Municipals were weaker out long, while U.S. Treasury yields rose and equities ended down after a mixed jobs report.
Ahead of Friday’s nonfarm payrolls report, UST yields fell another eight basis points this week, making it a 33-basis-point rally from Jan. 14, said Barclays strategist Mikhail Foux.
Munis had rallied along with USTs, but “Treasuries’ relative strength against corporates and SOFR swaps are not echoed in the muni space,” said BofA strategists.
“There is a lot to unpack in today’s U.S. jobs report,” said ING Chief International Economist James Knightley. While payrolls came in at 143,000, which was 30,000 below projections, previous reads were revised upward and the unemployment rate dipped to 4%, he noted.
With average hourly earnings up 0.5% in January and the average work week declining, it “looks like a pretty solid report and would justify the Federal Reserve holding rates steady for now,” ING’s Knightley said.
Following the release of the jobs report there was a short-term rally in bonds and a drop in rates, said Jeff MacDonald, EVP and head of fixed income at Fiduciary Trust International.
However, “as you get into the report, there’s more focus on that average hourly earnings and potential implications for inflation that caught the market attention,” and yields started to rise, he said.
Yields have fallen over the past few weeks, so “any decent excuse that rates move up a little bit after that big rally” may have occurred as the market digested the report — which was a “little bit of a mixed bag” — after the initial headline figure, MacDonald said.
Muni-UST ratios either “richened considerably or lightly” since early November, BofA strategists said.
The two-year municipal to UST ratio Friday was at 61%, the five-year at 62%, the 10-year at 65% and the 30-year at 84%, 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 83% at 4 p.m.
Currently, muni-UST ratios are “quite rich” except for the long end of the curve at around mid-80% due to 10s30s AAA steepening, but long-end ratios may become cheaper and, therefore, more attractive if UST curve flattening continues during a further rally, BofA strategists said.
Recent muni performance is impressive given that
This was the second-highest monthly total for January, coming less than $1 million short of the record $36.048 billion issued in January 2017, the data shows.
“And as optimism of a further Treasury rally continues to build, February has turned out to be quite a strong month for munis,” BofA strategists said.
Supply remains robust, as high new-money issuance more than offsets low refunding activities, they noted.
“Investors have plenty of new bonds to choose from, though the amount of investable cash available in the market is still overwhelming,” BofA strategists said.
And while “premature” to predict supply trends for all of 2025, education, including school districts, might be on pace for a record year, while meanwhile, general purpose supply has started to lag, Foux said.
Healthcare and transportation sectors are mostly in line with 2024’s robust figures, while housing and utilities have lagged last year’s pace, he said.
Additionally, taxable issuance has been “disappointing” so far, but AMT supply is on pace to beat 2024’s record, Foux said.
“Through early February, propelled by the UST rally, muni indices are on pace for solid returns this year, although a lot could still change,” he said.
Investment-grade munis are seeing gains of 1.07%, while high-yield munis are up 1.44%
“Some of the laggards of last year seem to be leading the charge this year, especially MSA tobacco bonds, which have outperformed the index in the IG space, and especially in High Yield, where it has been by far the best-performing sector, helped by cheaper valuations, and some positive news flow including this week,” Foux said.
New-issue calendar
Issuance for next week rises to an estimated $9.286 billion, with $7.935 billion of negotiated deals and $1.351 billion of competitive deals on tap.
The New York City Transitional Finance Authority leads the negotiated calendar with $1.7 billion of future tax-secured subordinate bonds. Other large deals include
The competitive calendar is led by the Tarrant Regional Water District, Texas, with $422.85 million of water transmission facilities contract revenue bonds.
AAA scales
MMD’s scale was cut up to three basis points: The one-year was at 2.58% (unch) and 2.60% (unch) in two years. The five-year was at 2.69% (unch), the 10-year at 2.91% (+2) and the 30-year at 3.93% (+3) at 3 p.m.
The ICE AAA yield curve was cut up to four basis points: 2.65% (unch) in 2026 and 2.62% (+1) in 2027. The five-year was at 2.70% (+1), the 10-year was at 2.93% (+2) and the 30-year was at 3.86% (+3) at 4 p.m.
The S&P Global Market Intelligence municipal curve was cut up to three basis points: The one-year was at 2.60% (unch) in 2025 and 2.61% (unch) in 2026. The five-year was at 2.70% (+2), the 10-year was at 2.94% (+3) and the 30-year yield was at 3.85% (+3) at 3 p.m.
Bloomberg BVAL was cut up to four basis points: 2.55% (unch) in 2025 and 2.62% (unch) in 2026. The five-year at 2.71% (unch), the 10-year at 2.95% (unch) and the 30-year at 3.88% (+4) at 4 p.m.
Treasuries were weaker.
The two-year UST was yielding 4.285% (+7), the three-year was at 4.308% (+8), the five-year at 4.341% (+7), the 10-year at 4.492% (+6), the 20-year at 4.750% (+6) and the 30-year at 4.693% (+5) at 4 p.m.
Nonfarm payrolls
The January employment report resulted in divergent thoughts from analysts.
Scott Anderson, chief U.S. economist and managing director at BMO Economics, agreed the release “cements the view that the Fed could be on hold for a considerable time before cutting rates again.”
The 10-year UST rose 5.6 basis points while Anderson wrote his report, noting “the Fed funds futures market is only placing a 10% probability of a March rate cut, down from 15% [Thursday].”
The average hourly earnings gains suggest “labor market tightness is still driving wages higher at an elevated pace,” he said. “The Fed would probably like to see more signs of moderation in wage growth before they feel comfortable resuming rate cuts.”
