Municipals were a touch firmer in spots Wednesday as U.S. Treasury yields fell further and equities ended mixed.
The two-year municipal to UST ratio Wednesday was at 63%, the five-year at 64%, the 10-year at 68% and the 30-year at 87%, according to Municipal Market Data’s 3 p.m. EST read. ICE Data Services had the two-year at 62%, the five-year at 63%, the 10-year at 66% and the 30-year at 84% at 4 p.m.
The Investment Company Institute reported inflows of $635 million for the week ending Feb. 19, following $336 million of outflows the previous week.
Exchange-traded funds saw inflows of $782 million after $1.385 billion of inflows the week prior, per ICI data.
It has been a bit of a “heavy start” to the year for issuance, said Jeff Devine, a municipal research analyst at GW&K.
Issuers have flocked to the muni market to potentially get ahead of the full, or partial, elimination of the tax exemption, along with the desire to fund long-deferred projects needed to upgrade deteriorating infrastructure, he said.
Inflation is also a factor, especially as construction costs “skyrocket,” he said.
The surge in issuance has been helped by mega deals, including this week’s $1 billion-plus deal from the South Carolina Public Service Authority, and more are already slated for next month.
February offers some stability regarding the supply/demand dynamic, said Jeff Timlin, a managing partner at Sage Advisory.
Then in March and April, there is a dropoff in terms of coupons and maturities coming due relative to the average supply that comes during those months, he said.
On the policy front, the potential elimination of the tax exemption remains front and center, Timlin said.
“It’s not a one-sided argument in terms of what does it cost the federal government in terms of lost revenue. What is the net benefit to society, not just in terms of cost savings?” he said.
The elimination of the tax exemption would lead to increased borrowing costs for municipalities, which “makes them have to raise revenues in other areas, which again can reduce, on a state-by-state basis, consumption because people will be focusing on raising revenues, and lead to higher taxes,” Timlin said.
However, Devine noted the possibility of the tax exemption being eliminated, which comes up in every budget discussion, is pretty low, though he notes it is elevated compared to previous conversations.
“There’s a history of a lot of lawmakers kind of whittling away at it in some respect, but never doing away with that outright,” he said, citing the elimination of advanced refundings in 2017 as a “clear example.”
“Regarding the future of the municipal exemption, press reports indicate that House members are open to using the scoring method preferred by Senate Republicans, which would allow for permanent extensions without needing significant offsets due to reconciliation rules,” said J.P. Morgan strategists.
At the same time, they noted, “proposals like raising the endowment tax rate on universities are looking more likely,” implying that “marginalization of the exemption on certain sectors of the market, such as higher ed, are clearly still at risk.”
In the primary market Wednesday, BofA Securities priced for the New York City Municipal Water Finance Authority (Aa1/AA+/AA+/) an upsized $950 million of water and sewer second general resolution revenue bonds, Fiscal 2025 Series BB, with 5s of 6/2043 at 3.77%, 4s of 2044 at 4.09%, 5.25s of 2050 at 4.12% and 5.25s of 2055 at 4.19%, callable 6/15/2035.
Jefferies priced for Auburn University (Aa2/AA-/NR/NR/) $346.185 million of general fee revenue bonds. The first tranche, $137.825 million of Series 2025A, saw 5s of 6/2026 at 2.62%, 5s of 2030 at 2.77%, 5s of 2035 at 2.98%, 5s of 2040 at 3.36%, 5s of 2045 at 3.93%, 5s of 2050 at 4.13% and 5s of 2055 at 4.14%, callable 6/1/2035.
The second tranche, $208.36 million of Series 2025B, saw 5s of 6/2026 at 2.62%, 5s of 2030 at 2.77%, 5s of 2035 at 2.98%, 5s of 2049 at 3.31% and 5s of 2042 at 3.66%, callable 6/1/2035.
Wells Fargo priced for the Humble Independent School District, Texas, (Aaa/AAA//) $268.425 million of unlimited tax school building and refunding bonds, with 5s of 2/2026 at 2.66%, 5s of 2030 at 2.77%, 5s of 2035 at 2.98%, 5s of 2040 at 3.37%, 5s of 2044 at 3.83%, 5s of 2049 at 4.06% and 4.5s of 2055 at 4.32%, callable 2/15/2035.
In the competitive market, the Springfield Board of Public Utilities, Missouri, sold $275.53 million of certificates of participation to BofA Securities, with 5s of 11/2028 at 2.65%, 5s of 2030 at 2.71%, 5s of 2035 at 3.01%, 5s of 2040 at 3.36%, 4s of 2045 at 4.108% and 4s of 2047 at 4.171%, callable 5/1/2035.
Hoboken, New Jersey, sold $172.019 million of bond anticipation notes to Wells Fargo, with 4s of 3/2026 at 2.73%, noncall.
AAA scales
MMD’s scale was bumped up to two basis points: The one-year was at 2.54% (-2) and 2.56% (-2) in two years. The five-year was at 2.63% (-2), the 10-year at 2.87% (-1) and the 30-year at 3.92% (unch) at 3 p.m.
The ICE AAA yield curve was bumped two to three basis points: 2.58% (-3) in 2026 and 2.54% (-3) in 2027. The five-year was at 2.62% (-3), the 10-year was at 2.86% (-3) and the 30-year was at 3.82% (-2) at 4 p.m.
The S&P Global Market Intelligence municipal curve was bumped up to a basis point: The one-year was at 2.60% (unch) in 2025 and 2.60% (unch) in 2026. The five-year was at 2.66% (-1), the 10-year was at 2.89% (-1) and the 30-year yield was at 3.85% (-1) at 4 p.m.
Bloomberg BVAL was bumped up to a basis points: 2.49% (-1) in 2025 and 2.55% (-1) in 2026. The five-year at 2.63% (-1), the 10-year at 2.87% (-1) and the 30-year at 3.86% (unch) at 4 p.m.
Treasuries were firmer.
The two-year UST was yielding 4.071% (-3), the three-year was at 4.042% (-5), the five-year at 4.076% (-5), the 10-year at 4.25% (-5), the 20-year at 4.553% (-5) and the 30-year at 4.51% (-5) near the close.
Primary to come
The Black Belt Energy Gas District (Baa1/NR/NR/NR/) is set to price $900 million of gas project revenue bonds, 2025 Series B. Goldman Sachs.
The Pennsylvania Turnpike Commission (Aa3///) is set to price Thursday $602.81 million of turnpike revenue bonds. RBC Capital Markets.
The Massachusetts Development Finance Agency (Aa3/AA-/NR/NR/) is set to price Thursday $100 million of Boston University Issue refunding revenue bonds, Series 2025B-2, terms 2048, 2048. Barclays.
Competitive
The Florida Department of Transportation is set to sell $207 million of revenue bonds, at 11 a.m. Thursday.