Municipals were slightly firmer as U.S. Treasury yields fell and equities rebounded.
Muni yields were bumped up to three basis points, depending on the curve, while UST yields fell four to five basis points.
The two-year municipal to UST ratio Tuesday was at 63%, the five-year at 63%, the 10-year at 65% and the 30-year at 83%, according to Municipal Market Data’s 3 p.m. EST read. ICE Data Services had the two-year at 62%, the five-year at 63%, the 10-year at 66% and the 30-year at 82% at 4 p.m.
Issuance is “manageable” this week, even with some late additions to the calendar, like the San Joaquin Valley Clean Energy Authority pricing $866 billion of green clean energy project revenue bonds on Monday, said J.P. Morgan strategists in a report.
For the year overall, issuance will once again be elevated compared to recent history due to long-delayed projects needing to get done and rising costs for those projects, along with inflation and potential state budget woes, said Joshua Perry, a partner, portfolio manager and municipal credit analyst at Brown Advisory.
Tax exemption concerns — though an elimination is unlikely — and the loss of federal stimulus will “most assuredly pull forward delayed issuance, with the first half of 2025 volume to exceed second half volume,” said James Welch, a municipal portfolio manager at Principal Asset Management.
The Trump administration has already undone some of the legislation for infrastructure funding, projects, and approvals, as executive orders have attempted to either pause or slow down some of those projects, Perry said.
“On a normal basis, I would expect both supply to be heavy and well received given the absolute rate of where municipal yields are now, but there’s a lot of uncertainty around that, as far as which projects have favor and how much gets undone from the new administration,” he said.
Mutual fund flows have seen some outflows over the past few years, with some marginal inflows more recently, Perry said.
On a net basis, the money either left the muni market, got reallocated to someone else, or went to a different type of fund vehicle, like exchange-traded funds or professional separately managed accounts, he noted.
However, there is potential for a lot of money to return to funds, Perry said.
Furthermore, last year “established a positive inflow cycle of demand for the asset class — momentum we see continuing for 2025,” Welch said.
“Though lower corporate tax rates have curtailed institutional demand among banks and insurance companies, record increases in [exchange-traded funds] and professionally managed separate accounts have more than offset that decline along with supportive inflows into the mutual fund complex,” he said.
Attractive absolute and relative yields “should keep this three-legged stool of demand (funds, ETFs, SMAs) on track, easily absorbing record issuance and supporting valuations,” Welch said.
In the primary market Tuesday, BofA Securities priced for the Lower Colorado River Authority (A1/A/A+/) $520.39 million of LCRA Transmission Services Corp. Project transmission contract refunding revenue bonds, with 5s of 5/2025 at 2.79%, 5s of 2030 at 2.98%, 5s of 2035 at 3.28%, 5s of 2040 at 3.64%, 5s of 2045 at 4.13%, 5s of 2050 at 4.31%, 5s of 2055 at 4.38% and 5s of 2055 at 4.33% (BAM-insured), callable 5/15/2034.
J.P. Morgan priced and repriced for the Round Rock Independent School District, Texas, (Aaa///AAA/) $233.43 million of PSF-insured unlimited tax school building bonds, with yields bumped from the preliminary pricing: 5s of 8/2035 at 3.12% (-7), 5s of 2040 at 3.50% (-5) and 5s of 2045 at 3.96% (-5), callable 8/1/2035.
BofA Securities priced for the Kentucky Bond Development Corp. (A1//A+/) $130.22 million of term rate Baptist Healthcare System Obligated Group hospital revenue bonds, Series 2025A, with 5s of 8/2055 with a mandatory date of 8/15/2035 at 3.57% (non-Assured Guaranty-insured) and 5s of 2055 with a mandatory date of 8/15/2035 at 3.48% (Assured Guaranty-insured), callable 2/15/2035.
In the competitive market, BofA won bidding on the Triborough Bridge and Tunnel Authority’s (/SP-1+//) $375 million of subordinate revenue bond anticipation notes, Series 2025A, with 5s of 2/2028 at 2.70%, noncall.
AAA scales
MMD’s scale was bumped two to three basis points: The one-year was at 2.63% (-2) and 2.65% (-2) in two years. The five-year was at 2.74% (-3), the 10-year at 2.95% (-2) and the 30-year at 3.95% (-2) at 3 p.m.
The ICE AAA yield curve was little changed: 2.66% (unch) in 2026 and 2.66% (unch) in 2027. The five-year was at 2.74% (unch), the 10-year was at 2.98% (unch) and the 30-year was at 3.90% (unch) at 4 p.m.
The S&P Global Market Intelligence municipal curve was bumped one to three basis points: The one-year was at 2.64% (-3) in 2025 and 2.66% (-3) in 2026. The five-year was at 2.73% (-3), the 10-year was at 2.96% (-2) and the 30-year yield was at 3.87% (-1) at 4 p.m.
Bloomberg BVAL was bumped one to two basis points: 2.60% (-2) in 2025 and 2.67% (-1) in 2026. The five-year at 2.78% (-1), the 10-year at 3.02% (-1) and the 30-year at 3.89% (-1) at 4 p.m.
