Municipal Summary
Yesterday's higher CPI print paused the equity rally and pushed US rates higher across the curve. A mediocre $42B 10yr Treasury auction also didn't help; the latter showing a bid/cover of 2.4 (lowest since the February refunding auction) and just 64% indirect participation (lowest since January of last year). Municipal benchmark yields, already hugging the edge of their moving average and teetering in a neutral/uncertain condition, were also adjusted higher. There was some slight tax-exempt outperformance, but not enough to move ratios from their current neutral state.
There was plenty of municipal secondary volume yesterday (i.e., +15% above average for a Tuesday), not too much selling pressure (i.e., $1.2B in bids-wanted par vs. a 20-day average of $1.0B), and the primary calendar was distributed with only a few spots of pressure (i.e., noting +5-10 bps spreads on the $230M triple-A Fairfax County, VA competitive sell, which was won by BofA with a TIC ~2 bps through the cover bid).
So the session was generally orderly despite benchmark cuts. However, MTD performance is essentially flat, price momentum is negative, there is still plenty of supply to get through despite better reinvestment demand, and several key events still linger on the economic calendar this week (i.e., noting the Trump-XI meeting, PPI data, the 30yr UST auction and any progress with Iran). So municipal participants are contending with a tense marketplace that is defying supportive seasonals many have come to rely on.
The below return tables are updated through May 11:
IG Maturities (%): The 3-month duration divide persists — 10yr is down -1.44% while 20yr+ is up +0.84%. YTD the 20yr bucket leads at +2.47%, consistent with large 10s/20s flattening and stronger fund demand for longer-dated paper.
HY Maturities (%): The 15yr and 20yr buckets lead on nearly every horizon, with +8.47% and +6.97% trailing-year returns. The 3yr bucket at -3.95% remains a clear outlier, driven by a small number of troubled credits.
IG Credit (%): Housing (+1.55%) and Hospital (+1.49%) lead YTD, while the 3-month window is negative across most sectors — Education (-0.43%) and Aa (-0.41%) the weakest, with Hospital and Housing barely holding above zero.
HY Credit (%): Hospital (+3.30%), PR (+3.25%), and W&S (+2.72%) are ahead of the +2.43% broad index YTD. Trailing-year dispersion is extreme: W&S at +9.28% and PR at +9.39% versus Transportation at -4.78% and Tobacco at -3.09%.
Credit Returns (%): EM HY (+14.65%) and EM Gov (+12.74%) dominate on the last 12 months. The 3-month picture favors Lev Loans at +1.58% while Treasuries (-0.62%) and IG Corp (-0.45%) remain negative.
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.