Munis firmer as primary market slows

Municipals were firmer Thursday as the primary market slowed. U.S. Treasury yields fell and equities ended up.

The two-year muni-UST ratio Thursday was at 69%, the five-year at 70%, the 10-year at 76% and the 30-year at 94%, according to Municipal Market Data’s 3 p.m. ET read. ICE Data Services had the two-year at 67%, the five-year at 68%, the 10-year at 73% and the 30-year at 91% at 4 p.m.

Muni yields were bumped up to five basis points Thursday, depending on the scale, while UST yields fell five to eight basis points, with the largest gains out long.

When muni yields remain narrowly range-bound — up or down by less than five basis points — it usually takes a “catalyst to force an up or down move,” said Kim Olsan, senior fixed income portfolio manager at NewSquare Capital. But, current muni strength is “defying what has been a 12-15 basis point range in the 10- and 30-year USTs this month (and with taxables pressing up against recent highs).” 

Even at adjusted spreads, Olsan said, “a variety of issuers are finding willing takers.”

“Maryland sold a total of $1.56 billion state GOs across four series due 2026 through 2040,” she said. “The maximum maturity 5s due in 2040 (call 2035) were bought at a 4.05% yield, a full 85 basis points higher than the state’s June 2024 issue of the same tenor but spread 23 basis points wide to that sale.”

“A sharper focus on ratings has come through in other pricings,” she said.”

“Pennsylvania State University (PSU) priced Aa1/AA bonds with a strong reception, as compared to an offering of Aa2/AA (negative outlooks) Private College and University, Georgia, bonds for Emory University,” Olsan said. “The 10-year PSU 5% bond priced at 3.53% and spread +18/MMD, but the Emory 5% 11-year spread was twice as wide (at a 3.84% yield).”

Other than “intra-market focus on elevated supply selling into higher redemptions, broader efforts are watching key economic data for signs of an entry to a rate cut,” Olsan said. May’s -consumer price index report, for example, was “encouraging in that price increases from trade tariffs appear moderate for the time being and encouraged outlooks for forthcoming rate cuts.”

“In the meantime, there are several fundamental metrics that point to buyers engaging with the large calendar,” she said.

For one thing, Olsan said, “floater rates are surging (higher by more than 100 basis points over the latest week), which suggests money fund balances are decreasing as commitments come out of cash.”

And, “secondary inventories have declined from a recent high of $20 billion in mid-April to below $14 billion — somewhat contradictory in light of heavy issuance.”

“A corollary to that is secondary trade counts that have risen 10% this month while rates are holding quite steady,” she said.

Meanwhile, BlackRock strategists are “constructive” on munis for multiple reasons and think the current market environment presents itself as a buying opportunity, especially as issuance continues to be elevated and provides “ample ability” to source bonds in the primary market.

For one, the macro uncertainty markets have experienced over the past several months has “reset absolute and relative valuations to very attractive levels,” they said.

Next, policy concerns have abated with “the House passage of a budget reconciliation package that left issuer exemptions untouched and had few provisions with widespread impacts on the municipal market,” according to BlackRock strategists.

Finally, supply-and-demand dynamics will become more supportive during the summer months as the market transitions to net negative supply, which has usually led to strong seasonal performance, they said.

In the primary market Thursday, BofA Securities priced for the Metropolitan Government of Nashville and Davidson County (Aa2/AA//AA/) $483.82 million of water and sewer revenue refunding and improvement bonds, with 5s of 7/2026 at 2.77%, 5s of 2030 at 2.86%, 5s of 2035 at 3.44%, 5s of 2040 at 4.04%, 5s of 2045 at 4.49%, 5s of 2050 at 4.71% and 5.25s of 2055 at 4.74%, callable 7/1/2034.

Loop Capital Markets priced for Wayne County Airport Authority (A1/A+//AA/) $323.62 million of Detroit Metropolitan Wayne County Airport revenue bonds.

The first tranche, $164.695 million of Series 2025A non-AMT bonds, saw 5s of 12/2029 at 2.96%, 5s of 2030 at 3.04%, 5s of 2035 at 3.65%, 5s of 2040 at 4.24%, 5.25s of 2045 at 4.72% and 5.5s of 2050 at 4.81%, callable 12/1/2035.

The second tranche, $67.085 million of Series 2025B AMT bonds, with 5s of 12/2029 at 3.61%, 5s of 2030 at 3.71%, 5s of 2035 at 4.31%, 5.25s of 2040 at 4.81%, 5.5s of 2045 at 5.10% and 5.75s of 2050 at 5.10%, callable 12/1/2035.

