Munis see small gains in spots, inflows continue

Municipals were steady to firmer in spots Thursday as U.S. Treasuries yields fell and equities ended up.

The two-year muni-UST ratio Thursday was at 70%, 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 70%, the 10-year at 74% and the 30-year at 93% at 4 p.m.

Munis are off to a good start relative to USTs this month, said JB Golden, executive director and portfolio manager at Advisors Asset Management. 

Munis are seeing gains of 0.45% month-to-date, while USTs are up 0.89% so far this month.

While the asset class is posting losses year-to-date, munis “seem to have begun the process of clawing back some of the relative underperformance through the first half of the year,” he said.

One factor affecting munis is “broad interest rate volatility,” which has been especially pronounced on the long end of the yield curve, Golden said.

“Municipals, even after a strong June, lag Treasuries by over 340 bps and investment grade corporates by almost 360 bps on a year-to-date basis,” indicating there has been more happening in the muni market than interest rate volatility through the first half of the year, he said.

Political headwinds and associated issuance are playing large roles, Golden said. 

“In the last month, the market has gotten a bit more clarity on the political front, and the market has done an admirable job digesting record-setting supply,” he said. “It seems likely that these factors could also be part of the catalyst behind the recent outperformance relative to Treasuries.”

Continued reductions in federal support for state and local governments seems likely, which could be prompting record supply, Golden said. “Many would argue that this is a catalyst spurring the increase in the issuance of new debt.”

Compared to last year, issuance is up 16% thus far, he said. First quarter supply was the second-highest on record, at $119.2 billion, he said. “More recently, however, the increase in new issue debt has been less of a headwind as reinvestment demand has increased.”

“The market digested $50 billion in new issue supply in May while still outperforming Treasuries by over 100 bps,” Golden said. It “then digested $20 billion in the first week of June, the second highest weekly supply total this year, then followed that up by putting $17 billion away the second week of June.”

The market is “hurtling” toward the heaviest reinvestment period of 2025 with the balance of June, July and August ahead, he said.

With valuations “hitting historically attractive levels, for the first time this year, valuations and demand seem to be aligned, and a headwind to tailwind theme seems to be in play for municipals heading into the summer,” Golden said.

In the primary market Thursday, J.P. Morgan priced North Texas Municipal Water District (Aa1/AAA//) $868.65 million of water system revenue refunding and improvement bonds, with 5s of 9/2026 at 2.71%, 5s of 2030 at 2.88%, 5s of 2035 at 3.50%, 5s of 2040 at 4.13%, 5s of 2045 at 4.655%, 5s of 2051 at 4.79%, 5.25s of 2051 at 4.75% and 5s of 2055 at 4.86%, callable 3/1/2035.

BofA Securities priced for the Pennsylvania Higher Education Facilities Authority (Aa3/AA//) $318.4 million of University of Pennsylvania Health System health system revenue bonds, with 5s of 8/2026 at 2.79%, 5s of 2031 at 3.16%, 5s of 2035 at 3.65%, 5s of 2040 at 4.31%, 5s of 2050 at 4.97%, 5s of 2055 at 5.07% and 5.5s of 2055 at 4.95%, callable 8/15/2035.

Morgan Stanley priced for Corpus Christi, Texas, (/AA-/AA-/) $296.87 million of utility system senior lien revenue improvement and refunding bonds, with 5s of 7/2026 at 2.78%, 5s of 2030 at 2.89%, 5s of 2035 at 3.60%, 5s of 2040 at 4.28%, 5s of 2045 at 4.72%, 5.25s of 2050 at 4.86% and 5s of 2055 at 5.02%, callable 7/15/2035.

Wells Fargo priced for the Antelope Valley-East Kern Water Agency Financing Authority (/AA+/AA+/) $170.15 million of Hugh Desert Water Bank Program water bank revenue bonds. The first tranche, $52.53 million of Series 2025A, saw 5s of 4/2026 at 2.43%, 5s of 2030 at 2.50%, 5s of 2035 at 3.13%, 5s of 2040 at 3.89%, 5s of 2045 at 4.37% and 5s of 2050 at 4.57%, callable 4/1/2035.

The second tranche, $117.62 million of Series 2025B, saw 5s of 4/2055 with a tender date of 4/1/2028 at 2.72%, callable 4/1/2027.

Fund flows
Investors added $76.9 million to municipal bond mutual funds in the week ended Wednesday, following $110 million of inflows the prior week, according to LSEG Lipper data.

High-yield funds saw inflows of $45.4 million compared to the previous week’s inflows of $57.7 million.

Tax-exempt municipal money market funds saw inflows of $1.901 billion for the week ending June 24, bringing total assets to $140.005 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 2.57%.

Taxable money-fund assets saw $9.87 billion added, bringing the total to $6.836 trillion.

The average seven-day simple yield was at 3.97%.

The SIFMA Swap Index fell to 1.92% on Wednesday compared to the previous week’s 2.75%.

AAA scales
MMD’s scale saw bumps six years and in: The one-year was at 2.58% (-3) and 2.59% (-3) in two years. The five-year was at 2.70% (-2), the 10-year at 3.29% (unch) and the 30-year at 4.54% (unch) at 3 p.m.

The ICE AAA yield curve was bumped up to five basis points: 2.59% (-5) in 2026 and 2.52% (-3) in 2027. The five-year was at 2.69% (-3), the 10-year was at 3.19% (-2) and the 30-year was at 4.50% (unch) at 4 p.m.

The S&P Global Market Intelligence municipal curve saw small bumps on the front of the curve: The one-year was at 2.59% (-2) in 2025 and 2.60% (-2) in 2026. The five-year was at 2.69% (-2), the 10-year was at 3.29% (unch) and the 30-year yield was at 4.53% (unch) at 4 p.m.

Bloomberg BVAL bumped up to two basis points: 2.59% (-2) in 2025 and 2.61% (-1) in 2026. The five-year at 2.72% (-1), the 10-year at 3.21% (-1) and the 30-year at 4.47% (-1) at 4 p.m.

Treasuries saw gains.

The two-year UST was yielding 3.716% (-7), the three-year was at 3.683% (-7), the five-year at 4.798% (-5), the 10-year at 4.25% (-4), the 20-year at 4.812% (-3) and the 30-year at 4.814% (-2) just before the close.