Munis steady as U.S. Treasuries firm

Municipals were steady once more as U.S. Treasury yields fell further and equities rallied as tensions in the Middle East eased despite early apparent breaches of the ceasefire deal.

The two-year muni-UST ratio Tuesday was at 69%, the five-year at 71%, the 10-year at 77% 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 66%, the five-year at 69%, the 10-year at 74% and the 30-year at 92% at 4 p.m.

Event risk spiked recently from “a new war with Iran threatening higher oil prices and citizen safety, the heatwave to kick off hurricane season, federal tax reform efforts, and enhanced immigration enforcement and related protests,” said Matt Fabian, a partner at Municipal Market Analytics.

“All of these could unglue Fed action from modeled expectations,” Fabian said. “Total return rate buyers should beware [of] undue exposure to related entropy.”

New issue supply is expected to be nearly $10 billion this week, setting up another above-average stretch between two weeks slowed by holidays, said Chris Brigati, CIO and managing director of SWBC.

Issuance has been on a record pace year-to-date, with supply at $271 billion, said Fabian.

“The trend of heavy issuance that began last year has continued in the first half of 2025, surpassing even our rather optimistic expectations,” said Barclays strategists Mikhail Foux, Grace Cen and Francisco San Emeterio.

Municipals have shifted from a “new paradigm” of heavy supply because the capital expenditure costs have increased dramatically; COVID money has been largely spent, and a sizable portion of the Biden administration’s infrastructure funds will likely be clawed back; issuers have been waiting for rates to decline, but relief does not seem likely; and demand for funds from various issuers could increase due to possible policy changes, they said.

This increased pace of issuance has led Barclays to raise its 2025 supply projection by 10% to between $530 billion and $540 billion, they said.

Tax-exempt issuance is expected to reach $500 billion and taxable supply to stay at $35 billion, not including $10 billion in bonds with corporate CUSIPs, Barclays strategists said.

Fabian argued a $600 billion year for issuance is possible, “assuming current income yields remain proximate, coupons remain defensive, all else equal.”

Last week, fund flows were modest, but elevated by exchange-traded funds, Fabian said.

“ETFs, maybe lit up by the recent surge in [separately managed account] marketing and investment, have accelerated investor acquisition this year and, with around $13 billion of year-to-date inflows, are looking more like the record years of 2021 and 2022 than the thinner years 2023 and 2024,” Fabian said.

The Vanguard Tax-Exempt Bond Index Fund is a “driving force” at about 75% of ETF net share creation this year, he said.

SMAs too had an impressive presence last week, with “at least 288,000 trades despite the holiday and suppressed trading activity around such,” Fabian said.

Another sign of their presence was a dive in average trade size, diverging from the “prior week’s spurt of institutional interest,” he said.

In the primary market Tuesday, BOK Financial Securities priced for the Northwest Independent School District, Texas, (Aaa//AAA/) $783.755 million of PSF-insured unlimited tax school building bonds, with 5s of 2/2029 at 2.85%, 5s of 2030 at 2.93%, 5s of 2035 at 3.50%, 5s of 2040 at 4.15%, 5s of 2045 at 4.60%, 5s of 2050 at 4.79%, 5.25s of 2055 at 4.86% and 5s of 2055 at 4.89%, callable 2/15/2035.

BofA Securities priced for Seattle (Aa2/AA//) $443.125 million of municipal light and power improvement and refunding revenue bonds, with 5s of 2/2026 at 2.66%, 5s of 2030 at 2.78%, 5s of 2035 at 3.39%, 5s of 2040 at 4.06%, 5s of 2045 at 4.50%, 5.25s of 2050 at 4.71% and 5.25s of 2055 at 4.80%, callable 8/1/2035.

Raymond James priced for the Klein Independent School District, Texas, $353.67 million. The first tranche, $337.105 million of PSF-insured unlimited tax schoolhouse and refunding bonds (Aaa/AAA//), saw 5s of 8/2026 at 2.75%, 5s of 2030 at 2.87%, 5s of 2035 at 3.46%, 5s of 2040 at 4.10%, 5s of 2045 at 4.57% and 5s of 2050 at 4.77%, callable 8/1/2035.