The third tranche, $61.8 million of Series 2025C non-AMT refunding bonds, saw 5s of 12/2026 at 2.96%, 5s of 2030 at 3.04%, 5s of 2035 at 3.65%, 5s of 2040 at 4.24% and 5.25s of 2044 at 4.67%, callable 12/1/2035.

Details were unavailable for the fourth tranche, $30.04 million of Series 2025D AMT refunding bonds.

Barclays priced for the Massachusetts Development Finance Agency (/A//) $173.085 million of Tufts University student housing project revenue bonds, with 5s of 6/2032 at 3.47%, 5s of 2035 at 3.84%, 5s of 2040 at 4.49%, 5.25s of 2045 at 4.89%, 5.5s of 2050 at 4.98%, 5.25s of 2055 at 5.14%, 5.25s of 2060 at 5.20% and 5.25s of 2065 at 5.27%, callable 6/1/2035.

Fund flows
Investors added $523.4 million to municipal bond mutual funds in the week ended Wednesday, following $425.4 million of inflows the prior week, according to LSEG Lipper data.

High-yield funds saw inflows of $138 million compared to the previous week’s inflows of $280.9 million.

Tax-exempt municipal money market funds saw outflows of $2.21 billion for the week ending June 10, bringing total assets to $139.35 billion, according to the Money Fund Report, a weekly publication of EPFR.

The average seven-day simple yield for all tax-free and municipal money-market funds fell to 1.83%.

Taxable money-fund assets saw $10.03 billion pulled, bringing the total to $6.23 trillion.

The average seven-day simple yield was at 3.96%.

The SIFMA Swap Index rose to 3.28% on Wednesday compared to the previous week’s 1.68%.

There was another move higher in the weekly SIFMA Muni Swap Index, said Rick White, an independent consultant.

“The amount of dealers’ unsold inventory had grown noticeably higher as the amount of tax-exempt VRDNs being offered had grown to an amount just north of $4 billion,” he said, noting this surplus of bonds forced dealers to move rates up by 160 basis points.

Rates on tax-exempt VRDNs bounce “wildly” week-to-week as the supply/demand imbalance is evident, he said.

This is now the seventh time this year the index has moved by more than 100 basis points, according to White.

Over the past five years, the average weekly changes are: 77 basis points in 2025, 52 basis points in 2024, 48 basis points in 2023, six basis points in 2022 and one basis point in 2021, he said.

Before the rate volatility of the last three years, the highest average weekly change was 46 basis points in 2000 when tax-exempt VRDN rates were nearly 100 basis points higher, White said.

CUSIP requests rise
In May, the aggregate total of identifier requests for new municipal securities — including municipal bonds, long-term and short-term notes, and commercial paper — rose 24.6% versus April totals. On a year-over-year basis, overall municipal volumes were up 21.3% through the end of May.

Texas led state-level municipal request volume with a total of 154 new CUSIP requests in May, followed by New York (113) and California (109).

For municipal bond identifier requests specifically, there was an increase of 21.8% month-over-month and requests are up 22.4% year-over-year.

AAA scales
MMD’s scale was bumped two to three basis points: The one-year was at 2.70% (-2) and 2.68% (-2) in two years. The five-year was at 2.77% (-2), the 10-year at 3.32% (-2) and the 30-year at 4.53% (-3) at 3 p.m.

The ICE AAA yield curve was bumped up to five basis points: 2.73% (unch) in 2026 and 2.64% (-1) in 2027. The five-year was at 2.75% (-3), the 10-year was at 3.22% (-3) and the 30-year was at 4.48% (-4) at 4 p.m.

The S&P Global Market Intelligence municipal curve saw small bumps: The one-year was at 2.71% (-2) in 2025 and 2.69% (-2) in 2026. The five-year was at 2.77% (-2), the 10-year was at 3.32% (-2) and the 30-year yield was at 4.53% (-3) at 4 p.m.

Bloomberg BVAL was bumped three basis points: 2.68% (-3) in 2025 and 2.70% (-3) in 2026. The five-year at 2.80% (-3), the 10-year at 3.27% (-3) and the 30-year at 4.49% (-3) at 4 p.m.

Treasuries were firmer.

The two-year UST was yielding 3.905% (-5), the three-year was at 3.862% (-6), the five-year at 3.96% (-6), the 10-year at 4.354% (-7), the 20-year at 4.851% (-8) and the 30-year at 4.837% (-8) near the close.

Alex Walters contributed to this story.