Jessica Lerner

"Trump indicated the administration will implement additional tariffs under different authorities, and we expect the aggregate effective tariff rate to ultimately settle around 13%, largely unchanged from current levels," Nuveen strategists said.

Bond markets believed Trump would likely keep tariffs in place in some form — even before the president made his announcement later in the afternoon — which partly explains their muted response throughout the day.

Money is flowing into mutual funds and buyers are snapping up deals.

This is the sixth time in seven weeks that inflows have topped $1 billion.

"For 2026, we expect municipal bonds to remain compelling as reinvestment demand stays strong and rate normalization progresses," said Brian Barney, municipal portfolio manager at Parametric.

Following this week, the pace of issuance should pick up, Birch Creek strategists said.

The top two municipal bond insurers wrapped over $42.828 billion in 2025, up slightly from $41.166 billion in 2024, according to LSEG data.

Underwriting spreads rose to $4.30 in 2025 from $4.23 in 2024.

The muni market produced $586.195 billion of debt issuance in 2025, up 14.1% from the previous record of $513.652 billion in 2024, according to LSEG data.

"Unsurprisingly, the market is taking these numbers in stride, with the bond market only slightly higher after a large rally over the last couple of days due to the equity market sell-off," said John Kerschner, global head of securitized products and portfolio manager at Janus Henderson Investors.

Currently, munis are largely operating "in their own world" — ignoring rich valuations and upcoming supply, said Kim Olsan, senior fixed income portfolio manager at NewSquare Capital, in a report.

Muni SMAs now hold an estimated $1.3 trillion in assets under management across around 180 managers, per J.P. Morgan. Meanwhile, ETF muni holdings are at $163.1 billion, up 22.4% year-over-year, as of the third quarter of 2025, according to the latest Federal Reserve data.

"The bond market marked down the odds of rate cuts after the release," said FHN Financial Chief Economist Chris Low. "The fact long yields are still lower than two days ago suggests traders are skeptical of the quality of the employment data but are confident the Fed will use it as a reason to keep rates steady," he said.

The prepaid gas sector, once a small niche sector in the muni market, has grown exponentially over the years, with issuance reaching a record $31.4 billion in 2025.

Tuesday was a particularly heavy day of supply at an estimated $7.5 billion, per J.P. Morgan strategists.

This week's expected elevated $12.6 billion in supply" "coincides with a recent uptick in secondary offerings … and may skim some froth from the market, particularly where spreads have hit one-year tights," said J.P. Morgan strategists led by Peter DeGroot.

The new-issue calendar is led by Washington with $1.3 billion of GOs selling by competitive bid in three series.

Munis enter this year with "strong credit fundamentals, elevated tax-equivalent yields, and a steeper curve that supports duration extension," said James Welch, municipal portfolio manager at Principal Asset Management.

Yields have seen "intermittent volatility from broader macro and geopolitical crosscurrents, keeping sentiment cautious despite relatively muted headline moves," said James Pruskowski, managing director at Hennion & Walsh.

Supply should be "well-received, given strong inflows and the increase in reinvestment capital for the new month," said Chris Brigati, managing director and CIO at SWBC, and Ryan Riffe, senior vice president of capital markets at the firm.