The second tranche, $12.675 million of non-PSF insured unlimited tax refunding bonds (Aa1/AA//), saw 5s of 8/2028 at 2.88%, 4s of 2030 at 4.05% and 4s of 2031 at 3.17%, noncall.

Stifel priced for the Ohio Water Development Authority (Aaa/AAA//) $350 million of drinking water assistance fund revenue bonds, Series 2025 A, with 5s of 6/2029 at 2.69%, 5s of 6/2030 at 2.76%, 5s of 12/2030 at 2.77%, 5s of 6/2035 at 3.37%, 5s of 12/2025 at 3.39%, 5s of 12/2040 at 4.01%, 5.25s of 12/2045 at 4.45% and 5.25s of 12/2047 at 4.53%, callable 6/1/2035.

Jefferies priced for the New Jersey Housing and Mortgage Finance Agency (Aa2/AA//) $340 million of social non-AMT Series M single-family housing revenue bonds, with all bonds price at par — 3.2s of 10/2026, 3.55s of 4/2030, 3.6s of 10/2030,4.3s of 4/2035, 4.35s of 10/2035, 4.75s of 10/2040, 5.05s of 10/2045, 5.1s of 10/2050 and 5.15s of 10/2055 — except for 6.5s of 4/2056 at 3.85%, callable 4/1/2033.

HilltopSecurities preliminarily priced for the Wimberley Independent School District, Texas, (/AAA//) $148.365 million of PSF-insured unlimited tax school building and refunding bonds, with 5s of 8/2027 at 2.81%, 5s of 2030 at 2.95%, 5s of 2035 at 3.54%, 5s of 2040 at 4.17%, 5s of 2045 at 4.62%, 5s of 2049 at 4.79% and 4.75s of 2055 at 4.98%, callable 8/15/2035.

In the competitive market, Miami-Dade, Florida (Aa2/AA//) sold $142.71 million of building better communities program GOs, Series 2024A, to Wells Fargo, with 5s of 7/2026 at 2.74%, 5s of 2030 at 2.87%, 5s of 2035 at 3.44%, 5s of 2040 at 4.10%, 5s of 2045 at 4.55% and 5s of 2051 at 4.80%, callable 7/1/2035.

Hempstead, New York, (Aaa///) sold $137.718 million of public improvement serial bonds to Morgan Stanley, with 5s of 6/2026 at 2.47%, 5s of 2030 at 2.58%, 5s of 2035 at 3.20%, 4s of 2040 at 4.05% and 4s of 2041 at 4.20%, callable 6/1/2033.

The Manalapan-Englishtown Regional Board of Education, New Jersey, (/AA//) sold $115.378 million of school bonds to BofA Securities, with 5s of 7/2027 at 2.63%, 3.25s of 2030 at 2.74%, 4s of 2035 at 3.35%, 4s of 2040 at 4.07% and 4s of 2045 at 4.55%, callable 7/15/2032.

AAA scales
MMD’s scale was unchanged: The one-year was at 2.62% and 2.63% in two years. The five-year was at 2.73%, the 10-year at 3.30% and the 30-year at 4.54% at 3 p.m.

The ICE AAA yield curve was little changed: 2.65% (-1) in 2026 and 2.56% (-1) in 2027. The five-year was at 2.71% (unch), the 10-year was at 3.22% (+1) and the 30-year was at 4.50% (+1) at 4 p.m.

The S&P Global Market Intelligence municipal curve was little changed: The one-year was at 2.62% (unch) in 2025 and 2.63% (+1) in 2026. The five-year was at 2.72% (unch), the 10-year was at 3.30% (unch) and the 30-year yield was at 4.53% (unch) at 4 p.m.

Bloomberg BVAL was little changed: 2.61% (unch) in 2025 and 2.63% (-1) in 2026. The five-year at 2.73% (-1), the 10-year at 3.23% (unch) and the 30-year at 4.48% (unch) at 4 p.m.

Treasuries were firmer.

