Municipal Summary
Financial markets steadied yesterday on lower volumes; Treasuries held above supportive technical levels but within a narrow range, US equities were mixed and stable, and oil prices crept higher. Municipals — still contending with negative momentum, heavier current and forward issuance, flattening reinvestment flows (at least for now), and a more cautious retail investor — have had little choice but to nudge offered-side levels cheaper. Large/liquid blocks continued to trade weaker vs. their evals yesterday, and high-grade benchmark yields were adjusted 1–2 bps higher too. Meanwhile, lower ratios have not encouraged much of a cross-over bid in recent sessions, banks have been absent, and there is some concern over growing fund outflows after last week's losses — especially if NAVs continue to decline. So the municipal market remains tightly wound — monitoring media and street debates around geopolitical and monetary policy timelines, and what each might mean for inflation, interest rates and risk appetite broadly.
There has been no indication of a breakdown in municipal credit quality, and primary deals have been distributed without much disruption. However, there has been a noticeable shift in secondary trade break disparities in recent weeks; noting: 1) more consistent breaks to lower yields across maturity and coupon curves (Figures 1 & 2), 2) wider differences between negotiated and competitive sales (Figure 3), 3) larger break disparities on larger-sized deals (Figure 4), and 4) a widening disparity trend on lower-rated deals (Figure 5).
In other words, as demand has weakened, fund NAVs have declined, offered-side benchmark yields have been cut, and retail sentiment has cooled, the tone in the primary market has become more concessionary — leaving more room for bonds to break to lower yields when becoming free to trade in the secondary. This is common during periods of weakness and adversity, especially when issuance is high, demand is narrow, and larger deals become more difficult to move.
The charts below use data from deals >$50M that have priced in the last two weeks:
Figure 1, www.munistreetresearch.com
Figure 2, www.munistreetresearch.com
Figure 3, www.munistreetresearch.com
Figure 4, www.munistreetresearch.com
Figure 5, www.munistreetresearch.com
Fundamentals:
Industrial Production +0.7% in April, well above forecast; broad-based, capacity utilization rose.
Empire State Manufacturing jumped, topped expectations; new orders strong, prices received surged, delivery times lengthened.
Atlanta Fed GDPNow tracking Q2 at 4.0%; Goldman cut 12-month recession probability to 25% from 30%.
30Y at highest level since July 2007; 2Y highest since February 2025; MOVE index jumped.
Investment-grade corporate bond funds saw largest inflow since March.
Brent at $110 amid US-Iran standoff; Goldman baseline sees gradual Hormuz reopening late June, Brent to $90 by year-end.
China April data missed across the board — industrial production +4.1% YoY (below forecast), retail sales barely grew, fixed asset investment contracted; new home prices -3.5% YoY (34th consecutive monthly decline).
BAML: tactically short 2Y, 2s5s flattener, 5s30s steepener; shifted two cuts from '26 into '27; 10Y target 4.57-4.78%.
Goldman: UST selloff largely reflects bearish shocks from UK and Japan; favors structures that limit downside in further selloffs.
DB: stagflation fears pushing global yields higher; Japan 10Y at 2.75% (highest since 1997), 30Y at 4.11% (highest since 1999 issuance).
Apollo: G7 yields at highest levels since 2004 — driven by energy inflation, deficits, end of QE, and higher term/inflation premia; higher for longer.
Morgan Stanley: 4.50% on 10Y the key level for equity multiples; expects Treasury/Fed to work together via RMPs, front-end issuance, and buybacks to contain bond vol.
Yardeni: doesn't rule out June hike; sees 10Y peaking 4.75-5.00% as a buying opportunity.
April FOMC minutes Wednesday — BofA expects them to reinforce recent hawkish tone, showing Warsh will inherit a Fed with little appetite to cut.
Market pricing: hike by December 2026 now exceeds 60%; fed funds futures flipped from cuts to one hike over next 12 months.
Iran war 80 days old; ceasefire (41 days) now longer than initial kinetic phase (39 days); Hormuz remains closed.
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.