Municipals were mixed Tuesday but outperformed the U.S. Treasury market while equities closed the session in the red.
Triple-A yield curves barely moved compared to the losses in USTs, which saw yields rise over the entire curve and up to eight basis points 10-years and out, pushing ratios lower.
The two-year municipal to UST ratio Tuesday was at 64%, the five-year at 64%, the 10-year at 65% and the 30-year at 79%, according to Municipal Market Data’s 3 p.m. EST read. ICE Data Services had the two-year at 65%, the five-year at 63%, the 10-year at 65% and the 30-year at 79% at 4 p.m.
Munis are starting 2025 “well situated to distribute what could be a record new-issue calendar,” particularly if Republicans threaten the tax exemption, said Matt Fabian, a partner at Municipal Market Analytics.
This week, a “manageable” calendar will likely be met with large demand. Still, underwriters should be cautious in “pushing yields too low too fast or risk retail/[separately managed account] pushback,” he said. December’s higher yields brought out SMA buyers, with 1.44 million trades, the third most on record, Fabian noted.
“Buyers are ready to buy: an aid to underwriters already carrying inventories at their highest level since 1Q20 despite
Such stronger demand is consistent with $27 billion of maturing and called principal in January, with next month set to be even larger, he said. Bond Buyer 30-day visible supply sits at $9.64 billion.
“And assuming the U.S. budget is as unbalanced as it seems, and that Republicans successfully raise the debt limit in 1H25, UST issuance should be very steep; municipal outperformance seems likely even if tax-exempt sales rival or exceed last year,” he said.
Market participants agree
The muni market “easily absorbed” $500 billion-plus of issuance in 2024 because of mostly consistent inflows into mutual funds and exchange-traded funds, DWS strategists said.
“Exuberant” supply expectations in the first quarter of 2025 could pose a challenge and become a “burden if yields don’t remain sufficiently high or if other headline risks interfere with buyers’ demand for tax-exempts,” Fabian said.
Weaker NAV performance in December and
And “the fund-side of retail participation this year may not be guaranteed,” Fabian noted.
DWS strategists echoed this sentiment noting, “further Treasury rate volatility or distractions from more favorable alternatives could at the very least moderate money invested into the municipal bond market,” they said. However, “these dynamics could create periods of opportunity to buy tax-exempt bonds at attractive yields in 2025.”
Fabian noted that banks’ — and presumably insurance companies’ —
“Given the added uncertainty of impending tax code changes that are most likely to occur later in the year due to other priorities like immigration and tariffs, many issuers could try and come to market in the first half of the year to avoid any potential noise around tax policy,” said DWS strategists.
They noted supply could also surpass normal averages toward the end of the year if any tax code changes directly affect particular sectors — such as previously -targeted higher education and other areas of private activity, similar to 2017, they noted.
In the primary market Tuesday, Goldman Sachs priced for the Southeast Energy Authority (A1///) $980.855 million of energy supply revenue bonds, Series 2025A, with 5s of 6/2029 at 4.30%, 5s of 2030 at 4.34% and 5s of 2035 at 4.53%, make whole call.
Siebert Williams Shank priced for San Antonio (Aa1/AA+/AA/) $181.225 million of water system junior lien revenue refunding bonds, Series 2025A, with 5s of 5/2027 at 2.89%, 5s of 2030 at 2.96%, 5s of 2035 at 3.22% and 5s of 2039 at 3.46%, callable 5/15/2035.
In the competitive market, The Tri-County Regional Vocation Technical School District, Massachusetts, sold $140 million of GO school project loan chapter 70B bonds, to Jefferies, with 5s of 6/2026, 5s of 2030 at 2.76%, 5s of 2035 at 2.96%, 4s of 2040 at 3.70%, 4s of 2045 at 4.05%, 4s of 2050 at 4.20% and 4s of 2054 at 4.25%, callable 6/1/2033.
AAA scales
MMD’s scale was little changed: The one-year was at 2.75% (-2) and 2.74% (-2) in two years. The five-year was at 2.84% (unch), the 10-year at 3.04% (unch) and the 30-year at 3.89% (unch) at 3 p.m.
The ICE AAA yield curve was mixed: 2.79% (-1) in 2026 and 2.78% (unch) in 2027. The five-year was at 2.80% (+1), the 10-year was at 3.01% (+1) and the 30-year was at 3.82% (+1) at 4 p.m.
The S&P Global Market Intelligence municipal curve was little changed: The one-year was at 2.82% (unch) in 2025 and 2.77% (unch) in 2026. The five-year was at 2.81% (-1), the 10-year was at 3.00% (unch) and the 30-year yield was at 3.82% (unch) at 4 p.m.
Bloomberg BVAL saw cuts four years and out: 2.87% (-5) in 2025 and 2.77% (unch) in 2026. The five-year at 2.85% (+1), the 10-year at 3.09% (+2) and the 30-year at 3.84% (+5) at 4 p.m.
Treasuries were weaker across the curve with the largest losses out long.
The two-year UST was yielding 4.299% (+3), the three-year was at 4.368% (+4), the five-year at 4.474% (+5), the 10-year at 4.693% (+8), the 20-year at 4.987% (+8) and the 30-year at 4.919% (+8) at the close.
Primary to come
The San Diego Community College District (Aa1/AAA//) is set to price Thursday $850 million of Election of 2024 GO dedicated unlimited ad valorem property tax bonds, consisting of $700 million of Series A-1 and $150 million of Series A-2. RBC Capital Markets.
The Conroe Independent School District (Aaa/AAA//) is set to price Wednesday $588.815 million of unlimited tax school building bonds, Series 2025. Piper Sandler.
The Board of Regents of the University of Texas System is set to price Wednesday $400 million of revenue financing system bonds, Series 2025A. RBC Capital Markets.
The Utah Housing Corp. (Aa2///) is set to price Wednesday $225 million of single-family mortgage bonds, consisting of $74 million of Series A non-AMT bonds, serials 2026-2037, terms 2040, 2045, 2050, 2055, 2055, and $151 million of Series B taxable, serials 2026-2036, terms 2040, 2045, 2050, 2055, 2055. BofA Securities.
The Ohio Water Development Authority (Aaa/AAA//) is set to price Wednesday $200 million of Fresh Water Revolving Fund water development revenue bonds, Series 2025A, serials 2027-2037, term 2044. Huntington Securities.
The South Carolina State Housing Finance and Development Authority (Aaa///) is set to price Wednesday $173 million of non-AMT mortgage revenue bonds, Series 2025A, serials 2026-2037, terms 2040, 2045, 2050, 2055, 2055. BofA Securities.
The Pittsburgh Water and Sewer Authority is set to price $144.25 million of water and sewer system revenue bonds, consisting of $131.405 million of first lien bonds, Series 2025A, and $12.845 million of subordinate bonds, Series 2025B. BofA Securities.,
The Public Finance Authority (//A+/) is set to price $131.475 million of Kahala Nui Project revenue bonds, Series 2025. HJ Sims.
The Kentucky Housing Corp. (Aaa///) is set to price Thursday $100 million of single-family mortgage revenue bonds, consisting of $40 million of Series A non-AMT bonds, serials 2026-2037, terms 2040, 2045, 2049, 2055, and $60 million of Series B taxables, serials 2026-2036, terms 2040, 2045, 2050, 2053, 2055. BofA Securities.
Competitive
Colorado is set to sell $475 million of education loan program tax and revenue anticipation notes at 11 a.m. Wednesday.