MUNICIPAL bonds have compressed to their tightest spreads versus Treasuries in a year, driven by heavy new issuance and weakening demand across the asset class.
The 10-year MMD-UST ratio reached 74 percent, while the 30-year ratio hit 91 percent—both year-to-date highs that underscore muni underperformance. Muni yields rose five to nine basis points across the maturity spectrum this week, marking the steepest weekly decline since April 2025.
Treasuries declined in tandem, with yields climbing three to six basis points on the two-, three-, five-, and 10-year tenors, pushing all four to their highest levels this year. The two- to five-year sector bore the largest losses.
Despite the recent selloff, municipal bonds have recovered approximately 170 basis points of their 2025 underperformance, suggesting the broader fixed-income rally that drove first-half gains retains structural support. Nuveen analysts noted that conditions underpinning the first-half recovery remain in place, though current market weakness has not yet reversed.