Treasuries were firmer.
The two-year UST was yielding 4.213% (-4), the three-year was at 4.248% (-4), the five-year at 4.316% (-5), the 10-year at 4.512% (-5), the 20-year at 4.804% (-4) and the 30-year at 4.748% (-4) at 4 p.m.
Tariffs redux
Over the weekend, President Donald Trump announced tariffs on a trio of countries: 25% for both Canadian and Mexican goods and 10% for Chinese ones.
However, following negotiations on Monday, tariffs for Canada and Mexico were delayed by one month. A 10% tariff for China, though, went into effect Tuesday at midnight.
“The tariffs caused U.S. stocks to plummet yesterday, and the tariff delay brought only partial relief,” said Chris Low, chief economist at FHN Financial.
The impact for USTs was “more muted” as a “flight to safety rally that took 10-yr note yields briefly to 4.46%, but they have since returned to 4.57%, higher than Friday’s close,” he said. Munis, meanwhile, mostly ignored market movements Monday.
“The latest round of policy turmoil (threats of new trade wars) from Washington is apt to only increase investor demand in the near term, noting [Monday’s] equity market tumult,” said Matt Fabian, a partner at Municipal Market Analytics.
“To the extent, tariffs actually begin and remain in place, affecting both higher prices and slower growth, longer maturity, and lower coupon bonds would reasonably underperform,” Fabian said. “Sales tax credits would be apt to perform better if inflation becomes elevated again; most at risk: commodity-oriented [industrial development bonds].”
“The reaction to these tariffs will dominate the week ahead, even as major equity market earnings and economic data are due this week, including the jobs report on Friday,” said Vikram Rai, head of municipal strategy at Wells Fargo.
Tariffs can be implemented by either an executive order or through legislation approved by a Congressional committee of jurisdiction.
When tariffs are implemented through an executive action, the revenue offset as a part of a budget reconciliation bill is not counted, Rai said.
“And given the expectation that any extension to the Tax Cuts and Jobs Act (TCJA) will require a reconciliation bill given the tight partisan margins in Congress, this has the potential to be very relevant,” he said.
Republicans want to count the revenue that tariffs will generate: hundreds of billions, if not trillions, of dollars over 10 years, Rai said.
“Thus, the tariff proposal has to be legislated in order to count the revenue — which means making it a part of the reconciliation bill — which means giving control to Congress,” he said. “President Trump would like to keep control of tariffs rather than give control to Congress. But he also wouldn’t want to lose the revenue offset either since that can be used to pay for TCJA extensions, etc.”
Therefore, he notes, “despite the recent announcement regarding the implementation of a 10% levy on China, and 25% duties on both Canada and Mexico, we wonder if the implementation could be delayed, or the order rolled back altogether.”
The bond market had the same idea Monday as the long end rallied following news instead of a selloff, which would have been the “logical reaction to expectations of higher inflation ahead,” Rai said.
Ultimately, he believes most tariffs will be implemented through legislative action.
Primary to come
The Florida Development Finance Corp. leads the negotiated calendar with $985 million of non-rated Series 2025A revenue bonds for the Brightline Florida Passenger Rail Expansion Project. Term bonds due 2057. The issue is scheduled to be priced Thursday by Morgan Stanley.
The Dallas Independent School District (Aaa/NR/NR/AAA) is set to price Thursday $612.265 million of Series 2025B unlimited tax school building and refunding bonds and $163.785 million Series 2025C unlimited tax refunding bonds. The Series B bonds consist of serial bonds due 2026-2045 and term bonds due in 2050 and 2055. The Series C bonds consist of serial bonds maturing 2026-2034. The bonds are insured by the Permanent School Fund Guarantee Program. Ramirez.
The Tarrant County Cultural Education Facilities Finance Corporation, Texas, (Aa2/AA/NR/NR) is set to price Thursday $370.54 million of fixed-rate hospital revenue bonds for the Cook Children’s Medical Center. J.P. Morgan.
The North Carolina Housing Finance Agency is set to price Wednesday $299 million of home ownership revenue bonds, consisting of $91.765 million of Series 57A Non-AMT bonds due in 2056 and $207.235 million of Series 57B federally taxable bonds consisting of serial bonds due 2026-2036 and term bonds due 2040, 2045, 2050 and 2056. Wells Fargo.
The Massachusetts Development Finance Agency (Aa1/AA+/NR/NR) is slated to sell Thursday $134.23 million of Series 2025 Smith College refunding revenue bonds due 2035 and 2045. Barclays.
The California Public Finance Authority is slated to sell $123.47 million of non-rated senior living rental housing revenue bonds, consisting of Series 2025A-1 senior lien bonds and Series 2025A-2 senior lien federally taxable bonds for Sunrise of Manhattan Beach. Goldman Sachs.
Competitive
Westchester County, New York, is slated to sell $129.18 million of GO bonds at 11 a.m. Wednesday.
The Washington Suburban Sanitary District, Maryland (Aaa/AAA/AAA/) is slated to sell $315.95 million of GO bonds at 10:15 a.m.