Munis mixed as Treasury yields fall on disappointing indicators
6 min read
Municipals were narrowly mixed Wednesday as U.S. Treasury yields fell following a pair of disappointing economic indicators led to concerns over the U.S. economy and increased the probability of Fed rate cuts. Equities were mixed.
There is still a lot of chaos and uncertainty out there, said Jennifer Johnston, director of municipal bond research at Franklin Templeton.
“With these on-again, off-again policies and what’s going to happen to who, it’s hard for the market to get comfortable with that,” she said.
“At the end of the day, what’s the impact on the economy going to be? The policy of du jour may change between now and September, but ultimately it’s the economic assumptions. What does that mean for revenues? What does that mean for interest rates, not just a borrowing cost perspective, but all the perspectives,” Johnston said.
For example, “the One Big Beautiful Bill Act is unlikely to dramatically impact the muni market in the short term,” said Cooper Howard, a fixed income strategist at Charles Schwab. “Since the bill keeps the current tax brackets and the muni tax exemption intact, we don’t anticipate a significant short-term impact.”
Meanwhile, “the SALT deduction may slightly shift demand for investors in high-tax states, but we don’t anticipate it will be large enough to move the needle with yields,” he said.
However, “shifting more of the financial cost of Medicaid to states and targeting higher education issuers could have longer-term ramifications for credit quality,” Howard said.
“The major caveat, though, is that the Senate will likely make changes to the bill before sending it back to the House,” he said.
The two-year muni-UST ratio Wednesday was at 71%, the five-year at 71%, the 10-year at 77% and the 30-year at 93%, according to Municipal Market Data’s 3 p.m. ET read. ICE Data Services had the two-year at 67%, the five-year at 70%, the 10-year at 73% and the 30-year at 90% at 4 p.m.
The Investment Company Institute Wednesday reported $1.428 billion of inflows for the week ending May 28, following $1.435 billion of inflows the previous week.
Exchange-traded funds saw inflows of $379 million after $595 million of inflows the week prior, per ICI data.
Supply is elevated this week, with the nearly $17 billion a potentially record-breaking week. But even before this week, the primary market over the past two or three weeks has done exceptionally well, Johnston said.
Some deals are seeing double-digit oversubscriptions and being bumped anywhere from 10 to 20 basis points in order to “get people to drop,” she said.
“So, it’s been pretty easy to get this stuff done. We should be able to digest these large calendars pretty well,” Johnston said, due in part to the inflows into muni mutual funds and the reinvestment monies.
This pace of issuance will continue at least through the month of June, she said.
“We feel pretty confident June is going to be record-breaking at some level,” even with the Fed meeting and the Juneteenth holiday later in the month, when the pace of supply may slow, she said.
But, “we’ll see how long that can continue. And what does supply look like in July?” Johnston said.
In the primary market Wednesday, PNC Capital Markets priced for the Clifton Higher Education Finance Corp. (Aaa///) $428.8 million of International Leadership of Texas, Inc. education revenue and refunding bonds, with 5s of 2/2026 at 3.14%, 5s of 2030 at 3.29%, 5s of 2035 at 3.87%, 5s of 2040 at 4.49%, 5.25s of 2045 at 4.81%, 5.25s of 2049 at 4.95% and 5s of 2055 at 5.03%, callable 2/15/2034.
J.P. Morgan priced for the Colorado Health Facilities Authority (Aa2/AA/AA/) $250 million of AdventHealth Obligated Group hospital revenue bonds, with 5s of 11/2060 with a mandatory tender of 11/15/2030 at 3.46%, callable 11/15/2029.
J.P. Morgan priced for Palm Beach County, Florida, (//BB+/) $234.7 million of Provident Group – PBAU Properties II LLC – Palm Beach Atlantic University Project revenue bonds, with 5.5s of 11/2035 at 4.66%, 5.5s of 2045 at 5.62%, 5.75s of 2055 at 5.79% and 5.75s of 2065 at 5.85%, callable 10/1/2035.
BofA Securities priced for Seattle (Aa1/AA+//) $152.465 million of drainage and wastewater system improvement and refunding revenue bonds, with 5s of 5/2026 at 2.78%, 5s of 2030 at 2.86%, 5s of 2035 at 3.44%, 5s of 2040 at 4.11%, 5s of 2045 at 4.55%, 5.25s of 2050 at 4.69% and 5.25s of 2055 at 4.79%, callable 5/1/2035.
