Over the past week, both municipal bonds and Treasuries have experienced a meaningful rally which shifted rates lower as sentiment intensifies in anticipation of a Fed rate cut. Momentum picked-up as the week progressed, with 10-year Treasury yields charging through key support levels on Thursday and Friday. Ultimately, the largest moves happened on Friday following the release of nonfarm payrolls by the Bureau of Labor Statistics which contributed to bumps in the municipal yield curve ranging from 2 bps in 2026 to 12 bps in 2055. Prior to the data release, economists surveyed by Dow Jones were anticipating payrolls would rise by 75,000 jobs in August versus the actual survey report of only 22,000 jobs. In addition to a disappointment versus the survey, this is a significant slowdown from July’s 79,000 job increase. While the labor market is showing meaningful signs of cooling, unemployment remains at a historically healthy 4.3% and total non-farm payroll continues to set new monthly records. This morning, the Fed funds futures market is pricing-in a 112% chance of a 25 bps cut at next week’s meeting.
Although the Fed only sets the overnight lending rate, we are seeing the majority of the movement at the long-end of the curve as investors lock-in long rates. The biggest weekly moves in Treasuries over the past week were in maturities past 15-years, where the market rallied from 20 to 22 bps. Munis largely echoed Treasuries with yields dropping a fairly steady 15 bps past 15-years with more muted moves on the short-end.
Insights and Strategy
Following last week’s moves, muni/Treasury ratios are generally slightly less compelling. Although ratios have improved significantly in the 1-year tenor at 60%, this remains rich to the 10-year mean of 94.78%. Progressing out the yield curve produces increasingly appealing ratios with 30-year ratios at 92.68% versus a 10-year mean of 93.92%. From a strategy perspective, this remains a good time to extend portfolio durations and take advantage of the additional yield offered by longer maturities. However, caution is warranted as the slope tapers-off significantly after 20-years to just a basis point or two per year. For investors with longer mandates, I would consider buying shorter in the 15 to 20-year range and wait until the long-end steepens to extend. Investors around the 20-year tenor are collecting almost 90% of equivalent Treasury yields and 95% of the 30-year curve, making this a very appealing place to position new purchases.
Municipal issuance is expected to be approximately $9.5 billion this week. The Atlanta Department of Aviation plans to sell a $1.03 billion issue and Black Belt Energy Gas District has a $925 million issue on the calendar. With $20 billion in scheduled maturities and redemptions over the next 30-days and $672 million of municipal-bond fund inflows last week, this week’s new issues will likely continue to face a strong inquiry. Recent inflows have favored long and high-yield strategies.
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 9, 2025 | Timothy Iltz
Overview
Over the past week, both municipal bonds and Treasuries have experienced a meaningful rally which shifted rates lower as sentiment intensifies in anticipation of a Fed rate cut. Momentum picked-up as the week progressed, with 10-year Treasury yields charging through key support levels on Thursday and Friday. Ultimately, the largest moves happened on Friday following the release of nonfarm payrolls by the Bureau of Labor Statistics which contributed to bumps in the municipal yield curve ranging from 2 bps in 2026 to 12 bps in 2055. Prior to the data release, economists surveyed by Dow Jones were anticipating payrolls would rise by 75,000 jobs in August versus the actual survey report of only 22,000 jobs. In addition to a disappointment versus the survey, this is a significant slowdown from July’s 79,000 job increase. While the labor market is showing meaningful signs of cooling, unemployment remains at a historically healthy 4.3% and total non-farm payroll continues to set new monthly records. This morning, the Fed funds futures market is pricing-in a 112% chance of a 25 bps cut at next week’s meeting.
Although the Fed only sets the overnight lending rate, we are seeing the majority of the movement at the long-end of the curve as investors lock-in long rates. The biggest weekly moves in Treasuries over the past week were in maturities past 15-years, where the market rallied from 20 to 22 bps. Munis largely echoed Treasuries with yields dropping a fairly steady 15 bps past 15-years with more muted moves on the short-end.
Insights and Strategy
Following last week’s moves, muni/Treasury ratios are generally slightly less compelling. Although ratios have improved significantly in the 1-year tenor at 60%, this remains rich to the 10-year mean of 94.78%. Progressing out the yield curve produces increasingly appealing ratios with 30-year ratios at 92.68% versus a 10-year mean of 93.92%. From a strategy perspective, this remains a good time to extend portfolio durations and take advantage of the additional yield offered by longer maturities. However, caution is warranted as the slope tapers-off significantly after 20-years to just a basis point or two per year. For investors with longer mandates, I would consider buying shorter in the 15 to 20-year range and wait until the long-end steepens to extend. Investors around the 20-year tenor are collecting almost 90% of equivalent Treasury yields and 95% of the 30-year curve, making this a very appealing place to position new purchases.
Municipal issuance is expected to be approximately $9.5 billion this week. The Atlanta Department of Aviation plans to sell a $1.03 billion issue and Black Belt Energy Gas District has a $925 million issue on the calendar. With $20 billion in scheduled maturities and redemptions over the next 30-days and $672 million of municipal-bond fund inflows last week, this week’s new issues will likely continue to face a strong inquiry. Recent inflows have favored long and high-yield strategies.
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.