Munis cheapen, USTs little changed

Muni yields were weaker once again on Wednesday ? though the asset class saw smaller cuts than the day before ?as U.S. Treasuries were little changed and equities ended mixed.

Muni yields cheapened by one to three basis points. USTs were narrowly mixed.

Although muni valuations became "less compelling" in April from March's highs, Pat Haskell wrote for BlackRock (BLK), technical conditions "are likely to provide a degree of support in the months ahead." Historically, seasonal reinvestment demand in the summer has met or exceeded new issuance, he said.

"These seasonal patterns are likely to hold this year. Although projected supply of approximately $54 billion per month would represent a record pace for the summer period, demand conditions remain firmly supportive," Haskell wrote. "Persistent inflows into open-end and [exchange-traded fund] structures, combined with strong reinvestment needs, should be sufficient to absorb elevated issuance and provide a meaningful backstop, reinforcing the market's capacity to generate stable returns."

PPI data
"The hot PPI data is sending yields sharply higher," said Cooper Howard, director of fixed income research and strategy at the Schwab Center for Financial Research. "The headline number was bad, but stripping out energy costs still shows that there's inflation in the pipeline."

After the release, bond prices fell, "lifting the yield on the benchmark 10-year Treasury note close to a July 2025 high of over 4.48%," noted Gary Schlossberg, global strategist at Wells Fargo Investment Institute.

"The probability of a [Federal Reserve] rate hike by December is up sharply in the futures market ? not yet fully priced in, but far more likely than a rate cut," he said.

The rise in the 10-year yield can partly be attributed to higher 10-year inflation expectations, said FHN Financial Chief Economist Chris Low.

"Since April 24, five-year forward five-year inflation expectations have risen from a one-year low toward the middle of their three-year range, suggesting traders are losing previously growing optimism long-run inflation was under control."

ICI reports
The Investment Company Institute Wednesday reported inflows of $1.086 billion for the week ending May 6, following $1.361 billion of inflows the previous week.

Exchange-traded funds saw inflows of $1.289 billion after $891 million of inflows the week prior, per ICI data.

New-issue market
In the primary market Wednesday, BofA Securities priced for the San Francisco Airport Commission (Aa3/AA-//) $1.157 billion of second series revenue refunding bonds. The first tranche, $803.11 million of AMT Series 2026A bonds, saw 5.25s of 5/2038 at 3.74%, 5.25s of 2041 at 3.95%, 5.25s of 2045 at 4.31%, 5.5s of 2051 at 4.68% and 5.5s of 2056 at 4.76%, callable 5/2036.

The second tranche, $353.595 of non-AMT Series 2026B bonds, saw 5s of 5/2027 at 2.40%, 5s of 2031 at 2.55%, 3s of 2036 at 3.16%, 5s of 2036 at 2.96%, 5s of 2041 at 3.45%, 5s of 2046 at 4.05%, 5.25s of 2046 at 4.00%, 5s of 2051 at 4.35% and 5s of 2056 at 4.46%, callable 5/2036.

Wells Fargo (WFC) priced for Georgetown, Texas, (/AA-/AA-/) $353.4 million of utility system revenue bonds, with 5s of 8/2027 at 2.71%, 5s of 2031 at 3.02%, 5s of 2036 at 3.37%, 5s of 2041 at 3.79%, 5s of 2046 at 4.29%, 5.25s of 2053 at 4.65% and 5s of 2056 at 4.77%, with maturities past 2032 insured by BAM, callable 2/2036.