Munis steady to firmer but yields could ‘stabilize’

Munis were steady to firmer in spots Wednesday, as U.S. Treasuries were little changed and equities ended up.

The two-year muni-UST ratio Wednesday was at 66%, the five-year at 64%, the 10-year at 70% and the 30-year at 90%, according to Municipal Market Data’s 3 p.m. EDT read. ICE Data Services had the two-year at 67%, the five-year at 65%, the 10-year at 70% and the 30-year at 89% at a 4 p.m. read.

“In theory at least, municipal yields should be able to stabilize here; levels remain attractive for pure income buyers while more sustainable constructive fund inflows are just enough to speak for rising issuance in the absence of meaningful reinvestment,” said Matt Fabian, president of Municipal Market Analytics.

MMA now pegs issuance at $565 billion for the year, lower than previous estimates, “perhaps reflecting issuers pulling back or pulling bonds amid all the uncertainty, most importantly that over their own budgets as federal aid cuts keep getting larger,” he said.

A decrease in supply could allow an “atypical” tax-exempt rally in October, which is seasonally the second weakest month, particularly at intermediate and longer maturities if muni mutual funds see inflows, Fabian said.

“Such might not be for the best, noting how mid-shutdown delays in jobs and inflation data releases should be managed with conservative assumptions (i.e., negative for bond prices and spreads); and the shutdown is now more likely to linger than be cured,” he said.

Meanwhile, “baseline 2025 yield boosters — rising UST supply, a need to provide income to [separately managed account] buyers, building muni credit pressure likely to catalyze more downgrades than the opposite — are all still intact and, in particular, the last may be getting stronger,” Fabian said.

Front-end muni-USTs ratios have rebounded from their “Fed-related exuberance,” while longer ratios have not moved much: underwriters still need attractive yields to sell bonds, he noted.

With customer selling last week falling to the lowest level since June at $18 billion, that suggests holders are not anxious, Fabian said.

“But this is a well-priced market where the marginal buyer wants income, not performance: a restraint on total return potential,” he said.

Elsewhere, the Investment Company Institute Wednesday reported inflows of $369 million for the week ending Oct. 8, following $541 million of inflows the previous week.

Exchange-traded funds saw inflows of $2.253 billion after $721 million of inflows the week prior, per ICI data.

Muni demand has been positive over the past several weeks, said Daryl Clements, while the yield curve hasn’t been this steep since 2014.

“Investors are recognizing this steepness, as 56% of mutual fund and [exchange-traded fund] flows have recently been going into longer-duration strategies,” he said.

In November and December, net supply is expected to turn negative by $4 billion, meaning $4 billion more in reinvestment cash will hit the market than bonds being issued, Clements said.

This tailwind follows the likely Federal Reserve rate cut at its October meeting, he said.

This second straight Fed cut could lead to investors moving out of cash and investing further out along the yield curve to take advantage of a rallying bond market, Clements said, noting that if a year-end rally happens, it would likely be driven by cheaper long-end bonds.

In the primary market Wednesday, Wells Fargo priced for New York City (Aa2/AA/AA/AA+/) $1.88 billion of taxable GOs, Fiscal 2026 Series E. Details for the pricing were unavailable as of 3:30 p.m.

Goldman Sachs priced for the JobsOhio Beverage System (Aa2/AA+//) $597.19 million of statewide senior lien liquor profits bonds. The first tranche, $501.455 million of tax-exempt, revenue refunding and new money bonds, Series 2025A, saw 5s of 1/2027 at 2.53%, 5s of 2030 at 2.47%, 5s of 2035 at 2.93%, 5s of 2045 at 4.13%, 5s of 2050 at 4.37% and 5s of 2053 at 4.41%, callable 1/1/2036.

Details for the second tranche, $95.735 million of taxable revenue refunding bonds, Series 2025B, were unavailable as of 3:30 p.m.

