Municipals sold off Thursday with more cuts across the curve as a correction has ensued for the asset class just ahead of the summer reinvestment season. U.S. Treasuries saw losses and equities were also in the red. Municipal bond mutual funds saw the second week of outflows as investors pulled $217.6 million from the funds after $546.2 million of outflows the week prior, according to LSEG Lipper. High-yield continued to show strength, though, with inflows of $206.5 million after $125.7 million of inflows the previous week. The market correction may have finally begun, as triple-A yields have risen as much 13 to 17basis points on the front end and belly of the curve since Monday, noted Barclays strategists Mikhail Foux and Clare Pickering. Due to this, muni-UST ratios have risen more than 5 percentage points on 10 years and in with a smaller rise longer out the curve, climbing to highs last seen in late 2023, they said. The two-year muni-to-Treasury ratio Thursday was at 67%, the three-year at 67%, the five-year at 67%, the 10-year at 67% and the 30-year at 84%, according to Refinitiv Municipal Market Data’s 3 p.m. EST read. ICE Data Services had the two-year at 67%, the three-year at 67%, the five-year at 68%, the 10-year at 68% and the 30-year at 85% at 3:30 p.m. Supply is the primary reason behind the selloff, “hardly a surprise as we had around seven $10-plus billion supply weeks in a row,” Barclays strategists said.
Source: The Bond Buyer
