Munis extend rally in ‘carryover’ from Friday

Municipals extended their rally Monday with yields falling even further as U.S. Treasuries saw gains out long and equities ticked up.

Municipals were bumped two to eight basis points, while UST yields fell up to seven basis points out long.

The two-year muni-UST ratio Monday was at 59%, the five-year at 62%, the 10-year at 75% and the 30-year at 93%, according to Municipal Market Data’s 3 p.m. ET read. ICE Data Services had the two-year at 59%, the five-year at 62%, the 10-year at 73% and the 30-year at 92% at a 4 p.m. read.

Monday’s market strength is a carryover from Friday, when munis rallied two to 12 basis points after a weaker-than-expected jobs report solidified expectations of a September rate cut. This was the largest single-day rally since April.

“It was nice to see the muni market [keep up] with the Treasury market,” Chad Farrington, co-head of municipal bond investment strategy at DWS, said of the two-day rally.

“Sometimes, as is usually the case, munis don’t necessarily go to the same length or lag a bit, but it was probably a good combination of another week of inflows, supply was a little lighter than what we’ve been seeing in July and August, and then you get that expectation of Fed[eral Reserve rate] cuts, and it’s continuing today,” he said.

Some market participants may have been “caught offsides, a little bit short of bonds, a little late in the inventory. So there’s a little bit of a grab going on just to get paper,” Farrington said, noting even high-yield is catching on.

Monday’s rally is a “continuation of what we are seeing,” as the market is actively repositioning where it needs to go, said Alice Cheng, director of municipal credit and investor strategy at Janney.

“With a disappointing jobs report on Friday, investors have fully priced in a 25-basis-point cut later this month with the possibility of two additional rate cuts this year,” said Jason Wong, vice president of municipals at AmeriVet Securities.

More economic data is released this week and all eyes will be on these reports, Cheng said.

Inflation data and retail sales later this week will give market participants an idea of the size of this month’s rate cut and how many will follow in 2025, Wong said.

In a way, the market was looking for an excuse to rally and rose to the occasion on Friday, said Matt Smith, founder and CEO of Spline Data, as relative value has been particularly cheap for a long time, especially on the long end.

Not many deals come to market on Fridays and most investors are focused on the secondary market, Smith said.

“When you have a big rally, everyone tries to pile in and there’s no other place for that liquidity to go,” he said. “People were probably having trouble buying in previous days too, as the market was rallying, so that need to buy/deploy cash just kind of builds up throughout the week.”

Market participants believed the market would rally at some point in the second half, but Mikhail Foux, managing director and head of municipal research and strategy at Barclays, pegged it to happen later in the year.

The rally, though, was always going to be a function of what rates would do given the focus on the Fed and what it will do over the next several weeks, he said.

But even before the jobs report, the market was performing well, Foux noted.

Along with rates are and what the Fed will do, other factors, like “strengthening” fund flows and “not overwhelming supply,” contributed to why the market is performing so well right now, he said.

While it looks like munis are rallying because of the rates market rally, but with current ratios and spreads, it doesn’t seem to be much of a rally, said Vikram Rai, a portfolio manager and macro trader at First New York.

“I don’t think we’ll rally much harder on because the 10-year [UST] is already hovering around 4%. … If there’s any kind of negative surprise, we could see the rate market sell off. And if the rate market sell off … munis would sell off more,” he said.

“I would be careful with munis right now. I would lock in my profits,” Rai said. “The recent rally has helped it out a bit, and I would probably come back to the market in late October, because supply and demand technicals are not supportive of this right now.”

AAA scales
MMD’s scale was bumped four to eight basis points: The one-year was at 2.15% (-4) and 2.06% (-5) in two years. The five-year was at 2.23% (-5), the 10-year at 3.02% (-7) and the 30-year at 4.35% (-8) at 3 p.m.

The ICE AAA yield curve was bumped three to seven basis points: 2.15% (-3) in 2026 and 2.09% (-4) in 2027. The five-year was at 2.25% (-5), the 10-year was at 2.99% (-6) and the 30-year was at 4.39% (-7) at 4 p.m.

The S&P Global Market Intelligence municipal curve was bumped two to eight basis points: The one-year was at 2.14% (-2) in 2025 and 2.06% (-4) in 2026. The five-year was at 2.23% (-4), the 10-year was at 3.01% (-5) and the 30-year yield was at 4.35% (8) at 4 p.m.

Bloomberg BVAL was bumped three to eight basis points: 2.09% (-3) in 2025 and 2.09% (-3) in 2026. The five-year at 2.20% (-5), the 10-year at 2.99% (-6) and the 30-year at 4.35% (-8) at 4 p.m.

Treasuries saw gains.

The two-year UST was yielding 3.494% (-2), the three-year was at 3.459% (-2), the five-year at 3.567% (-2), the 10-year at 4.076% (-3), the 20-year at 4.644% (-6) and the 30-year at 4.687% (-7) near the close.

