Today marks the 34th day of the US government shutdown, and despite the lack of government economic data and the continuous flow of headlines, there has been little response by the Treasury market. Yields on Treasuries are little changed over the past month with the biggest changes on tenors under 6 months and the rest of the curve virtually unchanged. Munis in tenors past 6-years have rallied as much as 20-basis points over the past month with the Bloomberg Municipal Index reporting a 1.24% return, which is the best October performance since 1995. This performance was despite $55 billion of tax-exempt issuance. Municipal tenors shorter than 6-years sold-off as demand shifted from the front end of the yield curve to the long-end as investors locked-in yields in anticipation of Fed rate cuts.
Insights and Strategy
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. Although the municipal yield curve continues to reward duration, the long-end continues to be 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 93% of the 30-year curve. 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 around the 10-year maturity where ratios have become over 4% richer, with ratios now approaching 66%. 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 approaching 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 almost 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 3, 2025 | Timothy Iltz
Overview
Today marks the 34th day of the US government shutdown, and despite the lack of government economic data and the continuous flow of headlines, there has been little response by the Treasury market. Yields on Treasuries are little changed over the past month with the biggest changes on tenors under 6 months and the rest of the curve virtually unchanged. Munis in tenors past 6-years have rallied as much as 20-basis points over the past month with the Bloomberg Municipal Index reporting a 1.24% return, which is the best October performance since 1995. This performance was despite $55 billion of tax-exempt issuance. Municipal tenors shorter than 6-years sold-off as demand shifted from the front end of the yield curve to the long-end as investors locked-in yields in anticipation of Fed rate cuts.
Insights and Strategy
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. Although the municipal yield curve continues to reward duration, the long-end continues to be 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 93% of the 30-year curve. 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 around the 10-year maturity where ratios have become over 4% richer, with ratios now approaching 66%. 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 approaching 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 almost 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.