Most financial markets had a muted response to the escalating tensions in the Middle East, as municipals remained largely unchanged.
On Saturday, the U.S. military launched a series of bombing attacks against Iran's three main nuclear processing and production facilities. In response, Iran retaliated Monday, attacking a U.S. airbase in Qatar.
So far, the financial market reaction has been limited, said Paul Christopher, head of global investment strategy at Wells Fargo Investment Institute.
"While equity markets have largely shrugged off the Iran risk and every other risk that has been thrown at them lately, the Treasury market is finally giving a sensible reaction," said Byron Anderson, head of fixed income at Laffer Tengler Investments.
"All it took to get a flight to safety amid constant chaos was the U.S. dropping bombs on Iran," he said. "The amount of complacency in markets is a bit frightening, with the ongoing risks that still haven't been addressed.
Long-term debt and deficit are no longer the market's biggest issue, and there may be a mistake "somewhere in this mess of competing priorities," Anderson said.
"Either we are so desensitized to chaos or willfully ignorant, but either way, bond markets may be underestimating the risks present," he said.
Last week, fixed income markets were "unusually tame ... considering an [Federal Open Market Committee] meeting occurred alongside a fresh Middle East conflict that could see the U.S. step up its involvement," said Birch Creek strategists.
"While markets were on edge to see whether or not President Trump would get the country involved by bombing Iran, ultimately investors kept their focus on comments out of the Fed meeting to discern the future path of interest rate policy," they said.
As geopolitical tensions rose last week, "munis benefited from a broader risk-off tone across all fixed-income markets," said Daryl Clements, a portfolio manager at AllianceBernstein.
The two-year muni-UST ratio Monday was at 69%, the five-year at 70%, the 10-year at 76% and the 30-year at 94%, according to Municipal Market Data's 3 p.m. ET read. ICE Data Services had the two-year at 66%, the five-year at 68%, the 10-year at 73% and the 30-year at 92% at 4 p.m.
Munis got a "much-needed breather" last week due to the relatively low issuance after the market was "pummeled with issuance in the first two weeks of June," he said.
With an expected supply of $9.7 billion, this week "should be relatively manageable," Clements said.
Yields were relatively unchanged last week, after the Fed announced it would hold interest rates, said Jason Wong, vice president of municipals at AmeriVet Securities.
The front end of the curve saw the largest bumps, he said, "of about 3.4 basis points, pushing month-to-date returns of 0.47%," Wong said.
"The belly of the curve saw a modest bump with an average bump of three basis points across that range, bringing a month-to-date return of 0.52%, while the long end saw only a one basis point bump, and the month-to-date return of just 0.06%," he said.
Fund flows into muni mutual funds last week were "concentrated in the short and intermediate parts of the curve, with longer-duration products seeing modest outflows," he said. "Year-to-date flows tell a similar story, with a total of [around]$9.4 billion, but longer-duration products have only seen $700 million."
Customer sale lists were near recent averages, while secondary purchases "jumped 10% due to the lack of primary options" last week, Birch Creek Strategists said.
"Despite the usual hesitance to make any major moves around Fed meetings, dealers generally reported a decent tone from market participants," they said. "With the seasonal strong reinvestment cash, continued inflows, and a supportive treasury market, customers are finding it more and more compelling to lock in some of the most attractive tax-adjusted yields they've seen in years."
In the primary market Monday, Wells Fargo priced for the Katy Independent School District, Texas, (Aaa/AAA//) $440.88 million of PSF-insured unlimited tax school building bonds, with 5s of 2/2026 at 2.75%, 5s of 2030 at 2.87%, 5s of 2035 at 3.44%, 5s of 2040 at 4.09%, 5s of 2045 at 4.51%, 5s of 2050 at 4.73% and 4.75s of 2055 at 4.91%, callable 2/15/2035.
AAA scales
MMD's scale was unchanged: The one-year was at 2.62% and 2.63% in two years. The five-year was at 2.73%, the 10-year at 3.30% and the 30-year at 4.54% at 3 p.m.
The ICE AAA yield curve was bumped one to two basis points: 2.67% (-1) in 2026 and 2.57% (-2) in 2027. The five-year was at 2.72% (-2), the 10-year was at 3.21% (-2) and the 30-year was at 4.48% (-2) at 4 p.m.
