Munis and USTs rally on flight to quality

Munis and U.S. Treasuries rallied on Thursday, as equities ended mixed.

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Muni yields richened by five to 16 basis points, depending on the scale, with the greatest gains on the short end. The rally has pulled yields back down to their levels from early September; however, they’re still far higher than their yields in late June.

UST yields richened by 12 to 15 basis points, with the greatest gains around the seven-year mark. The 10-year UST fell below 5% for the first time since late September.

A flight to quality is outweighing any concerns about inflation, said Kim Olsan, portfolio manager at NewSquare Capital. Reports of renewed fighting in Iran, unrest in France and initial public offerings not doing well globally made munis more attractive to investors.

The resulting rally is surprising, Olsan said, and it’s erasing some of the value munis had built. But she wouldn’t be surprised if some of the gains fade as news shifts over the next week.

“It’s a very news-centric dynamic right now,” Olsan said.

Fund flows
Investors added $1.603 billion into municipal bond mutual funds in the week ended Wednesday, following $1.614 billion of inflows the prior week, according to LSEG Lipper data.

High-yield funds saw outflows of $756.4 million compared to outflows of $540.1 million the previous week. This is the seventh consecutive week of outflows for high-yield funds.

New-issue market
In the primary market Thursday, BofA Securities priced for the Los Angeles Unified School District (Aa3//AAA/AAA/) $1.4 billion of dedicated unlimited ad valorem property tax general obligation bonds, Series 2026 QRRUS. The first tranche, $59.07 million of taxables, saw 4.45s of 1/2027 priced at par, noncall.

The second tranche, $1.34 billion of tax-exempts, saw 5s of 7/2027 at 2.92%, 5s of 2031 at 3.36%, 5s of 2036 at 3.82%, 5.25s of 2041 at 4.42%, 5.25s of 2046 at 4.81%, 5s of 2051 at 5.05% and 5.5s of 2051 at 4.98%, callable 7/2036.

J.P. Morgan priced for the Los Angeles Department of Water and Power (Aa3//AA-/AA/) $501.27 million of power system revenue bonds, Series 2026C, Subseries C-2, with 5s of 7/2027 at 3.19%, 5s of 2031 at 3.63%, 5s of 2036 at 4.03% and 5s of 2040 at 4.49%, callable 7/2036.

In the competitive market, Suffolk County, New York, (/AA-/AA/) sold to BofA Securities $190.82 million of public improvement serial bonds, Series 2026A, with 5s of 10/2027 at 2.65%, 5s of 2031 at 3.03%, 5s of 2036 at 3.54%, 5s of 2041 at 4.20% and 5s of 2044 at 4.60%, callable 10/2034.