DC Remains Shut, but the Muni Spigot is Wide Open

Macro Update

• Equity (pts/wk, ytd): Dow +711pts/+1.56%, +8.57%; S&P +111pts/+1.69%, +13.30%; Nasdaq +476pts/+2.14%, +17.45%.

• Tech earnings led the way once again, with banks not far behind.

• Business investments + confident consumers = healthy equity combo.

• USTs: Steady with a touch of improvement. 10’s closed the week at 4%… unique demand spillover from other asset classes.

• US fiscal deficit fell $40 billion to $1.78 trillion last year—baby steps.

• Muni Rates: Outperformed USTs with a 5–10bp move in intermediate/long maturities, short going nowhere.

• IG Credit: Very light issuance (except for banks: GS issued 13 billion, 11yrs +92 = solid demand), overall IG OAS 8bps wider on week to +80.

• Commodities: Like Burl Ives sings… silver and gold, silver and gold, everyone wishes for silver (+70% ytd) and gold (+60% ytd).

Muni Insights

• Supply: Over $500B already and 7,800 deals! Festival is in full stride this week with nearly $18B for sale.

• Curve: Nice correction past 3 weeks on front end as yields are 20–30bps higher, back to world of common sense.

• Supply, refundings, and seasonality are correcting factors on front-end rates. Lesson: do not chase ridiculous ratios.

• Credit: This is where we believe the “feel good festival” takes pause (minus unprecedented flows in recent years from federal government, and now shutdown).

• While there are still tremendous credits we like (let’s discuss), the list of avoidables is growing.

• Timing: This year is different—don’t expect the typical 6 weeks off mid-November through year-end. Value all season!

Looking Ahead

Muni supply is strong, with over $500B issued, 7,800 deals, and nearly $18B coming to market, driving front-end yields up 20–30bps as refundings and seasonality normalize rates. Credit quality is diverging, with some names to avoid, while strong credits remain. Unlike typical years, value is expected to persist through year-end rather than taper off mid-November.