August 13, 2025

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Municipals steady as USTs firm as rate cut appears likely

6 min read
Municipals steady as USTs firm as rate cut appears likely

Municipals were steady Wednesday as U.S. Treasury yields fell and equities ended higher as traders are betting on a September rate cut of perhaps as much as 50 basis points.

The two-year muni-UST ratio Wednesday 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 59%, the five-year at 63%, the 10-year at 73% and the 30-year at 94% at a 4 p.m. read.

The Investment Company Institute Wednesday reported $117 million of inflows for the week ending Aug. 6, following $1.006 billion of inflows the previous week. This differs widely from LSEG Lipper’s $1.66 billion of inflows over the same period.

Exchange-traded funds saw inflows of $1.049 billion after $673 million of inflows the week prior, per ICI data.

Muni performance is likely to recover during the second half of the year, said Cooper Howard, a fixed income strategist at Charles Schwab.

The uncertainty surrounding the future of the tax exemption earlier this year, prior to the passage of the One Big Beautiful Bill, created a surge in supply for munis, positioning them as “one of the worst performing fixed income asset classes this year,” he noted.

Now that Trump’s tax plan has been signed into law, expectations are for “issuance to moderate and total returns to recover some,” Howard said.

The muni curve “continues its steepening trajectory, with resiliency of the asset class supporting current outperformance relative to Treasuries,” said Jeff Lipton, a research analyst and market strategist.

Munis are seeing gains of 0.68% so far in August, which have pushed the broader muni index into positive territory year-to-date, he said, while USTs are seeing gains of 0.59% month-to-date.

“Nevertheless, munis have considerable wood to chop to come into striking distance of the year-to-date 4% return for Treasuries,” Lipton said.

“The favorable momentum is being booked against a backdrop of rather interesting market technicals, highlighted by outsized weekly calendars and the heaviest reinvestment needs witnessed thus far for the year,” he said.

While there is a lot of supply, “it doesn’t feel like there’s a lot of bonds out there, especially if you’re looking at state-specific [issues],” said Christopher Lanouette, an investment manager and fixed-income trader at CIBC.

Finding bonds from New England issuers has been challenging and spreads are extremely tight, while Texas is “super cheap,” which has seen a surge of PSF-insured bonds from school districts ahead of changes on Sept. 1, he noted.

Fund flows have been decent, with last week’s inflows of $1.7 billion, driven relatively by similar inflows into ETFs (+$880 million), according to LSEG Lipper.

It seems like there’s been a shift to ETF flows being the primary driver and that’s likely causing some volatility, where when redemptions come in, they just need to sell, Lanouette said.

The long end (10-plus years) has also seen decent flows with the highest amount of inflows (+$574 million) after two weeks of outflows, according to LSEG.

“Probably with the increased supply, we’ve seen dealers pricing things cheaply because they don’t want to hold them, and then you get deals oversubscribed and they adjust accordingly. But last week we’ve seen deals where it’s been balances out longer. But that could also be a function of just the time of the year: We’re in peak vacation season,” he said.

In the primary market Tuesday, Ramirez priced for the Port Authority of New York and New Jersey (Aa3/AA-/AA-/) $1.137 billion of consolidated bonds. The first tranche, $173.88 million of AMT 249th Series bonds, saw 5s of 10/2026 at 2.77%, 5s of 2030 at 3.05% and 5s of 2035 at 3.93%, noncall.

The second tranche, $963.53 million of 250th Series bonds, saw 5s of 10/2026 at 2.28%, 5s of 2030 at 2.54%, 5s of 2035 at 3.42%, 5s of 2040 at 4.18%, 5s of 2045 at 4.62%, 5.25s of 2051 at 4.73% and 5.25s of 2055 at 4.77%, callable 10/2035.

Goldman Sachs priced for the New Hope Cultural Education Facilities Finance Corp. (Aa3/AA/AA-/) $600 million of hospital revenue bonds (Children’s Health System of Texas), Series 2025A, with 5s of 8/2033 at 3.32%, 5s of 2035 at 3.70%, 5.25s of 2040 at 4.40%, 5.25s of 2045 at 4.91% and 5s of 2052 at 5.15%, callable 8/2035.

J.P. Morgan priced for the South Dakota Health and Educational Facilities Authority (/A+/AA-/) $408.48 million of Sanford revenue bonds. The first tranche, $137.815 million of Series 2025B bonds, saw 5s of 11/2026 at 2.54%, 5s of 2030 at 2.93%, 5s of 2035 at 3.78% and 5s of 2040 at 4.46%, callable 11/2035.

