Finance

Market Intelligence analyst Jeff Lipton assesses the early impacts of Operation Epic Fury on rates, spreads, shifting inflation expectations, and flows, arguing that elevated tax-exempt income, disciplined sector allocation and a quality bias can help muni investors navigate headline-driven volatility.

On the week, the muni market performed well, with most investor action happening in the longer half of the curve, said BofA strategists.

The ratings agency cited improved operating performance.

The fund plans to liquidate remaining assets, although a class-action lawsuit may delay final distributions.

Investors added $1.029 billion to municipal bond mutual funds in the week ended Wednesday, following $1.269 billion of inflows the prior week, according to LSEG Lipper data. This is the seventh time in eight weeks that inflows have topped $1 billion.

Findings from The Bond Buyer's 2026 Predictions Report show tax shakeups and political uncertainty pose major challenges to public finance.

Fitch Ratings released a draft of climate vulnerability in rating criteria for public finance issuers that earned a thumbs-up from Municipal Market Analytics.

KBRA and Fitch Ratings downgraded Chicago's general obligation bonds to BBB-plus from A-minus on Wednesday, and both kept their rating outlooks at negative.

There is a positive view of the muni market in the long-term due to a mix of attractive tax-adjusted yields and a generally favorable credit backdrop, said Cooper Howard, director of fixed income research and strategy at Charles Schwab.

While broader economic risks remain, market dynamics are being driven by supply, demand and income generation, rather than macro headlines, said Pat Haskell, head of the municipal bond group at BlackRock.

Federal Reserve Gov. Lisa Cook said AI could boost productivity, but warned the transition may raise unemployment and force difficult tradeoffs between inflation and jobs.

Appeals challenging authorization for $1.45 billion of ratepayer-backed bonds sold in the wake of a 2021 winter storm are in the hands of the high court.

Federal Reserve Bank of Chicago President Austan Goolsbee said the central bank should focus on getting inflation to its 2% target before making any additional cuts to short-term interest rates.

"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.

Federal Reserve Gov. Christopher Waller said during an appearance Monday his decision on whether or not to support a cut to short-term interest rates depends on labor market indicators.

The Bond Buyer's 2026 Predictions Report shows professionals expect growth for the year ahead, but are cautious about changes coming to the central bank.

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.

While near-term uncertainty is inevitable, the court's decision should be accretive to growth expectations and somewhat disinflationary.

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.