Municipals weakened further Thursday — although losses were not as great as Wednesday’s selloff — as U.S. Treasury yields fell and equities ended down.

The two-year municipal to UST ratio Thursday was at 66%, the five-year at 69%, the 10-year at 73% and the 30-year at 92%, according to Municipal Market Data’s 3 p.m. EST read. ICE Data Services had the two-year at 65% the five-year at 68%, the 10-year at 71% and the 30-year at 90% at 4 p.m.

Supply was elevated this week putting pressure on munis.

“The current state of the market can be summed up in four words: more supply than demand,” said Kim Olsan, senior fixed income portfolio manager at NewSquare Capital.

Muni fundamentals “were not aligned to show much outperformance — considering light redemptions, increasing supply and the approach of tax season — but extreme rate/equity price volatility has exacerbated the negative bias,” she said.

Following several days of “anemic price momentum,” more sellers emerged Wednesday, resulting in material muni scale adjustments that approached 20 basis points on the long end of the curve, she said.

Muni yields were cut an additional two to four basis points, depending on the curve, on Thursday.

“The corrective tone leaves 10-year AAA spots at more than a 50% retracement of 2025’s mid-2.80%/3.25%-area range,” she said.

In 30-year AAA spots, Olsan said “new 2025 highs were recorded with some scales nearing a 4.25% implied yield.

Issuance, though, is not expected to let up anytime soon.

“I don’t see [issuance] stalling again,” said Jeff Timlin, a managing partner at Sage Advisory, noting the rate environment will dictate the magnitude of that, “whether it’s a little more or a little less in terms of who and how much comes to market.”

State issuers, though, have had a “pretty good run” with supply coming to market as the deals have been digested relatively well, he said.

Along with supply, the market faces other sources of volatility.

“The current ‘no holds barred’ policy stance coming out of Washington, D.C., since Jan. 20 has taken on broad implications for both domestic and foreign economies and is clearly having an impact upon the financial markets,” said Jeff Lipton, a research analyst and market strategist.

Markets currently have a bit of a “cautious tone,” and that is filtering into munis, which typically don’t handle UST volatility very well, Timlin said.

“Any type of volatility just gives some pause, and it’s a little more shocking to the system for retail investors in general,” he said.

Part of the extended volatility stems from unknowns over tariffs and a possible trade war. On top of that, the threat of eliminating the muni tax exemption is “more real today than ever before,” Lipton said, though he does not envision “retroactive treatment given precedent issues and very likely, legal objections”

If the tax exemption is either partially or fully repealed, “coupled with the potential for extended tax cuts, retail and institutional appetite for the paper can be expected to drop significantly, impacting investments from [separately managed accounts] to tax-free money market funds,” Lipton said.

“Banks, which have displayed tepid interest in tax-exempt munis, will be navigating the realities of higher cost of carry conditions in a rising rate environment that makes taxable bonds more appealing from a yield perspective,” he said.

“Such intensifying threats come at a time when much of our nation’s infrastructure is performing at below-average standards and demands immediate investment in order to address safety and national security concerns,” Lipton said.

“Natural catastrophes are [also] placing increasing strain upon U.S. infrastructure,” he noted.

In the primary market Thursday, Jefferies priced and repriced for the Board of Regents of the University of Texas System (Aaa/AAA/AAA/) $632.07 million of permanent university fund bonds, Series 2025A, with small bumps from the preliminary pricing: 5s of 7/2026 at 2.67% (unch), 5s of 2030 at 2.90% (-1), 5s of 2035 at 3.32% (unch), 5s of 2039 at 3.71% (-1), 5s of 2044 at 4.13% (unch), 5s of 2050 at 4.37% (-2) and 5s of 2051 at 4.38% (-3), callable 7/1/2035.

In the competitive market, the Kansas Development Finance Authority (Aa2///) sold $156.8 million of tax-exempt and taxable athletic facilities revenue bonds, to BofA Securities, with 5s of 9/2033 at 3.25%, 5s of 2035 at 3.45%, 5s of 2040 at 3.78%, 5s of 2045 at 4.29%, 5s of 2050 at 4.50% and 4.5s of 2054 at 4.657%, callable 9/1/2032.

Fund flows
Investors pulled $373 million from municipal bond mutual funds in the week ending Wednesday, following $875.8 million of inflows the prior week, according to LSEG Lipper data.

High-yield funds saw inflows of $107.4 million compared to the previous week’s inflows of $686.8 million.

Tax-exempt municipal money market funds saw outflows of $3.1 billion for the week ending March 11, bringing total assets to $130.52 billion, according to the Money Fund Report, a weekly publication of EPFR.

The average seven-day simple yield for all tax-free and municipal money-market funds rose to 2.10%.

Taxable money-fund assets saw $22.88 billion added.

The average seven-day simple yield fell to 4.01%.

The SIFMA Swap Index rose to 3.62% Wednesday compared to the previous week’s 2.25%.

AAA scales
MMD’s scale was cut three to four basis points: The one-year was at 2.61% (+4) and 2.62% (+4) in two years. The five-year was at 2.80% (+4), the 10-year at 3.12% (+4) and the 30-year at 4.22% (+3) at 3 p.m.

The ICE AAA yield curve was cut two to three basis points: 2.64% (+2) in 2026 and 2.62% (+2) in 2027. The five-year was at 2.78% (+2), the 10-year was at 3.09% (+3) and the 30-year was at 4.17% (+2) at 4 p.m.

The S&P Global Market Intelligence municipal curve was cut four basis points: The one-year was at 2.64% (+4) in 2025 and 2.65% (+4) in 2026. The five-year was at 2.77% (+4), the 10-year was at 3.12% (+4) and the 30-year yield was at 4.18% (+4) at 4 p.m.

Bloomberg BVAL was cut two to three basis points: 2.54% (+2) in 2025 and 2.61% (+2) in 2026. The five-year at 2.76% (+3), the 10-year at 3.06% (+3) and the 30-year at 4.17% (+3) at 4 p.m.

Treasuries were firmer.

The two-year UST was yielding 3.948% (-4), the three-year was at 3.932% (-5), the five-year at 4.018% (-5), the 10-year at 4.263% (-5), the 20-year at 4.616% (-5) and the 30-year at 4.586% (-5) near the close.