BofA Securities priced for Chicago (/A/A/A/) $423.125 million of Chicago Midway Airport senior lien revenue and revenue refunding bonds. The first tranche, $98.375 million of AMT bonds, Series 2025A, saw 5s of 1/2027 at 3.05%, 5s of 2030 at 3.12%, 5s of 2035 at 3.60%, 5s of 2040 at 4.20%, 5.25s of 2045 at 4.60% and 5.5s of 2050 at 4.75%, callable 1/1/2034.

The second tranche, $324.75 million of non-AMT bonds, Series 2025B, saw 5s of 1/2034 at 2.95%, 5s of 2035 at 3.08%, 5s of 2040 at 3.74%, 5s of 2045 at 4.28%, 5s of 2050 at 4.51% and 5s of 2055 at 4.54%, callable 1/1/2035.

Raymond James priced for the Pennsylvania Turnpike Commission (A2/A+/A/A+/) $304.3 million of turnpike subordinate revenue refunding bonds, First Series of 2025, with 5s of 6/2026 at 2.66%, 12/2026 at 2.64%, 5s of 6/2030 at 2.64%, 5s of 12/2030 at 2.67%, 5s of 12/2035 at 3.12%, 5s of 12/2040 at 3.74%, and 5s of 12/2042 at 4.01%, callable 12/1/2035.

Stifel priced for the Indianapolis Local Public Improvement Bond Bank (Aa3/AA+//) $300.3 million of refunding bonds, Series 2025D, with 5s of 1/2026 at 2.70%, 5s of 2030 at 2.65%, 5s of 2035 at 3.12% and 5s of 2040 at 3.77%, callable 1/15/2035.

AAA scales
MMD’s scale was bumped up to three basis points: 2.40% (unch) in 2026 and 2.33% (unch) in 2027. The five-year was 2.34% (unch), the 10-year was 2.82% (-2) and the 30-year was 4.16% (unch) at 3 p.m.

The ICE AAA yield curve was bumped up to three basis points: 2.43% (unch) in 2026 and 2.33% (-1) in 2027. The five-year was at 2.35% (unch), the 10-year was at 2.82% (-3) and the 30-year was at 4.13% (-3) at 4 p.m.

The S&P Global Market Intelligence municipal curve was bumped up to four basis points two years and out: The one-year was at 2.40% (unch) in 2025 and 2.32% (unch) in 2026. The five-year was at 2.33% (+1), the 10-year was at 2.82% (-2) and the 30-year yield was at 4.15% (unch) at 3 p.m.

Bloomberg BVAL was bumped up to two basis points: 2.34% (unch) in 2025 and 2.31% (unch) in 2026. The five-year at 2.25% (-1), the 10-year at 2.81% (-2) and the 30-year at 4.12% (-1) at 4 p.m.

Treasuries were little changed.

The two-year UST was yielding 3.501% (+2), the three-year was at 3.507% (+2), the five-year at 3.624% (+2), the 10-year at 4.039% (+1), the 20-year at 4.603% (+1) and the 30-year at 4.634% (flat) near the close.

Primary to come
CommonSpirit Health (A3/A-/A-/) is set to price Thursday $2.336 billion of taxable corporate CUSIPs, Series 2025A. BofA Securities.

The Dormitory Authority of the State of New York (/AA+/AA+/) is set to price Thursday $1.599 billion of state sales tax revenue refunding bonds, Series 2025A. Jefferies

The Washington Health Care Facilities Authority (A3/A-/A-/) is set to price on behalf of CommonSpirit Health Thursday $518.76 million of revenue bonds, Series 2025A. BofA Securities.

The Colorado Health Care Facilities Authority (A3/A-/A-/) is set to price on behalf of CommonSpirit Health Thursday $495.975 million of revenue bonds, Series 2025A. BofA Securities.

The Delaware Economic Development Authority (Baa3/BBB-//) is set to price Thursday $190 million of exempt non-AMT facility refunding revenue bonds (NRF Energy Project), Series 2020A. KeyBanc Capital Markets.

The Pearland Independent School District, Texas, is set to price Thursday $138.425 million of unlimited tax school building and refunding bonds. Piper Sandler.