Municipal Spreads: This past week, muni yields rose by an average of 2.4 basis points across the curve with yields on 10-year notes rising by 3.4 basis points to end the week at 2.96%. With the cuts across the curve this past week, munis did underperform Treasuries with the 10-year muni-to-Treasury ratio is now yielding 66.01%, compared to the prior week when the yield was at 64.57%. We did see a slight steepening of the curve with the curve steepening by 0.5 basis points to end the week at 186 basis points.

Muni bond funds continued to see positive fund flows as muni bond funds saw investors add nearly $625 million to muni bond funds this past week. This follows prior week’s inflow of $1.4 billion according to LSEG Lipper Global U.S. Funds Flows Data.

Munis posted a weaker tone this past week with yields moving higher across much of the curve in response to rising U.S. Treasury rates and continued uncertainty surrounding the Federal Reserve’s path for interest rates. The increase in Treasury yields pressured tax-exempt valuations with the greatest weakness occurring in intermediate range, resulting in lower bond prices and a modest steepening of the yield curve. In the 2027-2029 range we saw yields rise by just 1-2 basis points, the 2030-2038 range saw a 2-5 basis point cut, and the 2039-2056 maturities saw a 1 -2 basis point cut. With the weaker tone this past week, muni returns dipped lower for the month to .21% and returns for the year are now at 1.56%

Muni-to-Treasury ratios moved higher during the week as municipal bonds lagged the selloff in the Treasury market, resulting in improved relative value across much of the curve. The increase in ratios was most pronounced in intermediate and long range of maturities, where investors continued to demand additional compensation amid elevated rate volatility. As Treasury yields pushed higher, tax-exempt yields also rose, but municipals generally cheapened relative to their taxable counterparts. The 10-year and 30-year ratios finished the week at some of their most attractive levels in recent weeks, drawing increased interest from crossover buyers. Overall, the week ended with municipals offering better relative value versus Treasuries, particularly on the long end of the curve, where ratios remain the most compelling.