The two-year UST was yielding 3.807% (-6), the three-year was at 3.747% (-7), the five-year at 4.849% (-7), the 10-year at 4.288% (-6), the 20-year at 4.833% (-5) and the 30-year at 4.83% (-5) near the close.

Powell testimony
It was more of the same from Federal Reserve Board Chair Jerome Powell, whose testimony before the House Financial Services Committee centered on the uncertainty in the outlook and monetary policy being well-positioned to wait for clarity on the impact of tariffs.

“Policy changes continue to evolve, and their effects on the economy remain uncertain,” Powell said in prepared remarks. “The effects of tariffs will depend, among other things, on their ultimate level. Expectations of that level, and thus of the related economic effects, reached a peak in April and have since declined. Even so, increases in tariffs this year are likely to push up prices and weigh on economic activity.”

Still, he noted, tariffs’ impact on inflation “could be short-lived” or more persistent. “For the time being, we are well-positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance,” Powell said.

Responding to a question about why rates weren’t lowered at last week’s meeting, Powell said looking at data would warrant lower rates, but the forecast prevents the Fed from lowering rates at this point.

Sal Guatieri, senior economist at BMO, said the testimony offered “no hint of losing patience with a wait-and-see stance on rate cuts.”

Monetary policy remains restrictive and the chair still deems that “warranted to ensure that inflation expectations remain in check until the tariff threat passes,” he said.

Powell seemingly was “unmoved by the president’s increasingly harsh criticism or by recent comments from two Fed governors that suggest they are leaning toward a July 30 rate cut,” Guatieri said.

BMO expects the FOMC not to cut before September.

With the market pricing in two cuts this year, James Knightley, chief international economist at ING, said, “I don’t disagree with 50 bp of cuts for the second half, but given July and August are when the pass through from tariffs are going to be at their max, the Fed probably won’t have the information to say that tariffs are not going to lead to longer term inflation by September’s FOMC meeting.”

The Fed may wait until the December meeting to cut rates, Knightley said, and lower rates by 50 basis points at that time.

Primary to come
Los Angeles is set to price Wednesday $1.513 billion of 2025 tax and revenue anticipation notes. BofA Securities.

The North Texas Municipal Water District (Aa1/AAA//) is set to price Thursday $884.59 million of water system revenue refunding and improvement bonds. J.P. Morgan.

The Michigan State Building Authority (Aa2//AA/) is set to price Wednesday $752.745 million of facilities program 2025 revenue and revenue refunding bonds, Series I. Barclays.

The Mansfield Independent School District (/AAA/AAA/) is set to price Wednesday $380.92 million of PSF-insured unlimited tax school building bonds. Raymond James.

The Higher Educational Facilities Financing Authority, Florida, (/BB+//) is set to price Wednesday $304.22 million of Keiser University project higher educational facilities revenue bonds. D.A. Davidson.

Corpus Christi, Texas, (/AA-/AA-/) is set to price Thursday $286.915 million of utility system senior lien revenue improvement and refunding bonds. Morgan Stanley.

The Point Phase 1 Public Infrastructure District No. 1, Utah, is set to price Thursday $248.055 million, consisting of $192.11 million of tax assessment and general revenue bonds, Series 2025A-1; $16.665 million of tax assessment and general revenue convertible capital appreciation bonds, Series 2025A-2; and $39.28 million of subordinate tax assessment and general revenue bonds, Series 2025B. Sandler.

The Public Finance Authority is set to price Thursday $175 million of tax-exempt pooled securities, Series 2025-1 Class A certificates. J.P. Morgan.

The Virginia Resources Authority (Aaa/AAA//) is set to price $167.745 million of state revolving fund revenue refunding bonds. Ramirez.

The Lake Stevens School District No. 4, Washington, (Aaa///) is set to price Wednesday $116.39 million of unlimited tax GOs. D.A. Davidson.

Competitive
San Diego County is set to sell $200 million of 2025 tax and revenue anticipation notes at 11:30 a.m. Wednesday.

The Bend-La Pine Schools, Oregon, (Aa1///) is set to sell $149.7 million of Oregon School Bond Guaranty Program GOs at noon Wednesday.

Alex Walters and Gary Siegel contributed to this story.