Last week’s CPI data, which surprised markets with a bigger-than-expected increase in prices, has increased the conviction of investors that the Fed needs to hike rates to maintain credibility. Despite Federal Reserve Chairman Warsh’s recent speech at the Jackson Hole symposium, markets are continuing to seek clues regarding the Fed’s plan to bring inflation back to its 2% target. Warsh’s comments were received by the markets as hawkish and have prompted increased bets on a September rate hike. This morning, Fed funds futures are now pricing in the likelihood of a Fed rate hike of 25bp at over 90% for the Fed’s meeting later this week. Furthermore, renewed aggression in Iran is placing upward pressure on oil prices with ICE Brent Futures now approaching $110 per barrel, leading to further speculation about inflation and pushing 10-year Treasury yields to over 5%.
Implied Overnight Rate & Number of Hikes/Cuts
Insights and Strategy
Over this past week, the Treasury curve shifted higher, with the biggest moves around the policy sensitive two-year tenor. Muni yields have moved in a more uniform fashion, with a parallel shift upward of approximately 20 basis points. Inflation fears continue to place upward pressure on longer yields while the anticipation of higher rates from the Fed prop-up yields on the short-end of the yield curve. Despite inflation concerns, the slope at the long-end of the municipal yield curve, past 20-years, remains relatively flat with a total slope of 27 bps from 21-30-years. Due to this flat tail, municipal bond investors can currently buy 20-year maturities that yield over 93% of the 30-year curve.
Municipal/Treasury ratios generally increased (cheaper) over this past week, with the largest changes occurring around the 10-year tenor. One-year ratios have now moved decisively over 60%, 10-year ratios are now well over 70% of Treasuries and, due to significant cheapening last week, 20-year ratios are approaching 85%. Investors seeking to maximize curve positioning with relative value can now go to the 14-year tenor and capture over 85% of the 30-year municipal curve with less than half the maturity extension. Furthermore, ratios in this part of the curve are now significantly more appealing at approximately 75% of Treasuries. Flattening further out the curve has made extending maturities less rewarding, but ratios are cheaper with investors capturing over 90% of Treasuries at 30-years. Although, the yield curve is very flat over these longer tenors with just two to three basis points of slope for maturities past 23-years.
Approximately $10.2 billion in new issues are expected to sell in the municipal market this week. Notable deals include: State of New Jersey, which plans to sell $1.67 billion of bonds; Northwell Health Obligated Group has scheduled $734.6 million; County of Hillsborough FL Water & Wastewater Revenue is expected to offer $623.4 million; and, University Health Systems of Eastern Carolina Inc Obligated Group is scheduled to bring $431.1 million to the market. Last week, investors added approximately $193 million to municipal bond mutual funds, up from $138 million the prior week, according to LSEG Lipper data. Furthermore, redemptions and maturities in the next 30-days are expected to total $23.4 billion, according to data compiled by Bloomberg.
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.
September 14, 2026 | Timothy Iltz
Overview
Last week’s CPI data, which surprised markets with a bigger-than-expected increase in prices, has increased the conviction of investors that the Fed needs to hike rates to maintain credibility. Despite Federal Reserve Chairman Warsh’s recent speech at the Jackson Hole symposium, markets are continuing to seek clues regarding the Fed’s plan to bring inflation back to its 2% target. Warsh’s comments were received by the markets as hawkish and have prompted increased bets on a September rate hike. This morning, Fed funds futures are now pricing in the likelihood of a Fed rate hike of 25bp at over 90% for the Fed’s meeting later this week. Furthermore, renewed aggression in Iran is placing upward pressure on oil prices with ICE Brent Futures now approaching $110 per barrel, leading to further speculation about inflation and pushing 10-year Treasury yields to over 5%.
Implied Overnight Rate & Number of Hikes/Cuts
Insights and Strategy
Over this past week, the Treasury curve shifted higher, with the biggest moves around the policy sensitive two-year tenor. Muni yields have moved in a more uniform fashion, with a parallel shift upward of approximately 20 basis points. Inflation fears continue to place upward pressure on longer yields while the anticipation of higher rates from the Fed prop-up yields on the short-end of the yield curve. Despite inflation concerns, the slope at the long-end of the municipal yield curve, past 20-years, remains relatively flat with a total slope of 27 bps from 21-30-years. Due to this flat tail, municipal bond investors can currently buy 20-year maturities that yield over 93% of the 30-year curve.
Municipal/Treasury ratios generally increased (cheaper) over this past week, with the largest changes occurring around the 10-year tenor. One-year ratios have now moved decisively over 60%, 10-year ratios are now well over 70% of Treasuries and, due to significant cheapening last week, 20-year ratios are approaching 85%. Investors seeking to maximize curve positioning with relative value can now go to the 14-year tenor and capture over 85% of the 30-year municipal curve with less than half the maturity extension. Furthermore, ratios in this part of the curve are now significantly more appealing at approximately 75% of Treasuries. Flattening further out the curve has made extending maturities less rewarding, but ratios are cheaper with investors capturing over 90% of Treasuries at 30-years. Although, the yield curve is very flat over these longer tenors with just two to three basis points of slope for maturities past 23-years.
Approximately $10.2 billion in new issues are expected to sell in the municipal market this week. Notable deals include: State of New Jersey, which plans to sell $1.67 billion of bonds; Northwell Health Obligated Group has scheduled $734.6 million; County of Hillsborough FL Water & Wastewater Revenue is expected to offer $623.4 million; and, University Health Systems of Eastern Carolina Inc Obligated Group is scheduled to bring $431.1 million to the market. Last week, investors added approximately $193 million to municipal bond mutual funds, up from $138 million the prior week, according to LSEG Lipper data. Furthermore, redemptions and maturities in the next 30-days are expected to total $23.4 billion, according to data compiled by Bloomberg.
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.