Municipal Summary
Equity markets have continued to bounce off the mid-week lows this morning, seemingly encouraged by Iran negotiations and the related retreat in oil prices. Meanwhile, rate markets are drifting a touch cheaper; and while tax-exempt prices have mostly sidestepped through the week, the tone in the municipal market is turning a bit more cautious. Volumes and customer activity have been decent, primary deals have been well subscribed for and funds have continued to grow and deploy AUM. But intermediate price momentum has been lost, ratios (although normalizing) are still inhibiting a meaningful crossover bid, and there is some concern that elevated bids-wanted activity could shift from opportunistic selling into stability/strength toward more forced liquidation pressure in the secondary.
Overall conditions are still mostly neutral, and participants are still anticipating benefits from large reinvestment. But there is a greater risk that, should Treasuries not hold to recent support levels, municipal yields will be pulled higher/faster from a lower ratio base without the support of positive momentum.
Secondary Breaks (Deals >$100M, last two weeks)
A secondary break measures the difference between a deals original issue yield and its first secondary traded yield, adjusted for AAA benchmark movement between sale and trade date. The charts below highlight average break activity over the last two weeks.
Breaks By Borrower: High-grade competitive Maryland GOs broke to higher yields (after adjusting for AAA movement). The deal likely providing some good price discovery for benchmarks.
Break By Sector: Breaks were larger in story and structure-heavy sectors while essential-service credits showed tighter break disparities.
Break By Maturity (Negotiated): Breaks were mixed across the curve over the last two week period, but widest in the poorer performing intermediate area.
Breaks By Offering Type: A larger than normal disparity between competitive and negotiated deals so far this month, but not by much.
Breaks By Rating: Breaks widened as ratings decline - normal behavior.
Breaks By Deal Size: Breaks disparities widened on larger deals - also normal behavior.
Macro/Rate Summary
Headline PPI +1.1% MoM (vs +0.7% expected), matching April for fastest since March 2022; YoY 6.5% — fastest since November 2022; core PPI +0.4% MoM, +4.9% YoY (highest since January 2023).
Initial jobless claims unexpectedly rose to 229K (4-month high); 4-week moving average ticked up but level still low historically.
Atlanta Fed Wage Growth Tracker edged down to 3.5% in May; switchers 3.7%, stayers 3.3%.
BofA card data: May household spending +5.1% YoY (strongest in nearly 4 years); ex-gasoline +3.9%; MoM growth has eased considerably.
US employers expect health-care benefit costs to rise 6.7% in 2026.
30Y auction tailed sharply at 5.020% vs 5.008% WI — weak stats with foreign demand falling, dealer takedown jumped.
December hike pricing fell to 77% (from fully priced earlier in the week) on Iran de-escalation hopes; full hike not priced until March 2027.
ECB hiked 25bps (first since 2023) — described as "robust" not "insurance"; significantly upgraded inflation forecasts (core above target through 2028), downgraded near-term growth; little forward guidance.
BMO: stopped out of tactical 10Y short at 4.48% for a gain; 5+bp drop after Trump's social media post foreshadows sharper rally if Iran agrees; if optimism proves misplaced, 10s back above 4.50%.
DB Monthly Chartbook: core PCE excluding COVID period is highest since 1992; wide 2Y/Fed funds gap predicts rate hikes.
Morgan Stanley: balance of risks shifting toward firmer inflation rather than weaker hiring; sustained disinflation depends on conflict resolution.
Nordea: oil's role as primary rates driver weakening; expects ECB to hike to 3% at consecutive meetings; for FOMC next week expects neutral stance, dot plot likely to remove 2026 cuts and add some hike calls.
AAA: national gas average fell to $4.12 from $4.56 on May 21 — third consecutive weekly decline.
Four G10 central banks (ECB, BoJ, RBA, Norges) have now tightened.
DB Credit: market prices imply nearly 30% of US software leveraged loans should be CCC-rated.
Goldman: among 20 largest IPOs since 2010, average max drawdown in first year was 60%.
Tripp Kaiser, CFA, is the founder of MuniStreet, Executive Director of the Center on Municipal Capital Markets, and a professor of practice at the LBJ School of Public Affairs at the University of Texas at Austin.
The information contained in this publication is for informational purposes only and reflects the opinions of MuniStreet Research. It does not constitute investment or other advice, nor a recommendation or solicitation to buy or sell any security.