tail, municipal bond investors can buy maturities under 20-years that yield over 90% of the 30-year curve. Slopes along the municipal yield curve are currently steepest around the 17-year tenor, with almost 75 bps in slope from 13 to 19-years. This is a significant change from earlier last month, when the steepest slopes were around the 10-year tenor. This shift increases the reward to investors for extending from the 10-year range to the 15-20-year range. Despite recent uncertainty regarding a December rate cut, this steepness is likely to persist amid government shutdown uncertainty and demand for longer durations.
The muni/Treasury ratio is a widely watched measure that provides a sense of how tax-exempt munis fare against taxable fixed-income options. Crossover investors, which seek to identify the best opportunities in the fixed income universe on an after-tax basis, closely follow this ratio. Over the past month, the biggest moves have been in maturities under 1-year and around the 10-year mark where ratios have become over 3% richer, with ratios now around 67%. Although this part of the curve had become significantly more appealing from a relative value perspective, ratios are now less appealing. From a historical perspective, the 10-year mean for the 10-year maturity is 82.69%. On the other hand, the 1-year tenor has become over 3% more attractive with ratios now approximately 70%, but the 10-year mean for this part of the curve is 94.57%. For investors seeking to maximize curve positioning with relative value, the 18-year part of the municipal yield curve currently provides almost 90% of the 30-year maturity and over 80% of equivalent Treasury yields.
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.