Munis were firmer Friday ahead of a smaller $6.9 billion new-issue calendar due to the holiday-shortened week. U.S. Treasuries saw gains after a better-than-expected consumer price index report.
"While normally these type of inflation readings would give the Federal Reserve the go ahead to continue to cut interest rates, the robust job numbers that came out on Wednesday means we seemingly are entering a 'gold medal' economy with strong GDP growth, a stabilizing job market and lower inflation across the board," said John Kerschner, global head of securitized products and portfolio manager at Janus Henderson Investors.
"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," he said. "The bond market is basically telling investors 'nothing to worry about here' and continues to price in around two interest rate cuts" by year's end.
The two-year muni-UST ratio Friday was at 61%, the five-year at 59%, the 10-year at 62% and the 30-year at 91%, according to Municipal Market Data's 3 p.m. EDT read. The two-year muni-UST ratio was at 60%, the five-year at 57%, the 10-year at 62% and the 30-year at 89%, according to ICE Data Services.
"On the back of slightly weaker economic data, coupled with continued stock market volatility, UST yields have dropped 8-10 bp this week, but munis have been able to largely keep up with them, although MMD-UST ratios still ended up slightly higher on the week," said Barclays strategists.
Muni-UST ratios remain relatively rich, with the 10-year ratio at 62% and the 30-year ratio at 91%, BofA strategists said.
"While we expect these ratios to stay low for the entire year (we believe Treasuries are likely to stay cheap to high-grade bonds in various credit markets this year), they may rise some from current levels over the course of the year," they noted.
This macro environment supports muni market performance, BofA strategists said.
"If the Treasury market's problem is largely a demand issue, munis are certainly clear of that," they said.
February demand remains on the "high side" despite this week's robust new-issue market calendar.
However, supply does not appear to currently "overwhelm," especially given that next week is a holiday-shortened week, Barclays strategists said.
And given that February is a heavy bond redemption month, fund flows remain sizable with inflows nearly $2 billion this week again, they said.
Barclays strategists believe the market is likely to continue moving "sideways."
"On the one hand, we don't think there is much upside from current levels, as munis are already quite rich versus Treasuries; on the other hand, it is hard to overpower supportive muni technical," Barclays strategists said.
Signs of trouble may not be seen until March and April, as bond redemptions should decline while the new-issue pipeline begins to build, they said.
Currently, munis are the best-performing U.S. fixed-income asset class so far this year, Barclays strategists said.
Investment-grade and high-yield munis are seeing gains of 1.53% and 1.76%, respectively,
"The 15-year part of the yield curve has outperformed for both of them, but the long end actually kept up, especially for HY," Barclays strategists said.
Puerto Rico is the best performing high-yield sector, closely followed by industrial development revenue bonds/pollution control revenue bonds, with "corporate-backed bonds outperforming (MSA Tobacco has actually lagged slightly)," they said.
Outside of education, most other HY sectors have also done well, Barclays strategists said.
New-issue calendar
The new-issue calendar is an estimated $6.91 billion, with $4.465 billion of negotiated deals on tap and $2.446 billion of competitives.
The California Community Choice Financing Authority leads the negotiated calendar with $900 million of green clean energy project revenue bonds.
The competitive calendar is led by the Metropolitan Government of Nashville and Davidson County, Tennessee, with $604.98 million of GO improvement bonds in three series.
AAA scales
MMD's scale was bumped up to three basis points: 2.07% (unch) in 2027 and 2.07% (unch) in 2028. The five-year was 2.14% (unch), the 10-year was 2.53% (-2) and the 30-year was 4.26% (-3) at 3 p.m.
The ICE AAA yield curve was bumped up to one basis point: 2.09% (unch) in 2027 and 2.06% (unch) in 2028. The five-year was at 2.09% (unch), the 10-year was at 2.54% (-1) and the 30-year was at 4.22% (-1) at 3 p.m.
The S&P Global Market Intelligence municipal curve was bumped up to three basis points: The one-year was at 2.07% (unch) in 2027 and 2.08% (unch) in 2028. The five-year was at 2.14% (unch), the 10-year was at 2.54% (-2) and the 30-year yield was at 4.20% (-3) at 3 p.m.
Bloomberg BVAL was bumped one to two basis points: 2.06% (-1) in 2027 and 2.05% (-1) in 2028. The five-year at 2.10% (-1), the 10-year at 2.51% (-2) and the 30-year at 4.12% (-1) at 3 p.m.
U.S. Treasuries were firmer.
The two-year UST was yielding 3.409% (-5), the three-year was at 3.449% (-5), the five-year at 3.608% (-5), the 10-year at 4.055% (-5), the 20-year at 4.642% (-4) and the 30-year at 4.698% (-4) at 3:15 p.m.
CPI
The January consumer price index came in cooler than expected but didn't change analysts' expectations for Federal Reserve rate cuts.
The read clarifies the path to normalized rates, said Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management. "How short or long that path is, however, will depend on whether employment continues to show signs of improvement, given the Federal Open Market Committee's sensitivity to labor market weakness."
Goldman sees two cuts this year, with the first in June.
"Markets are breathing easier as price pressures remain contained despite very strong labor market data earlier this week and the risk of further tariff pass‑through," said Seema Shah, chief global strategist at Principal Asset Management. "With core inflation at an almost four‑year low and the Fed's 2% target finally within reach, this is a reassuring print for markets."
But, she noted, the report doesn't provide the Fed with justification for near‑term rate cuts. "Continued labor market strength gives policymakers cover to stay on hold, while further disinflation in the second half of the year — as tariff effects fade — should reopen the door to easing," Shah said.
