PrintMunis steady to firmer in spots, USTs little changed
BY SourceMedia | MUNICIPAL | 01/06/26 04:05 PM ESTMunis were firmer on the front end and the belly of the curve Tuesday as U.S. Treasuries were little changed and equities ended up.
The two-year muni-UST ratio Tuesday was at 67%, the five-year at 62%, the 10-year at 65% and the 30-year at 87%, according to Municipal Market Data's 3 p.m. EDT read. ICE Data Services had the two-year at 66%, the five-year at 62%, the 10-year at 65% and the 30-year at 86% at a 4 p.m. read.
There was a "modest acceleration" in UST curve steepening last week, something that is widely expected to persist during at least the first half of this year, said Matt Fabian, president of Municipal Market Analytics.
"But with potential flight to safety flows into U.S. bonds in consequence of the U.S. military action in Venezuela, the chances for an overall flatter, richer curve have improved," he said. "Uncertainty is, of course, high, meaning conviction should be low, but U.S. threats of more actions against at least a half dozen other countries are being taken far more seriously today than formerly."
Confidence in the muni market is "well placed," Fabian said. 2025 issuance reached a record with a whopping $580 billion, according to LSEG.
"Policy and tax uncertainty early in the year, increased infrastructure spending (and costs), and healthy borrower balance sheets (broadly speaking), drove the increase in supply in 2025," said Bob Lind, co-founder of Lind Capital Partners.
"By many accounts, the record supply wasn't 'pulled forward,' but will instead continue in 2026 as strategists are predicting $600-plus billion in issuance," he said.
Along with surging issuance, last year finished with record trade activity (17.6 million by number), Fabian said.
"Total par traded (primary and secondary markets) rose more modestly to $3.8 trillion, pushing the average trade size to a record low of just $214,000 per trade: a clear function of [separately managed account] activity electronically distributing paper into large numbers of portfolios," he said.
Along with a record $45 billion positive flows into muni exchange-traded funds last year, nearly triple the new assets received by traditional funds, passive, income-based strategies ? which should be "more resilient in the face of (potentially) elevated volatility and/or higher yields " ? are dominating muni demand, Fabian said.
"This is a decent position, considering: the market's seemingly diminished capacity for principal trading and/or liquidity support on both the dealer and customer sides even as growth in passive ETF strategies may periodically strain trading flows; and the still very real prospects for higher intermediate and longer bond yields on inflation fears, these driven by a likely dovish Fed plus rising housing, insurance, tax, utility, grocery, & other costs, most of which may reflect more structural versus cyclical vectors," he said.
In the coming year, Lind expects rate volatility to continue, given the uncertainty over future rate cuts from the Federal Reserve and the almost certain replacement of Fed Chair Jerome Powell.
"Rate volatility and the market uncertainty it creates typically results in mutual fund flow volatility," he said. "We welcome volatility in rates and fund flows as they create investment opportunities for long-term investors, like ourselves."
New-issue market
In the primary market Tuesday, Goldman Sachs
J.P. Morgan priced for the Connecticut Health and Educational Facilities Authority (Aaa/AAA//) $167.205 million of Yale University issue revenue bonds, Series V, with 5s of 7/2036 at 2.82%, noncall.
AAA scales
MMD's scale was bumped up to four basis points: 2.36% (-2) in 2027 and 2.32% (-2) in 2028. The five-year was 2.32% (-3), the 10-year was 2.71% (-2) and the 30-year was 4.23% (unch) at 3 p.m.
The ICE AAA yield curve was bumped one to four basis points: 2.35% (-3) in 2027 and 2.30% (-3) in 2028. The five-year was at 2.31% (-3), the 10-year was at 2.71% (-2) and the 30-year was at 4.16% (-1) at 4 p.m.
The S&P Global Market Intelligence municipal curve saw small bumps: The one-year was at 2.36% (-3) in 2027 and 2.32% (-2) in 2028. The five-year was at 2.33% (-2), the 10-year was at 2.71% (unch) and the 30-year yield was at 4.19% (unch) at 3 p.m.
Bloomberg BVAL was bumped up to four basis points: 2.39% (-4) in 2027 and 2.35% (-3) in 2028. The five-year at 2.30% (-3), the 10-year at 2.65% (-1) and the 30-year at 4.12% (unch) at 4 p.m.
Treasuries were little changed, no more than a basis point or two.
The two-year UST was yielding 3.47% (+2), the three-year was at 3.532% (+1), the five-year at 3.718% (+1), the 10-year at 4.178% (+2), the 20-year at 4.807% (+2) and the 30-year at 4.864% (+1) near the close.
Primary to come
The New York State Thruway Authority (A1/A//) is set to price Thursday $847.835 million of general revenue junior indebtedness refunding obligations, Series 2026A. Goldman Sachs
The Black Belt Energy Gas District (/AA-//) is set to price $814.6 million of gas project revenue bonds, 2025 Series F. J.P. Morgan.
The Tennessee Energy Acquisition Corp. (Aa3///) is set to price $767.545 million of gas project revenue bonds, Series 2026A. Goldman Sachs
The Conroe Independent School District (Aaa/AAA//) is set to price Wednesday $442.915 million of PSF-insured unlimited tax school building bonds, Series 2026. FHN Financial.
The Oregon Department of Transportation (Aa2/AA+/AA+/) is set to price Thursday $223.695 million of highway user tax revenue subordinate lien refunding bonds, Series 2026A. Wells Fargo
The Omaha Public Power District (A1/A//) is set to price Thursday $168.005 million of separate electric system revenue refunding bonds (Nebraska City 2), 2026 Series A. Wells Fargo
The South Dakota Housing Development Authority (Aaa/AAA//) is set to price Wednesday $145 million of homeownership mortgage refunding bonds, consisting of $120 million of non-AMT Series A bonds and $25 million of taxable Series B bonds. Wells Fargo
Broomfield, Colorado, (Aa2///) is set to price Wednesday $112.41 million of sewer activity enterprise revenue and refunding bonds. Stifel, Nicolaus & Co.
Competitive
North Attleborough, Massachusetts, (/AA+//) is set to sell $74.595 million of general obligation municipal purpose loan bonds of 2026, at 11 a.m., Eastern Wednesday.
