Steady session amid active primary while focus shifts to 2H

Municipals were a touch better Wednesday while more large new-issues cleared the market and U.S. Treasuries were little moved and equities closed mixed, but nearly flat.

Triple-A yields fell by a basis point while USTs were better inside 10 years. Ratios were little changed. 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 67%, the five-year at 70%, the 10-year at 75% and the 30-year at 93% at 4 p.m.

The Investment Company Institute Wednesday reported $244 million of inflows for the week ending June 18, following $1.27 billion of inflows the previous week.

Exchange-traded funds saw inflows of $1.033 billion of inflows after $1.075 billion of inflows the week prior, per ICI data.

As the end of the first half of a so-far tumultuous 2025 approaches, several municipal bond analysts are upbeat about the rest of the year.

Cooper Howard, director and fixed income strategist focused on munis at Charles Schwab, said “munis remain attractive despite a rough start to the year.

“The Bloomberg Municipal Bond Index is down 0.6%, which is the worst performing fixed income asset class we follow. However, absolute yields are attractive in our view — especially after considering taxes,” he said. “The average muni yields more than the average corporate bond after taxes for investors in the 22% and above tax brackets.”

“Lower issuance should be supportive of total returns going forward,” he added. “Issuance has surged this year as issuers pulled forward deals partly due to concerns that the muni tax exemption could be repealed. Now that it’s highly unlikely the exemption is repealed, we would expect issuance to moderate and total returns to somewhat recover.”

Credit quality remains high “but some issuers may face obstacles during the second half,” the Schwab analyst cautioned. “Upgrades have outpaced downgrades for 17 straight quarters, which is the longest streak since the end of 2008. As a result, the percentage of munis that are either AAA/Aaa or AA/Aa, is near the highest in nearly two decades.”

“The upward trajectory of ratings changes may slow going forward,” Howard added. “We don’t expect credit quality to substantially deteriorate but a slowdown in the economy due to tariffs, a slowdown in home prices, a slowdown in sales tax revenues, Medicaid cuts, and efforts to curb immigration and the workforce are all headwinds.”

The long end of the municipal market is “well positioned for outperformance,” J.P. Morgan Global Research said in its 2025 midyear outlook.

“Longer-dated yields are elevated relative to their own historical valuations, as the average yield across municipal sectors in the 30-year spot is about 95% of its five-year range, versus about 80% in the 10-year spot. Longer rates also show far better value versus taxable fixed-income alternatives, as 20-year AA tax-exempts are about 2.3-sigma cheap to similar term and rated corporates and taxable municipals, versus about 1.2-sigma in the 10-year spot, and under 1 standard deviation inside of 10-years on the curve.”

Brent Schowe, senior vice president and director of investment research at Commerce Trust, said municipal bond yields right now “are quite attractive. You can get a 10-year AAA muni approaching almost 6% if you’re in the highest tax bracket. We think that represents really good value because, as many of us know, munis are certainly a less risky instrument than some of the corporate bonds out there. And it’s a good window of opportunity compared to other fixed income asset classes that have rallied quite a bit post the tariff talk.”

Kim Olsan, senior fixed income portfolio manager at NewSquare Capital, LLC, says higher-rated, longer-dated issues have captured most of the secondary market activity as the first half, largely because “intermediate and long-term levels are 50-80 basis points higher” than they were a year ago. By comparison, yields on the short end are about 40 basis points lower than a year earlier.

“In $1 million-plus lots of tax-exempt structures, 57% of all volume has been in the 12-year and longer range, 29% of the trades came in the 3–12-year area and the 0-3 year and 3–7-year ranges have each captured a 12% market share,” Olsan said. “In terms of credit, single-A, BBB and nonrated bonds have had 20% of the secondary activity, while AAA-rated bonds account for 22% and AA-rated bonds total 58% of volume. That breakdown points to a greater focus up-in-credit as yields are compensatory in those categories.”

Local names in New York and New Jersey look particularly attractive to investors in those states compared to comparable issuers from lower-taxed states, Olsan said.

While quality New York and New Jersey names in the 10-year range carry lower yields than general market credits, “New York’s top state income rate is 10.90% and New Jersey’s is 10.75%, which combined with the top federal rate places many buyers in an all-in bracket above 50% — well incentivizing in-state buying to achieve the maximum tax-exempt yield.”

Climate disaster warning
On a separate note, Chris Edmonds, president of fixed income & data services at Intercontinental Exchange, is warning “plans announced by the Trump administration to restructure the Federal Emergency Management Agency — which is today part of the Department of Homeland Security — may significantly impact local debt markets. Specifically, municipal bond and housing market participants could face changes in the risk profile of their investments, with the potential shutdown of FEMA after hurricane season.”