Primary to come
The Cities of Dallas and Fort Worth, Texas, (A1/AA-//AA/) are set to price Wednesday $1.717 billion of Dallas-Fort Worth International Airport joint revenue refunding and improvement bonds, consisting of $1.417 billion of Series 2025A-1 and $300 million of Series 2025A-2. BofA Securities.

Atlanta (Aa3/AA//AA+/) is set to price Tuesday $1.03 billion of Hartsfield-Jackson Atlanta International Airport general revenue bonds, consisting of $51.89 million of non-AMT Series 2025A bonds, $926.705 million of green Series 2025B-1 bonds and $51.175 million of Series 2025B-2 bonds. J.P. Morgan.

Austin, Texas (/AAA/AAA/) is set to price Tuesday a $774.515 million deal, consisting of $349.255 million of public improvement and refunding bonds, $273.025 million of certificates of obligation, $37.63 million of public property finance contractual obligations, $84.715 million of taxable public improvement bonds and $29.89 million of taxable certificates of obligation. Wells Fargo.

The Chicago Board of Education (/BB+//BBB/) is set to price Wednesday $650 million of unlimited tax GOs. Loop Capital Markets.

The Sullivan County Resort Facilities Local Development Corp. is set to price Thursday $561 million of nonrated tax-exempt revenue bonds. KeyBanc Capital Markets.

The Savannah-Georgia Convention Center Authority is set to price Tuesday $386.65 million of convention center hotel revenue bonds, consisting of $87.425 million of Series A bonds (/BBB-//), $209.435 million of non-rated Series B and $89.79 million of Series C bonds (/BBB-//). Morgan Stanley.

The Adventist Health System/West (/BBB+/BBB+/) is set to price Thursday $372.62 million of taxable corporate CUSIPs. RBC Capital Markets.

The California Health Facilities Financing Authority (/BBB+/BBB+/) is set to price Thursday $308.425 million of Adventist Health System/West fixed-mode revenue bonds, Series 2025A. RBC Capital Markets.

The cities of Dallas and Fort Worth, Texas, (A1/AA-//AA/) are set to price Wednesday $292.84 million of non-AMT Dallas Fort Worth International Airport joint revenue refunding and improvement bonds, Series 2025B. Raymond James.

The Mt. San Antonio Community College District, California, (Aa1/AA//) is set to price Tuesday $250 million of Election of 2024 GOs, consisting of $230 million of Series 2025A bonds and $20 million of taxable Series 2025B bonds. Barclays.

The Long Beach Community College District, California, (Aa2/AA//) is set to price Wednesday $235 million of GOs, consisting of $200 million of Election of 2016 GOs, Series 2025E, and $35 million of Election of 2024 GOs, Series 2025 A-1. Raymond James.

Honolulu (/AA+/AA/) is set to price Wednesday $223.295 million of first bond resolution green senior wastewater system revenue bonds, Series 2025B. BofA Securities.

The Missouri Housing Development Commission (/AA+//) is set to price Tuesday $187.5 million of non-AMT single-family mortgage revenue bonds (First Place Homeownership Loan Program), Series 2025F. Stifel.

The Florida Housing Finance Corp. (Aaa///) is set to price Wednesday $150 million of non-AMT homeowner mortgage revenue bonds, Series 2025 5. BofA Securities.

The Virginia Housing Development Authority (Aaa/AAA//) is set to price Tuesday $140.96 million of taxable commonwealth mortgage bonds, Series D. Morgan Stanley

The Ohio State Treasurer (Aa1//AA+/) is set to price Tuesday $114.29 million of capital facilities lease-appropriation bonds (Adult Correctional Building Fund Projects), Series 2025A. Piper Sandler.

The Pomona Unified School District, California, (Aa3///) is set to price Tuesday $100 million of Election of 2024 GOs, Series A. Stifel.

Competitive
The Clark County School District, Nevada, (A1/AA-//) is set to sell $579.99 million of limited tax GO building and refunding bonds, Series 2025B, at 11:30 a.m. Eastern Tuesday.

The Douglasville-Douglas County Water and Sewer Authority, Georgia, (Aa2/AA//) is set to sell $206.4 million of water and sewerage revenue bonds at 10:30 a.m. Tuesday.

Salt Lake County, Utah, (/AAA//) is set to sell $115.055 million of sales tax revenue bonds at 11:30 a.m. Thursday.

The Alaska Housing Finance Corp. (Aaa/AAA//) is set to price $110 million of non-AMT collateralized bonds (Veterans Mortgage Program), First Series 2025, at noon Tuesday.

The Boston Water and Sewer Commission is set to sell $100 million of senior general revenue bonds, Series 2025A, at 11 a.m. Thursday.