Municipals were little changed Monday ahead of the holidays as U.S. Treasury yields rose and equities were mixed.
The two-year municipal to UST ratio Monday was at 64%, the five-year at 65%, the 10-year at 67% and the 30-year at 82%, according to Municipal Market Data’s 3 p.m. EST read. ICE Data Services had the two-year at 65%, the five-year at 66%, the 10-year at 68% and the 30-year at 82% at 4 p.m.
Munis “continued their slide” last week as yields rose an average of 23 basis points across the curve as the Fed Chairman Jerome Powell signaled the Fed will take a “more cautious approach” on interest rate cuts next year, said Jason Wong, vice president of municipals at AmeriVet Securities.
The week’s moves significantly dragged down the positive gains seen this year, he said.
Before the decline, munis were seeing gains of 2.88%, but munis are now seeing losses of 1.76% month-to-date, pushing year-to-date returns to 0.74%.
The belly of the curve saw the largest losses, with yields in the 2038-2040 maturity range rising by 27 basis points, while the longer end of the curve saw yields rise by 24.5 basis points, and the front end of the curve saw cuts of 17 to 21 basis points, Wong said.
With rising yields, ratios increased as a result, with the two-year ratio rising from 62% to 65.41%, the 10-year ratio increasing from 66.39% to 69.29%, and the 30-year ratio — which last week hit its lowest levels in three years — rising from 79.20% to 82.43%, he said.
The “sharp selloff has added some, but not excessive, value to the market, the offered side not capitulating as far as the market’s mid,” said Matt Fabian, a partner at Municipal Market Analytics.
“So while price and yield levels are more attractive than they were a few weeks ago, the upcoming surge of borrowing in 1Q may not permit a substantial rally in tax-exempt prices, especially if U.S. Treasuries continue to fall in response to worries over supply, inflation, etc.,” he said.
However, even before the “violent rate move” during the middle of the week, munis underperformed because of the “ongoing surge” in customer sale lists ahead of the end of the year, Birch Creek strategists said in a weekly report.
“Part of the uptick relative to recent volumes was the typical
“Some portion of these late-year outflows is likely the result of the recent back-off in UST rates and additional tax-related trading thereof,” said J.P. Morgan strategists, led by Peter DeGroot.
“While dealers noted that most mutual funds have not been big sellers, there just wasn’t any desire to step in to catch a falling knife,” Birch Creek strategists said.
Concurrently, they noted “dealers sitting on a bunch of inventory they can’t move near the evals have been much more willing to hit down bids to clean up their books and close out their [profit and loss] for the year.”
AAA scales
MMD’s scale was unchanged: The one-year was at 2.86% and 2.80% in two years. The five-year was at 2.87%, the 10-year at 3.08% and the 30-year at 3.92% at 3 p.m.
The ICE AAA yield curve was little changed: 2.90% (-2) in 2025 and 2.83% (-2) in 2026. The five-year was at 2.88% (+1), the 10-year was at 3.08% (+1) and the 30-year was at 3.87% (unch) at 4 p.m.
The S&P Global Market Intelligence municipal curve was little changed: The one-year was at 2.88% (unch) in 2025 and 2.81% (unch) in 2026. The five-year was at 2.87% (unch), the 10-year was at 3.08% (-1) and the 30-year yield was at 3.87% (unch) at 4 p.m.
Bloomberg BVAL was unchanged: 2.95% in 2025 and 2.80% in 2026. The five-year at 2.88%, the 10-year at 3.12% and the 30-year at 3.83% at 4 p.m.
Treasuries were weaker.
The two-year UST was yielding 4.344% (+3), the three-year was at 4.362% (+5), the five-year at 4.439% (+6), the 10-year at 4.590% (+7), the 20-year at 4.86% (+6) and the 30-year at 4.778% (+6) near the close.