Writing in the firm’s June fixed income newsletter, Edmonds noted “many view FEMA as a financial backstop in the aftermath of natural disasters, helping to stabilize the municipal bond market by reinforcing investor confidence that governments would support recovery.”

The new form disaster relief takes could lead to “a watershed moment for municipal bond and housing investors, who would need to consider questions about risk.”

ICE estimates that over $19 billion in outstanding municipal debt is “tied to high physical risk and low credit ratings (BBB+ or below) concentrated in Florida, Texas, Louisiana, and Alabama. These issuers may face higher default risk if agency support changes, as climate-related disasters become more frequent and severe.”

“The housing market could also be impacted,” Edmonds said. “FEMA’s National Flood Insurance Program covers over 4.5 million policyholders.” Losing this could “increase financial vulnerability in high-risk areas and reduce property values, reducing the tax base that supports municipal bonds.”

Primary market
In primary market activity Wednesday, BofA Securities priced $1.513 billion of 2025 tax and revenue anticipation notes for Los Angeles (MIG1/SP-1-plus) as 5s to yield 3.06% in 6/2026.

Barclays priced $752.155 million Michigan State Building Authority (Aa2//AA/) facilities program 2025 revenue and revenue refunding bonds, Series I. The issue included 5s of 10/2025 to yield 2.72%, 5s of 10/2030 to yield 2.92%, 5s of 10/2035 to yield 3.56%, 5s of 10/2040 to yield 4.15%, 5s of 10/2045 to yield 4.61%, 5s of 10/2050 to yield 4.83%, 5.25s of 10/2050 to yield 4.77%, and 5.25s of 4/2060 to yield 4.94%.

Raymond James & Associates priced $375.715 million Mansfield Independent School District (/AAA/AAA/) Permanent School Fund-insured unlimited tax school building bonds. The issue included 5s of 2/2027 to yield 2.72%, 5s of 2/2030 to yield 2.89%, 5s of 2/2035 to yield 3.46%, 5s of 2/2040 to yield 4.12%, 5s of 2/2045 to yield 4.57%, 5s of 2/2050 to yield 4.79%, and 5.25s of 2/2055 to yield 4.81%.

Ramirez & Co. priced $167.745 million of state revolving fund revenue refunding bonds for the Virginia Resources Authority (Aaa/AAA//). The issue was priced as 5s due 10/2025 to yield 2.67% to 5s of 10/2029 to yield 2.69%.

Wells Fargo Bank priced $75 million Virginia Housing Development Authority commonwealth mortgage bonds 2024 Series F non-AMT, Subseries F-2 (Aaa/AAA//). The issue was priced at par to yield 3.20% in 7/2026, 3.60% in 7/2030, 4.25% in 7/2035, 4.70% in 7/2040, 5.0% in 7/2045, 5.1% in 7/2050, and 5.15% in 7/2055.

Wells Fargo also priced $150 million of taxable Virginia Housing mortgage bonds 2025 Series C-taxable (Aaa/AAA//). Details were not available by press time.

In the competitive arena, J.P. Morgan Securities was the winning bidder for $200 million San Diego County (MIG1/ SP-1+/ F1+) 2025 tax and revenue anticipation notes as 5s due in 6/2030 to yield 2.606%.

BofA Securities won $149.7 million of Bend-La Pine Schools (Aa1///) Oregon School Bond Guaranty Program GOs. The issue was priced as 5s due 6/2026 to yield 2.67%, 5s of 6/2030 to yield 2.83%, 5s of 6/2035 to yield 3.45%, 5s of 6/2040 to yield 4.05%, 4.625s of 6/2044 to yield 4.60%, and 4.75s of 6/2047 to yield 4.73%.

AAA scales
MMD’s scale was bumped a basis point on bonds 11 years and in: The one-year was at 2.61% (-1) and 2.62% (-1) in two years. The five-year was at 2.72% (-1), the 10-year at 3.29% (-1) and the 30-year at 4.54% (unch) at 3 p.m.

The ICE AAA yield curve was bumped a basis point on the short end: 2.64% (-1) in 2026 and 2.55% (-1) in 2027. The five-year was at 2.71% (unch), the 10-year was at 3.22% (unch) and the 30-year was at 4.50% (unch) at 4 p.m.

The S&P Global Market Intelligence municipal curve was little changed: The one-year was at 2.61% (-1) in 2025 and 2.62% (-1) in 2026. The five-year was at 2.71% (-1), the 10-year was at 3.29% (-1) 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% (unch) in 2026. The five-year at 2.73% (unch), the 10-year at 3.22% (-1) and the 30-year at 4.48% (unch) at 4 p.m.

Treasuries were better five years and in.

The two-year UST was yielding 3.775% (-1), the three-year was at 3.741% (-1), the five-year at 4.843% (-1), the 10-year at 4.289% (flat), the 20-year at 4.839% (flat) and the 30-year at 4.86% (+1) just before the close.