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Munis were steady Thursday as U.S. Treasuries were narrowly mixed and equities ended up.
Geopolitical events and external forces dominated the news cycle this week.
Tuesday saw large cuts to muni yields as a confluence of global and domestic policy led to uncertainty across financial markets. The market saw early weakness Wednesday but reacted favorably to President Donald Trump rolling back tariff threats related to Greenland. However, munis were little changed in secondary trading Thursday.
The muni market has seemed “pretty well insulated,” except for some volatility in the Treasury market, said Brad Libby, fixed income credit analyst at Wellington Management and a fixed income portfolio manager with Hartford Funds.
“Of all these headlines, there’s no direct concern for the muni market or municipal issuers. It’s just tangential concerns of what this does for the economy and rates,” he said.
Furthermore, none of this volatility is directly affecting any particular muni sector, Libby noted.
The two-year muni-UST ratio Thursday was at 61%, the five-year at 59%, the 10-year at 63% and the 30-year at 88%, according to Municipal Market Data’s 3 p.m. EDT read. The two-year muni-UST ratio was at 61%, the five-year at 59%, the 10-year at 63% and the 30-year at 87%, according to ICE Data Services.
Supply got off to a slow start this month as the first two weeks offered little issuance. This week has around $11 billion to $12 billion in supply, followed by two more weeks of $12 billion supply, he said.
Part of the reason for the surge in supply in 2025 and 2026 is that stimulus funds are running out, which has had the biggest effect on state and local governments and the transportation sector, according to Libby.
As COVID-era aid “rolled off” and issuers couldn’t use it to fund their capital projects, they’re starting to bring debt again, compounded by the fact that everything costs more, he said.
Meanwhile, muni mutual funds have seen sizable inflows to start the year, following $50 million of positive flows last year, Libby said.
Part of the reason is “as people reassess to begin the year, and maybe do some reallocations, the drop in money market yields, as the front-end of the Treasury market has come down with the Fed rate cuts, has caused people to think.
“When they’re getting 3.5% or 4%, it was easy just to stay in a money market fund. And now that those rates are getting lower, they’re looking to get out on the curve,” he said.
Tax equivalent yields for the muni market compared to corporates, “you’re getting for A-rated municipal versus A-rated corporates, you’re getting a TEY basis between 50 and 120 basis points more to be in the tax-exempt market than you are in the A-rated corporate market based on maturity,” Libby said.
If there were a significant backup in rates, such as 50 to 75 basis points per quarter, it could interrupt the inflow cycle, he said.
“That gives you a negative print on your mutual fund statements and that tends to pause an inflow cycle when you see losses in your mutual fund statements on a quarterly basis,” Libby said.
New-issue market
In the primary market Thursday, Morgan Stanley priced for the Massachusetts Clean Water Trust (Aaa/AAA/AAA/) $702.39 million of green state revolving fund bonds, Series 27, with 5s of 2/2027 at 2.19%, 5s of 2031 at 2.26%, 5s of 2036 at 2.71%, 5s of 2041 at 3.38%, 5s of 2046 at 4.02%, 5s of 2051 at 4.37% and 5s of 2056 at 4.49%, callable 2/1/2036.
J.P. Morgan priced for Delaware Health Facilities Authority (Aa2/AA//) $328.33 million of revenue bonds (Christiana Care Health System), with 5s of 10/2026 at 2.42%, 5s of 2031 at 2.57%, 5s of 2036 at 3.11%, 5s of 2041 at 3.68%, 5s of 2046 at 4.38% and 5.25s of 2051 at 4.70%, callable 10/1/2035.
Jefferies priced for Hays County, Texas, (/AA+/AA+/) a $133.21 million deal. The first tranche, $94.86 million of combination tax and revenue certificates of obligation, saw 5s of 2/2027 at 2.36%, 5s of 2031 at 2.55%, 5s of 2036 at 2.98%, 5s of 2041 at 3.63%, 5s of 2046 at 4.27% and 4.5s of 2051 at 4.653%, callable 2/15/2035.
The second tranche, $38.35 million of limited tax refunding bonds, saw 5s of 2/2027 at 2.36%, 5s of 2031 at 2.55% and 5s of 2035 at 2.92%, noncall.
Morgan Stanley priced for the Rhode Island Health Educational Building Corp. (/BBB+/BBB+/) $126.775 million of hospital financing revenue bonds (Brown University Health Obligated Group issue), Series 2026B, with 5s of 5/2031 at 3.00% and 5.5s of 2056 at 5.04%, callable 5/15/2036.
Fund flows
Investors added $993.6 million to municipal bond mutual funds in the week ended Wednesday, following $1.825 billion of inflows the prior week, according to LSEG Lipper data.
High-yield funds saw inflows of $351.2 million compared to inflows of $344.2 million the previous week.
Tax-exempt municipal money market funds saw outflows of $3.47 billion for the week ending Jan. 19, bringing total assets to $147.827 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 was 1.08%.
Taxable money-fund assets saw $55.004 billion pulled, bringing the total to $7.534 trillion.
The average seven-day simple yield was 3.38%.
The SIFMA Swap Index was at 1.31% on Wednesday compared to the previous week’s 1.28%.
AAA scales
MMD’s scale was little changed: 2.21% (-1) in 2027 and 2.21% (-1) in 2028. The five-year was 2.28% (-1), the 10-year was 2.67% (-1) and the 30-year was 4.29% (unch) at 3 p.m.
The ICE AAA yield curve was little changed: 2.22% (-1) in 2027 and 2.21% (unch) in 2028. The five-year was at 2.26% (-1), the 10-year was at 2.70% (unch) and the 30-year was at 4.24% (unch) at 4 p.m.
The S&P Global Market Intelligence municipal curve was unchanged: The one-year was at 2.23% in 2027 and 2.23% in 2028. The five-year was at 2.30%, the 10-year was at 2.70% and the 30-year yield was at 4.24% at 3 p.m.
Bloomberg BVAL was unchanged: 2.27% in 2027 and 2.24% in 2028. The five-year at 2.25%, the 10-year at 2.64% and the 30-year at 4.17% at 4 p.m.
Treasuries were narrowly mixed.
The two-year UST was yielding 3.609% (+2), the three-year was at 3.677% (+2) the five-year at 3.846% (+2), the 10-year at 4.25% (+1), the 20-year at 4.807% (-1) and the 30-year at 4.846% (-2) at the close.