FHN Financial Chief Economist Chris Low noted, "Fed funds futures are little changed this morning as are U.S. Treasury yields, suggesting the CPI release has not affected rate cut expectations, despite better-than-expected news."
Inflation "seems to be moving in the right direction," said Sal Guatieri, senior economist at BMO. The impacts of tariffs and labor market pressures have subsided, he said. "Still, the FOMC will likely seek further confirmation that inflation is making sustained progress before resuming rate cuts, likely this summer."
"This was a noisy report, with signs of encouragement to be seen in cooling shelter prices, but broader services inflation surprisingly strong in January," said James McCann, senior economist of investment strategy at Edward Jones.
Still, he said, "price pressures remain a little too hot for comfort for the time being, but the direction of travel for inflation continues to look to be lower, even if this has proved a bumpy and slow process."
And the Fed won't be swayed by this report, McCann said. Fed Chair Jerome "Powell has given a clear indication that the central bank will be on hold for the next few meetings, and signs of life in the labor market support this pause."
With Kevin Warsh expected to take over as chair, Edward Jones sees rate cuts possible later in 2026. "However, this is contingent on a more convincing decline in inflation toward target with the urgency for additional cuts lower now that downside risks in the labor market have seemingly eased."
With CPI tame, Chris Zaccarelli, chief investment officer at Northlight Asset Management, said, "The rates discussion will revert back to the labor market, and under the current economic conditions the Fed is likely to proceed cautiously lowering rates a couple of times later this year."
While rate cuts are a top conversation point, "the markets seem to care much more about the possibilities of AI disruption across a broad swath of industries right now," he said.
"This CPI report didn't just cool inflation — it shifted what matters next," said Gina Bolvin, president of Bolvin Wealth Management Group. "At 2.4%, inflation is fading into the background and behavior is doing more of the work than policy. Consumers are pushing back, companies are absorbing costs, and pricing power is thinning."
The report will allow the Fed to be flexible "and shifts the investor focus away from rate cuts and back to fundamentals," Bolvin said. "The next phase won't reward macro bets, it will reward earnings discipline and balance-sheet strength."
Primary to come
The California Community Choice Financing Authority (Baa1////) is set to price $900 million of green clean energy project revenue bonds, Series 2026B. Morgan Stanley.
Chicago (/A+/A+/A+/) is set to price Wednesday $475.83 million of non-AMT general airport senior lien revenue bonds (Chicago O'Hare International Airport), Series 2026A. Jefferies.
The Bay Area Toll Authority (/AA/AA//) is set to price Wednesday $452.905 million of San Francisco Bay Area toll bridge refunding revenue bonds, consisting of $169.515 million of Series 2026A and $283.39 million of Series 2026F-1. Barclays Capital Inc.
The South Carolina Public Service Authority (Aa3/A-/A-//) is set to price Wednesday $447.175 million of revenue obligations, consisting of $210.925 million of Series 2026A tax-exempt improvement bonds, $106 million of Series 2026B taxable improvement bonds and $130.25 million of Series 2026C tax-exempt refunding bonds. J.P. Morgan.
The Pennsylvania Housing Finance Agency (Aa1///) is set to price Tuesday $238.44 million of single-family mortgage revenue bonds, consisting of $211.84 million of non-AMT social refunding bonds, Series 2026-152A, and $26.6 million of taxable bonds, Series 2026-152B. Raymond James & Associates.
The South Carolina State Housing Finance and Development Authority (Aaa///) is set to price Wednesday $205 million of non-AMT mortgage revenue bonds, Series 2026A. BofA Securities.
The Sarasota County Public Hospital District (Aa3//AA-/) is set to price Wednesday $162.15 million of hospital revenue and revenue refunding bonds (Sarasota Memorial Hospital Project), Series 2026A. J.P. Morgan.
The Missouri Housing Development Commission (//AA+//) is set to price Tuesday $120 million of single-family mortgage revenue bonds (First Place Homeownership Loan Program), consisting of $110 million of non-AMT refunding bonds, Series A, and $10 million of taxables, Series B. Raymond James.
The Collier County Industrial Development Authority (Baa1//BBB+/) is set to price Tuesday $111.035 million of healthcare facilities revenue and (revenue refunding) bonds (NCH Healthcare System Projects), consisting of %55.515 million of Series 2026A and $55.52 million of Series 2026B. J.P. Morgan.
Competitive
The Miami-Dade County School District, Florida, (Aa3///) is set to sell $354.415 million of GO school refunding at 10 a.m., Eastern, Wednesday.
The Metropolitan Government of Nashville and Davidson County, Tennessee, (Aa2/AA+//AA+/) is set to sell $204.57 million of GO improvement bonds, Series 2026A, at 10 a.m. Thursday; $241.38 million of GO improvement bonds, Series 2026C, at 10:30 a.m. on Thursday; and $159.03 million of GO improvement bonds, Series 2026B, at 10:15 a.m. on Thursday.
Denver, Colorado, (Aaa/AAA/AAA/) is set to sell $217.575 million of GO Vibrant Denver bonds, Series 2026A, at 10:30 a.m. Wednesday and $192.500 million of taxable GO Vibrant Denver bonds, Series 2026B, at 11 a.m. Wednesday.
South Washington County Schools, Minnesota, (Aa1///) is set to sell $217.265 million of GO school building, facilities maintenance and refunding bonds, Series 2026A, at 10:30 a.m. Thursday.
