Munis underperform USTs as FOMC meets
5 min read
Municipals firmed slightly Tuesday as U.S. Treasuries saw gains and equities ended in the red.
The two-year muni-UST ratio Tuesday was at 62%, the five-year at 65%, the 10-year at 77% and the 30-year at 96%, according to Municipal Market Data’s 3 p.m. ET read. ICE Data Services had the two-year at 61%, the five-year at 65%, the 10-year at 74% and the 30-year at 94% at a 4 p.m. read.
The muni market has “cheapened and steepened,” which is a great opportunity for people still on the sidelines to get into the market again, said Jennifer Johnston, director of municipal bonds research at Franklin Templeton.
The market’s a little “sloppy” from a liquidity perspective, but that is what creates the opportunities to go in and find ways to maximize value, such as picking out bonds from a credit perspective and going out longer on the yield curve, she noted.
Outside the steepening of the yield curve, the big story of the year is supply, Johnston said.
Issuance is at $321.875 billion, up 15.5% from 2024, according to LSEG.
A primary driver in the surging supply was the potential elimination of the tax exemption, which the market has “dodged” for now in the “One Big Beautiful Bill,” she said.
Volume may start to slow at some point, as debt that was expected to price in the fall got pulled forward. For example, in the higher education sector, there has been a flood of issuance from elite universities as these prestigious colleges battle with the Trump administration and they want to issue before things come to a head, according to Johnston.
“All of our price discovery continues to really come from the primary market side, and that slowed a little bit as well,” some of which is due to the summer months, she said.
Deals are still getting done, but without double-digit oversubscriptions, she noted.
While the market has gotten through the “One Big Beautiful Bill” process, tariffs have yet to be “hammered” out and the higher ed sector is in the crosshairs, Johnston said.
Due to this, issuers may enter a budget session more conservatively, as they have to be prepared if something changes significantly, and must make hard decisions, she said.
However, even with macro challenges, that does not necessarily translate into downgrades or defaults; the market can absorb all this chaos better than it did several months ago, Johnston said.
In the primary market Tuesday, J.P. Morgan priced for the Public Finance Authority (Baa3///BBB+) $3.438 billion of senior lien toll revenue bonds (
Morgan Stanley priced for the Wisconsin Health and Educational Facilities Authority (/A+/A+/) $410.015 million of revenue bonds (Hospital Sisters Credit Group), Series 2025A, with 5s of 8/2025 at 2.87% (non-Assured Guaranty-insured), 5s of 2030 at 3.13% (non-AG-insured), 5s of 2030 at 3.07% (Assured Guaranty-insured), 5s of 2035 at 3.96% (non-AG insured), 5s of 2040 at 4.60% (AG-insured), 5.25s of 2045 at 5.03% (AG-insured), 5.5s of 2048 at 5.20% (non-AG-insured) and 5s of 2048 at 5.20% (AG-insured), callable 8/15/2035.
Wells Fargo priced for Guam (Baa3///) $268.99 million of business privilege tax refunding bonds, Series 2025G, with 5s of 1/2028 at 3.14%, 5s of 2030 at 3.31%, 5s of 2035 at 4.15% and 5.25s of 2040 at 4.80%, callable 1/1/2035.
UMB Bank preliminarily priced for the North East Independent School District, Texas, (Aaa//AAA/) $194 million of PSF-insured unlimited tax refunding bonds, with 5s of 2026 at 2.58%, 5s of 2030 at 2.80%, 5s of 2035 at 3.63% and 5s of 2036 at 3.83%.
RBC Capital Markets preliminarily priced for the Princeton Independent School District, Texas, (Aaa//AAA/) $140 million of PSF-insured unlimited tax school building bonds, with 5s of 2035 at 3.78%, 5s of 2040 at 4.42%, 5s of 2045 at 4.89%, 5s of 2050 at 5.02%, and 5.25s of 2055 at 5.01%.
Morgan Stanley priced for the Vermont Bond Bank (Aa2/AA+//) a $126.98 million deal. The first tranche, $74.395 million of Series 2 local investment bonds, with 5s of 12/2025 at 2.55%, 5s of 2030 at 2.71%, 5s of 2035 at 3.55%, 5s of 2040 at 4.27%, 5s of 2045 at 4.80%, 5s of 2050 at 4.96% and 5s of 2055 at 5.01%, callable 10/1/2034.
The second tranche, $52.585 million of Series 3 refunding bonds, with 5s of 12/2025 at 2.55%, 5s of 2030 at 2.73%, 5s of 2035 at 3.63% and 5s of 2037 at 3.97%, callable 10/1/2033.
AAA scales
MMD’s scale was bumped up to two basis points: The one-year was at 2.41% (-2) and 2.41% (-2) in two years. The five-year was at 2.55% (-2), the 10-year at 3.34% (unch) and the 30-year at 4.69% (-2) at 3 p.m.
The ICE AAA yield curve was bumped one to three basis points: 2.43% (-1) in 2026 and 2.38% (-2) in 2027. The five-year was at 2.57% (-2), the 10-year was at 3.27% (-2) and the 30-year was at 4.64% (-2) at 4 p.m.
The S&P Global Market Intelligence municipal curve was bumped one to two basis points: The one-year was at 2.41% (-2) in 2025 and 2.42% (-2) in 2026. The five-year was at 2.56% (-1), the 10-year was at 3.33% (-1) and the 30-year yield was at 4.69% (-2) at 4 p.m.
Bloomberg BVAL was bumped two to three basis points: 2.38% (-2) in 2025 and 2.39% (-2) in 2026. The five-year at 2.52% (-2), the 10-year at 3.29% (-2) and the 30-year at 4.68% (-3) at 4 p.m.
Treasuries saw yields fall.
The two-year UST was yielding 3.872% (-6), the three-year was at 3.82% (-6), the five-year at 3.902% (-7), the 10-year at 4.323% (-9), the 20-year at 4.857% (-10) and the 30-year at 4.861% (-10) just before the close.
Primary to come
Orlando, Florida, is set to price Thursday $420.115 million of non-rated contract tourist development tax revenue bonds (Camping World Stadium), insured by Assured Guaranty. J.P. Morgan.
The Terrell Independent School District, Texas, (Aaa/AAA//) is set to price Wednesday $263.11 million of PSF-insured unlimited tax school building bonds. Piper Sandler.
The Dormitory Authority of the State of New York (Baa3/BBB//) is set to price Thursday $246.52 million of Mount Sinai Obligated Group revenue bonds. Jefferies.
The Comal Independent School District, Texas, is set to price $213 million of PSF-insured unlimited tax school building bonds. Mesirow Financial.
The Public Finance Authority is set to price Thursday $153.11 million of non-rated taxable revenue bonds (Prestwick Holdings LLC project). Morgan Stanley.
The New York State Housing Finance Agency (Aa2///) is set to price $108.6 million of sustainability affordable housing revenue bonds, consisting of $20.65 million of 2025 Series C-1 and $87.95 million of 2025 Series C-2. Ramirez.
Competitive
Washington (Aaa/AA+/AA+/) is set to sell $539.43 million of various purpose GOs, Series 2026A, Bid group 1 at 10:15 a.m. Eastern Thursday; $486.66 million of various purpose GOs, Series 2026A, Bid group 2 at 10:45 a.m.; $283.335 million of motor vehicle fuel tax and vehicle-related fees GOs, Series 2026B at 11:45 a.m.; and $152.835 million of taxable GOs, Series 2026T at 11:15 a.m., Eastern.