The second tranche, $100.925 million of Series 2025C-1 bonds, saw 5s of 11/2052 with a put date of 11/2029 at 3.00%, callable 11/2028.

The third tranche, $169.74 million of Series 2025C-2, saw 5s of 11/2051 with a put date of 11/2032 at 3.57%, callable 11/2031.

BofA Securities priced for the Virginia Port Authority (A1/A//) $251.78 million of non-AMT port facilities revenue bonds, with 5s of 7/2026 at 2.40%, 5s of 2030 at 2.58%, 5s of 2035 at 3.43%, 5s of 2040 at 4.26%, 5s of 2045 at 4.75%, 5.25s of 2050 at 4.93% and 5.25s of 2055 at 4.97%, callable 7/2035.

Jefferies priced for the Texas Department of Housing and Urban Affairs (Aa1/AA+//) $250 million of non-AMT residential mortgage revenue and refunding bonds, Series 2025D, with all bonds priced at par — 2.9s of 1/2027, 2.9s of 7/2027, 3.15s of 1/2030, 3.2s of 7/2030, 4s of 1/2035, 4.05s of 7/2035, 4.75s of 7/2040, 5s of 7/20245, 5.1s of 7/2050 and 5.15s of 2055 — expect for 6.25s of 2056 at 3.95%, callable 7/2033.

In the competitive market, the Anderson School District No. 4, South Carolina, (Aa1/AA//) sold $115 million of GOs (South Carolina School District Enhancement Program) to BofA Securities, with 5s of 3/2026 at 2.27%, 5s of 2030 at 2.43%, 5s of 2035 at 3.26%, 5s of 2040 at 4.03%, 4.5s of 2044 at 4.61% and 4.75s of 2050 at 4.78%, callable 3/2035.

AAA scales
MMD’s scale was unchanged: The one-year was at 2.23% and 2.25% in two years. The five-year was at 2.41%, the 10-year at 3.22% and the 30-year at 4.58% at 3 p.m.

The ICE AAA yield curve was unchanged: 2.21% in 2026 and 2.19% in 2027. The five-year was at 2.40%, the 10-year was at 3.15% and the 30-year was at 4.57% at 4 p.m.

The S&P Global Market Intelligence municipal curve was bumped one basis point: The one-year was at 2.22% (-1) in 2025 and 2.24% (-1) in 2026. The five-year was at 2.40% (-1), the 10-year was at 3.21% (-1) and the 30-year yield was at 4.57% (-1) at 4 p.m.

Bloomberg BVAL was bumped up to one basis point: 2.22% (-1) in 2025 and 2.24% (-1) in 2026. The five-year at 2.38% (-1), the 10-year at 3.15% (unch) and the 30-year at 4.56% (unch) at 4 p.m.

Treasuries were firmer.

The two-year UST was yielding 3.682% (-5), the three-year was at 3.649% (-6), the five-year at 3.768% (-6), the 10-year at 4.239% (-5), the 20-year at 4.801% (-6) and the 30-year at 4.83% (-5) near the close.

Primary to come
Philadelphia (A1//A+/) is set to price Thursday $369.02 million of airport revenue and refunding bonds, consisting of $107.845 million of non-AMT/governmental airport revenue bonds, Series 2025A, and $261.175 million of AMT/private activity airport revenue and refunding bonds, Series 2025B. Wells Fargo.

The Florida Local Government Finance Commission is set to price $333.455 million of non-rated senior living revenue bonds (Fleet Landing at Nocatee Project), consisting of $173.515 of Series 2025A, $16 million of Series 2025B1, $22.25 million of Series 2025B2, $115 million of Series 2025B3 and $6.69 million of Series 2025C. Ziegler.

Fort Bend County, Texas, (Aa1//AAA/) is set to price Thursday a $270.46 million deal, consisting of $100.99 million of Series 2025A, $45.565 million of Series 2025B, $28.665 million of Series 2025C and $95.24 million of Series 2025D. J.P. Morgan.

The Iowa Student Loan Liquidity Corp. (/AA//) is set to price Thursday $160.95 million of senior student loan revenue bonds, consisting of $100 million of taxable Series 2025A bonds and $60.95 million of AMT Series 2025B bonds. RBC Capital Markets.

The Regents of the University of Idaho (/AA//) are set to price Thursday $137.78 million of general revenue bonds, Series 2025A. Wells Fargo.

The Alaska Railroad Corp. (/BBB-//) is set to price Thursday $124.22 million of AMT cruise port revenue bonds. BofA Securities.

Frank Gargano contributed to this report