The S&P Global Market Intelligence municipal curve was unchanged: The one-year was at 2.62% in 2025 and 2.62% in 2026. The five-year was at 2.72%, the 10-year was at 3.30% and the 30-year yield was at 4.53% at 4 p.m.
Bloomberg BVAL was bumped one to two basis points: 2.62% (-1) in 2025 and 2.64% (-1) in 2026. The five-year at 2.74% (-2), the 10-year at 3.23% (-2) and the 30-year at 4.48% (-1) at 4 p.m.
Treasuries were firmer.
The two-year UST was yielding 3.843% (-7), the three-year was at 3.792% (-7), the five-year at 4.899% (-6), the 10-year at 4.333% (-5), the 20-year at 4.872% (-3) and the 30-year at 4.871% (-2) near the close.
Primary to come
Los Angeles is set to price Wednesday $1.513 billion of 2025 tax and revenue anticipation notes. BofA Securities.
The North Texas Municipal Water District (Aa1/AAA//) is set to price Thursday $884.59 million of water system revenue refunding and improvement bonds. J.P. Morgan.
The Michigan State Building Authority (Aa2//AA/) is set to price Wednesday $752.745 million of facilities program 2025 revenue and revenue refunding bonds, Series I. Barclays.
Seattle (Aa2/AA//) is set to price Tuesday $444.59 million of municipal light and power improvement and refunding revenue bonds. BofA Securities.
The Mansfield Independent School District (/AAA/AAA/) is set to price Wednesday $380.92 million of PSF-insured unlimited tax school building bonds. Raymond James.
The Ohio Water Development Authority (Aaa/AAA//) is set to price Tuesday $350 million of drinking water assistance fund revenue bonds, Series 2025 A. Stifel.
The Klein Independent School District, Texas, is set to price Tuesday $345.615 million, consisting of $339.705 million of PSF-insured unlimited tax schoolhouse and refunding bonds (Aaa/AAA//) and $5.91 million of non-PSF insured unlimited tax refunding bonds (Aa1/AA//). Raymond James.
The Higher Educational Facilities Financing Authority, Florida, (/BB+//) is set to price Wednesday $304.22 million of Keiser University project higher educational facilities revenue bonds. D.A. Davidson.
Corpus Christi, Texas, (/AA-/AA-/) is set to price Thursday $286.915 million of utility system senior lien revenue improvement and refunding bonds. Morgan Stanley.
The Missouri Housing Development Commission (/AA+//) is set to price Tuesday $250 million of non-AMT First Place Homeownership Loan Program single-family mortgage revenue bonds, 2025 Series D. Raymond James.
The Point Phase 1 Public Infrastructure District No. 1, Utah, is set to price Thursday $248.055 million, consisting of $192.11 million of tax assessment and general revenue bonds, Series 2025A-1; $16.665 million of tax assessment and general revenue convertible capital appreciation bonds, Series 2025A-2; and $39.28 million of subordinate tax assessment and general revenue bonds, Series 2025B. Sandler.
The Public Finance Authority is set to price Thursday $175 million of tax-exempt pooled securities, Series 2025-1 Class A certificates. J.P. Morgan.
The Virginia Resources Authority (Aaa/AAA//) is set to price $167.745 million of state revolving fund revenue refunding bonds. Ramirez.
The Wimberley Independent School District, Texas, (/AAA//) is set to price Tuesday $148.365 million of PSF-insured unlimited tax school building and refunding bonds. HilltopSecurities.
The Lake Stevens School District No. 4, Washington, (Aaa///) is set to price Wednesday $116.39 million of unlimited tax GOs. D.A. Davidson.
Competitive
The Phoenix Civic Improvement Corp. (Aa1/AAA/AA+/) is set to sell $359.615 million of subordinated excise tax revenue bonds at 11:15 a.m. Eastern Tuesday.
San Diego County is set to sell $200 million of 2025 tax and revenue anticipation notes at 11:30 a.m. Wednesday.
The Bend-La Pine Schools, Oregon, (Aa1///) is set to sell $149.7 million of Oregon School Bond Guaranty Program GOs at noon Wednesday.
Hempstead, New York, (Aaa///) is set to sell $137.319 million of public improvement serial bonds at 11 a.m. Tuesday.
The Manalapan-Englishtown Regional Board of Education, New Jersey, (/AA//) is set to sell $115.378 million of school bonds at 11 a.m. Tuesday.
Alex Walters contributed to this story.