The data has ”something for everyone,” said Peter Graf, chief investment officer at Nikko Asset Management Americas. “The Fed will see the monthly jump in wages as confirmation that it was correct to be coyly non-committal about its next moves at the January meeting. Early-cyclers will embrace the healthy trifecta of rising participation, falling unemployment and positive payroll revisions as a sign that the U.S. economy is truly starting to take off.”
Still, he noted, “the possible influence of weather on this mixed report likely means that few people will actually have much confidence in their arguments.”
But the numbers will allow the Fed to continue its rate-cut cycle, according to Chris Low, chief economist at FHN Financial. “Of course, Federal Open Market Committee participants are preoccupied by something else at the moment. The bond market is lower in price [and]higher in yield across the curve, likely in response to the pop in average hourly earnings. Yields should recover once traders realize it was caused by bad weather.”
Mortgage Bankers Association SVP and Chief Economist Mike Fratantoni said revisions and the wildfires in Los Angeles “cloud this picture.” As a result, the Fed will likely remain on hold.
“With inflation still above target, and no appreciable signs of weakening in the job market, MBA’s forecast is that the Fed will make at most one more cut this cycle,” he said.
But Bill Zox, a portfolio manager at Brandywine Global, disagrees about rate cuts. “Risk assets like stocks and corporate bonds have been sending strong signals for 15 months that the labor market is on solid footing and this data is very much in line with those signals,” he said. “The next move from the Fed could be a hike rather than a cut.”
University of Central Florida Economist Sean Snaith agreed the report “signals a red light for rate cuts and gives off an uneasy feeling that rates could even go in the opposite direction.”
Primary to come
The New York City Transitional Finance Authority (Aa1/AAA/AAA/) is set to price Wednesday $1.659 billion of future tax secured subordinate bonds, consisting of $1.149 billion of tax-exempt Series F-1 bonds, serials 2027-2041; $70.365 million of taxable Series F-2 bonds, serials 2026-2027; $345.955 million of tax-exempt Series G-1 bonds, serials 2027-2036; and $94.18 million of taxable Series G-2 bonds, serials 2025-2027. Siebert Williams Shank.
Hawaii (Aa3/AA-/AA-/NR/) is set to price Thursday $852.235 million of airports system revenue bonds, consisting of $336.15 million of AMT Series 2025A bonds, $297.04 million of non-AMT Series 2025B bonds, $164.435 million of AMT Series 2025C refunding bonds, and $54.61 million of non-AMT Series 2025D refunding bonds. Barclays.
Ohio (Aaa/AAA/AAA/) is set to price Tuesday $810.805 million of higher education GOs, consisting of $350 million of Series 2025A bonds, serials 2026-2045, and $460.805 million of Series 2025B refunding bonds, serials 2025-2035. Jefferies.
The Salt River Project Agricultural Improvement and Power District (Aa1/AA+/NR/NR/) Is set to price Tuesday $637.695 million of Salt River Project electric system revenue bonds, 2025 Series B. J.P. Morgan.
Wisconsin (Aa1/AA+/NR/AAA/) is set to price Tuesday $483.17 million GO refunding bonds, consisting of $339.07 million of Series 3 bonds and $144.1 million of forward-delivery Series 1 bonds. Morgan Stanley.
The
The Arlington Independent School District (Aaa/AAA//) is set to price Tuesday $324.23 million of PSF-insured unlimited tax school building and refunding bonds, serials 2026-2045, term 2050. Siebert Williams Shank.
Denver Public Schools (Aa2/AA+//) is set to price Wednesday $310.15 million of Colorado State Intercept Program-insured GOs, Series 2025C, serials 2046-2049. Stifel.
The Humble Independent School District (Aaa/AAA//) is set to price $270.35 million of PSF-insured unlimited tax school building and refunding bonds. Wells Fargo.
The Maryland Department of Housing and Community Development (Aa1/NR/AA+/NR/) is set to price Tuesday $250 million of social residential revenue bonds, consisting of $75.975 million of non-AMT Series A bonds and $174.025 million of taxable Series B bonds. J.P. Morgan.
The Ohio Housing Finance Agency (Aaa/NR/NR/NR/) is set to price Tuesday $225 million of non-AMT social Mortgage-Backed Securities Program residential mortgage revenue bonds, 2025 Series A. J.P. Morgan.
The University of Washington (Aa1/AA+/NR/NR/) is set to price Tuesday $211.795 million of general revenue and refunding bonds, Series 2025A, serials 2026-2045. Goldman Sachs.
The Tolleson Union High School District No. 214 (AAA/AA//) is set to price Thursday $114.93 million of Projects of 2023 and 2024 school improvement bonds, serials 2026-2028, 2031-2041. Stifel.
The New Mexico Finance Authority (Aa1/AAA//) is set to price Tuesday $100.995 million of senior lien public project revolving fund revenue bonds, consisting of $76.77 million of Series A-1, serials 2025-2047, term 2049, and $24.225 million of Series A-2, serials 2025-2034. Stifel.
Competitive
The Tarrant Regional Water District, Texas, (/AAA/AAA/) is set to sell $422.85 million of water transmission facilities contract revenue bonds at 11:15 a.m. Eastern Tuesday.
Danbury, Connecticut, is set to sell $155.25 million of GO bond anticipation notes at 11 a.m. Thursday.
The Cherokee County School District, Georgia, (Aa1/AA//) is set to sell $100 million of GOs at 10:30 a.m. Thursday.
Gary Siegel contributed to this story.