In the competitive market, Pennsylvania (Aa2/A+/AA/) sold $853.155 million GOs, First Refunding Series A of 2025, to BofA Securities, with 5s of 8/2025 at 2.93%, 5s of 2030 at 3.02% and 5s of 2035 at 3.55%, noncall.
The state also sold $317.41 million GOs, First Refunding Series B of 2025, to BofA Securities, with 5s of 8/2025 at 2.95% and 5s of 2029 at 2.97%, noncall.
New Mexico (Aa2/AA//) sold $210.96 million capital projects GOs to J.P. Morgan, with 5s of 3/2026 at 2.80%, 7s of 2030 at 2.87% and 5s of 2035 at 3.48%, callable 3/1/2030.
The Maryland Department of Transportation (Aa1/AAA/AA+/) sold $200 million consolidated transportation bonds, Series 2025A, to Morgan Stanley, with 5s of 4/2028 at 2.84%, 5s of 2030 at 2.91%, 5s of 2035 at 3.48% and 4s of 2040 at 4.30%, callable 4/1/2033.
Fort Worth, Texas, (Aa1//AA/) sold $179.405 million water and sewer system revenue bonds to Jefferies, with 5s of 2/2026 at 2.90%, 5s of 2030 at 3.05%, 5s of 2035 at 3.58%, 5s of 2040 at 4.22%, 5s of 2045 at 4.65%, 5s of 2050 at 4.83% and 5s of 2055 at 4.89%, callable 5/1/2035.
AAA scales
MMD’s scale was mixed: The one-year was at 2.75% (-2) and 2.73% (-2) in two years. The five-year was at 2.80% (-2), the 10-year at 3.35% (unch) and the 30-year at 4.56% (+2) at 3 p.m.
The ICE AAA yield curve was bumped three basis points: 2.75% (-3) in 2026 and 2.67% (-3) in 2027. The five-year was at 2.82% (-3), the 10-year was at 3.26% (-3) and the 30-year was at 4.51% (-3) at 4 p.m.
The S&P Global Market Intelligence municipal curve was mixed: The one-year was at 2.76% (-2) in 2025 and 2.74% (-2) in 2026. The five-year was at 2.79% (-2), the 10-year was at 3.34% (unch) and the 30-year yield was at 4.56% (+2) at 4 p.m.
Bloomberg BVAL saw yields bumped up two basis points: 2.72% (-2) in 2025 and 2.74% (-2) in 2026. The five-year at 2.83% (-2), the 10-year at 3.31% (-1) and the 30-year at 4.52% (-1) at 4 p.m.
Treasuries saw gains.
The two-year UST was yielding 3.872% (-8), the three-year was at 3.833% (-9), the five-year at 3.929% (-9), the 10-year at 4.36% (-10), the 20-year at 4.887% (-10) and the 30-year at 4.882% (-10) near the close.
Primary to come
The San Francisco Public Utilities Commission (Aa2/AA-//) is set to price Thursday $994.25 million of San Francisco water revenue and refunding bonds. J.P. Morgan.
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The Los Angeles Department of Water and Power (Aa2//AA-/AA) is set to price Thursday $507.04 million of power system revenue bonds, serial 2030-2035. Barclays.
The Illinois Finance Authority (/A+/AA-/) is set to price Thursday $297.005 million for UChicago Medicine revenue bonds. J.P. Morgan.
The Jackson County School District, Georgia, (Aa1/AA+//) is set to price Thursday $200 million of general obligation school bonds, insured by the Georgia State Aid Intercept Program. Raymond James.
Georgetown, Texas, (/AA-/AA-/) is set to price Thursday $106.495 million of utility system revenue bonds, serials 2026-2045, terms 2050, 2055. HilltopSecurities Inc.
Competitive
The Fayette County Board of Education, Kentucky, takes bids on $229.97 million general obligation bonds, Series 2025A (Kentucky School District Enhancement Program), at 11 a.m. Thursday.
Virginia takes bids on $171.815 million general obligation bonds, Series 2025A, and refunding bonds, Series 2025B, at 10:30 a.m. Thursday.
