Munis quiet as supply slows

Municipals were mostly steady Thursday as U.S. Treasury yields were little changed and equities ended mixed.

The two-year muni-UST ratio Thursday was at 61%, the five-year at 64%, the 10-year at 76% and the 30-year at 95%, according to Municipal Market Data’s 3 p.m. ET read. ICE Data Services had the two-year at 60%, the five-year at 64%, the 10-year at 74% and the 30-year at 95% at a 4 p.m. read.

While UST yields “consolidate” following Friday’s massive rally after the July jobs report, muni yields remain resilient, according to Kim Olsan, senior fixed income portfolio manager at NewSquare Capital.

Issuance remains elevated this week, with at least $15 billion on tap.

Deals appear to be getting done on a “fairly orderly basis,” especially given the size of the calendar, said Ron Banaszek, SVP and lead underwriter at Blaylock Van.

Flows across most of the curve have not been deterred by another sizable week of issuance, Olsan said.

“The 1-7 year range has captured 24% of all secondary flows in the last week and maturities past 12 years accounted for 58% of all volume — a combination of defensive allocations and yield capture,” she said.

The variety of credits coming to market has “alleviated some pressure that might otherwise have crept in were the volume slanted toward high-grade, benchmark-driven names,” Olsan said.

Bid-side strength has led several issuers to accelerate pricing, with some pricing on Tuesday, and others advancing day-to-day issues, such as the Florida Department of Transportation’s recently announced $237 million GO sale on Thursday, she said.

“In a sign that in-state exemptions are still heavily favored, San Diego sold Aa2/NR water bonds with yields between 2026 and 2029 coming through 2.00% (and at spreads of negative 30 basis points to MMD spots) — the first California utility issue this year to access the market at this yield range,” Olsan said.

Not until 26 years did any yield come with a positive spread to the AAA MMD curve, she said.

August’s principal redemptions will see $27 billion on Aug. 1 and $10 billion scheduled on Aug. 15, Olsan said, citing CreditSights data.

“Issuers appear to have taken notice with a front-loaded schedule,” as forward supply has fallen to $10 billion, she said.

Supply will fall as the month goes on, especially during the last week of August and the first week of September, Banaszek said.

What’s unclear is if supply ramps back up from there and runs strong through year-end, as market participants differ on whether issuance will be frontloaded or continue at its rapid pace for the rest of 2025, he said.

The long end appears to be getting more interest given where ratios and absolute rates are, as it has garnered chatter from various buy-side firms, as it seems like the time to start pushing out the curve, said Banaszek.

“Now that you see the magic number 5% on more deals in general, given where the 30-year MMD yield is at [4.58%], it doesn’t take a lot to get close to a 5-ish number,” he said.

Interest in the long end comes from opportunistic-type accounts, like hedge funds and trading accounts, and possibly some bank portfolios, Banaszek said.

In the primary market, Goldman Sachs priced for the Tennessee Energy Acquisition Corp. (Aa3///) $1.236 billion of gas project revenue refunding bonds, Series 2025A, with 5s of 12/2031 at 3.70% and 5s of 2035 at 4.45%, callable 9/1/2035.

Morgan Stanley priced for the Dormitory Authority of the State of New York (/AA/A+/) $124.61 million of fixed-rate revenue bonds (Roswell Park Cancer Institute Obligated Group), Series 2025A, with 5s of 7/2033 at 3.42%, 5s of 2035 at 3.75%, 5s of 2040 at 4.54%, 5.25s of 2045 at 4.97%, 5.5s of 2050 at 5.07% and 5.5s of 2055 at 5.12%, callable 7/1/2035.

In the competitive market, the Florida Department of Transportation (Aaa/AAA/AAA/) sold $237.85 million of right-of-way acquisition and bridge construction bonds, Series 2025B, to BofA Securities, with 5s of 7/2026 at 2.35%, 5s of 2030 at 2.48%, 5s of 2035 at 3.31%, 5s of 2040 at 4.02%, 5s of 2045 at 4.51%, 5s of 2050 at 4.71% and 5s of 2055 at 4.75%, callable 7/1/2035.

Fund flows
Investors added $1.656 billion to municipal bond mutual funds in the week ended Wednesday, following $937 million of inflows the prior week, according to LSEG Lipper data.

High-yield funds saw inflows of $224.2 million compared to inflows of $44.1 million the previous week.

Tax-exempt municipal money market funds saw inflows of $2.915 billion for the week ending Aug. 5, bringing total assets to $139.23 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 2.09%.

Taxable money-fund assets saw $73.472 billion added, bringing the total to $6.979 trillion.

The average seven-day simple yield was at 3.99%.

The SIFMA Swap Index was at 1.69% on Wednesday compared to the previous week’s 2.29%.

AAA scales
MMD’s scale was unchanged: The one-year was at 2.25% and 2.27% in two years. The five-year was at 2.41%, the 10-year at 3.21% and the 30-year at 4.58% at 3 p.m.

The ICE AAA yield curve was bumped up to two basis points: 2.26% (-2) in 2026 and 2.21% (-2) in 2027. The five-year was at 2.41% (-2), the 10-year was at 3.14% (-1) and the 30-year was at 4.56% (-1) at 4 p.m.

The S&P Global Market Intelligence municipal curve was unchanged: The one-year was at 2.26% in 2025 and 2.28% in 2026. The five-year was at 2.41%, the 10-year was at 3.21% and the 30-year yield was at 4.58% at 4 p.m.

Bloomberg BVAL was unchanged: 2.24% in 2025 and 2.26% in 2026. The five-year at 2.40%, the 10-year at 3.15% and the 30-year at 4.54% at 4 p.m.

Treasuries were little changed.

The two-year UST was yielding 3.718% (flat), the three-year was at 3.676% (+1), the five-year at 3.78% (flat), the 10-year at 4.241% (+1), the 20-year at 4.795% (-1) and the 30-year at 4.82% (flat) near the close.