Munis cheapen, short-term USTs slightly firmer
Munis sold off in parts of the curve on Wednesday, as U.S. Treasuries were slightly firmer on the short end and equities ended lower.
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Muni yields were cut by three to 10 basis points, depending on the scale, with the biggest losses in the 10- to 20-year part of the curve. UST yields richened by up to three basis points on the front end and were little changed out long.
Muni yields have been extremely volatile over the last several weeks, but the opportunity for investors has become “even sharper,” said Tom Kozlik, head of public policy and municipal strategy at Hilltop Securities.
Investors should remain focused on the opportunity in front of them, Kozlik said, “and not get bogged down in the volatility, and not get bogged down in trying to call the peak.”
Credit quality peaked around two years ago, Kozlik said, and there is selective weakness, especially in the K-12 education and healthcare sectors.
“But overall, credit in the public finance sector is pretty strong,” Kozlik said. “This volatility, the yields rising, isn’t a result of questions about credit quality in the municipal sector.”
The Federal Reserve released the minutes of the September Federal Open Market Committee meeting on Wednesday.
The minutes “revealed a Fed increasingly concerned that inflation is proving more persistent amid resilient economic growth, elevated energy prices, and strong AI-driven investment demand,” wrote Daniel Siluk, head of global short duration and liquidity at Janus Henderson Investors.
“With labor market risks appearing more balanced and inflation risks skewed to the upside, most officials signaled that additional policy tightening may still be required,” Siluk wrote.
ICI data
The Investment Company Institute Wednesday reported outflows of $6.67 billion for the week ending Sept. 30, following $2.07 billion of outflows the previous week. These were the largest outflows since May 2022, dwarfing the second-largest outflow figure from the past two years, $3.71 billion for the week ending April 9, 2025.
Exchange-traded funds saw inflows of $5.99 billion after $2.99 billion of inflows the week prior, per ICI data. ETF inflow figures grew every week in September.
New-issue market
In the primary market Wednesday, BofA Securities priced for the Kansas Department of Transportation (Aa2/AA//) $250 million of highway revenue bonds, with 5s of 9/2027 at 3.42%, 5s of 2031 at 3.70%, 5s of 2036 at 4.19% and 5.25s of 2041 at 4.73%, callable 9/2027.
In the competitive market, the Maryland Department of Transportation (Aa1/AAA/AAA/) sold to J.P. Morgan Securities $410 million of consolidated transportation bonds, Series 2026A, with 5s of 10/2029 at 3.58%, 5s of 2031 at 3.77%, 5s of 2036 at 4.22% and 5s of 2041 at 4.77%, callable 10/2034.
