Muni yields fell Monday, following a U.S. Treasury rally, while equities ended up as market participants signaled their confidence in President-elect Donald Trump’s pick for U.S. Treasury Secretary.
Muni yields were bumped as much as seven basis points, depending on the dimensions, while USTs rallied as much as 15, with each seeing the largest gains out long, in the primary full trading session since hedge fund founder Scott Bessent’s nomination for Treasury Secretary was announced.
“The initial market response suggests that the selection of Bessent in this significant role is seen by financial market participants as an anchor of stability and responsibility within the Trump cabinet,” in line with a UBS report.
Markets could see that “the risks of upper inflation and rates of interest are implicit constraints on the Trump policy agenda, with the eventual policy outcomes potentially less inflationary than some investors previously feared,” UBS strategists noted.
While they don’t rule out the opportunity of further volatility, they expect UST yields to fall in 2025 after rising 65 basis points over the past two months.
The muni market “continued its streak of performance [last week], rising each week up to now in November,” said Birch Creek strategists.
“Strong demand for tax-exempt income has been a key consider muni relative outperformance as of late, with after-tax spreads tightening over the past month,” said Daryl Clements, a portfolio manager at AllianceBerstein.
Munis have done a “complete 180” in comparison with October, where munis saw losses of 1.46% for the month, bringing year-to-date returns below 1%, said Jason Wong, vice chairman of municipals at AmeriVet Securities.
With only one week remaining in November, munis are seeing gains of 0.88%, pushing year-to-date returns to 1.69%, he noted.
High-yield munis are returning +1.05% month-to-date and +6.96% year-to-date. Taxables are returning -0.22% up to now in November, but +2.19% in 2024.
With this rally, munis have outperformed, as USTs are within the red at 0.59%, with a marginal gain of 0.76% year-to-date.
“With munis outperforming this month, munis proceed to be expensive when put next to Treasuries, more in particularly within the long end because the 30-year ratio hit its richest point since January of 2022,” he said.
The 2-year municipal to UST ratio Monday was at 61%, the five-year at 63%, the 10-year at 67% and the 30-year at 83%, in line with Refinitiv Municipal Market Data’s 3 p.m. EST read. ICE Data Services had the two-year at 61%, the five-year at 61%, the 10-year at 65% and the 30-year at 80% at 3:30 p.m.
After the volatile previous couple of weeks, things were “relatively range-bound” last week within the muni market, Clements said.
Muni yields saw slight bumps last week throughout most tenors, largely matching treasuries, Birch Creek strategists said.
While last week was one among a handful of weeks left this 12 months with a “notable” primary calendar, demand for munis remained strong, Birch Creek strategists said.
The market absorbed that provide week, as investors added $1.288 billion to the muni market, Clements noted.
“Longer-dated and high-yield funds reaped the lion’s share of those inflows — as has been the theme all 12 months,” he said.
Meanwhile, short-duration funds lost assets, Birch Creek strategists said.
“This bore out within the trade activity,” they said.
There was a jump in customer bids wanted, but most of that increase was seen in bonds 10 years and in, Birch Creek strategists said.
However, customer purchases increased 12% above recent averages and were led by 10- to 20-year bonds, they said.
Supply this week is available in at a paltry $1.4 billion.
As yearend approaches, supply will proceed to dwindle, though the primary two weeks of December may even see a rebound in issuance.
There are some larger deals already on the calendar.
Coming on the heels of a trio of upgrades, the Greater Orlando Aviation Authority is ready to cost the week of Dec. 2 $843 million of Orlando International Airport airport facilities revenue bonds.
Hawaii is ready to cost Dec. 4 $750 million of taxable GOs.
The Sales Tax Securitization Corp., Illinois, is ready to cost the week of Dec. 2 $679.68 million of refunding sales tax securitization bonds.
The Dormitory Authority of the State of Latest York is ready to cost the week of Dec. 9 around $2.5 billion of new-money and refunding state sales tax revenue bonds.
The Chicago Transit Authority is ready to cost the week of Dec. 9 $600 million of sales tax receipts revenue bonds.
The Metropolitan Water Reclamation District of Greater Chicago is ready to cost Dec. 10 $500 million various GOs.
Primary to return:
The Westfield Washington Multi-School Constructing Corp., Indiana, (/AA+//) is ready to cost Tuesday $303.815 million of Indiana State Aid Intercept Program-insured ad valorem property tax first mortgage bonds, consisting of $188.61 million of Series 2024A, serials 2027-2044, and $115.205 million Series 2024B, serials 2027-2044. Stifel.
The Aerotropolis Regional Transportation Authority, Colorado, is ready to cost Tuesday $205.25 million of non-rated special revenue bonds, terms 2044, 2054. Jefferies.
The State of Latest York Mortgage Agency (Aa1///) is ready to cost Tuesday (retail order period Monday) $88.08 million of non-AMT homeowner mortgage revenue social bonds, terms 2039, 2044, 2049, 2054. Barclays.
Competitive
Andover, Massachusetts, (/AAA//) is ready to sell $39.365 million of GO municipal purpose loan of 2024 bonds at 11 a.m. eastern Tuesday.