Municipals were little changed Thursday, ignoring losses in U.S. Treasuries following a better-than-expected jobs report while municipal bond mutual funds saw nearly $1 billion of inflows in the latest reporting week.
Supply jumps the week of July 7, with the new-issue slate expected to top $11 billion while 30-day visible supply is estimated at just over $22 billion.
"The bond market clearly wasn't expecting such a strong jobs report, including the upward revisions to the previous two months," noted Kevin O'Neil, associate portfolio manager and senior research analyst at Brandywine Global.
Although "easing inflation" supports Federal Reserve rate cuts, "a 4.1% unemployment rate significantly reduces the urgency for aggressive action," he said.
"In terms of bond action, today's data will likely help reverse some of the yield curve steepening that's taken place in recent weeks," O'Neil said.
The higher-than-expected jobs add and the 4.1% unemployment rate "demonstrate economic resilience despite expectations for slowdowns on the backs of tariff and fiscal uncertainty," said Lara Castleton, U.S. head of portfolio construction and strategy at Janus Henderson Investors.
Although some may deny the labor market's strength, given the negative ADP reading earlier in the week, "what this print does solidify is the Fed does not have the data to contemplate a cut in July," she said. "Bond markets are, therefore, repricing yields higher, and investors should continue with the mindset of higher for longer."
Indeed, UST yields rose across the curve in response Thursday with the two-year rising nearly 10 basis points near the early close. Municipals were little changed and ratios fell as a result.
The two-year muni-UST ratio Wednesday was at 65%, the five-year at 66%, the 10-year at 74% and the 30-year at 93%, according to Municipal Market Data's 1 p.m. ET read. ICE Data Services had the two-year at 65%, the five-year at 68%, the 10-year at 74% and the 30-year at 93% at a 1 p.m. read.
Issuance for the week of July 7 is estimated to be $11.317 billion, with $8.879 billion on negotiated deals and $2.439 billion of competitive transactions.
The California State University Trustees leads the negotiated calendar with $1.727 billion of systemwide revenue bonds.
The competitive calendar is led by the Livonia Central School District, New York, with $366.076 million of bond anticipation notes.
Bond Buyer 30-day visible supply sits at $22.2 billion.
Next week's tax-exempt supply should be "digested well given persistent, albeit moderating, inflows, still high yields, attractive valuations versus taxable fixed income, and still-to-be-deployed reinvestment capital ($35 billion projected for 1H July/highest two-week period of the year), said J.P. Morgan strategists, led by Peter DeGroot.
On a broader level, though, there are still plenty of unknowns, as questions continue over the "strength of the economy and labor markets, as well as the anticipated resumption of the easing cycle," they said. Washington policy outcomes, including the July 9 tariff deadline, also await.
Fund flows
Investors added $958.89 million to municipal bond mutual funds in the week ended Wednesday, following $194.7 million of inflows the prior week, according to LSEG Lipper data.
High-yield funds saw inflows of $344.7 million compared to $45.4 million the previous week.
Tax-exempt municipal money market funds saw outflows of $1.749 billion for the week ending July 1, bringing total assets to $138.256 billion, according to the Money Fund Report, a weekly publication of EPFR.
The average seven-day simple yield for all tax-free and municipal money-market funds fell to 2.2%.
Taxable money-fund assets saw $79.711 billion added, bringing the total to $6.916 trillion.
The average seven-day simple yield was at 4%.
The SIFMA Swap Index fell to 1.62% on Wednesday compared to the previous week's 1.92%.
AAA scales
MMD's scale was left unchanged: The one-year was at 2.52% and 2.53% in two years. The five-year was at 2.61%, the 10-year at 3.23% and the 30-year at 4.54% at 1 p.m.
The ICE AAA yield curve was unchanged: 2.55% in 2026 and 2.48% in 2027. The five-year was at 2.64%, the 10-year was at 3.17% and the 30-year was at 4.49% at 1 p.m.
Bloomberg BVAL was weaker out long: 2.54% in 2025 and 2.56% in 2026. The five-year at 2.66%, the 10-year at 3.19% (+3) and the 30-year at 4.50% (+3) at 1 p.m.
Treasuries saw losses.
The two-year UST was yielding 3.884% (+10), the three-year was at 3.84% (+10), the five-year at 3.936% (+7), the 10-year at 4.346% (+5), the 20-year at 4.863% (+4) and the 30-year at 4.861% (+4) just after the close.
More on employment
While the negative ADP print suggested labor market cooling, the stronger-than-expected employment report dashed hopes for a July rate cut.
"Breaking through the doom and gloom from other labor market indicators, the June employment report exceeded nearly all expectations," according to BMO Chief U.S. Economist Scott Anderson.
The labor market signals "encouraging signs of life and more resilience than expected," he said. "There is nothing in the June report to force the Fed off the sidelines at the July [Federal Open Market Committee] meeting and the chance of a September cut has declined a bit," with fed funds futures now pricing in a 6.7% chance of a July cut and a "73.1% chance of a September cut, down from 91%" on Wednesday.
The ADP report and rising initial jobless claims "continue to point toward more labor market moderation ahead," Anderson said.
The numbers "make a rate cut at the July FOMC meeting quite unlikely, in our view," said Wells Fargo Securities senior economists Sarah House and Michael Pugliese and economist Nicole Cervi. "But we think the ongoing cooling in the labor market should keep the Fed on track to start cutting rates at its September meeting."
But Mark Malek, CIO at Siebert Financial, said the report's strength was "on the surface only," given the levels of government jobs added.
The 74,000 gain in private-sector nonfarm payrolls "represents the lowest monthly gain so far for 2025 and that it is below its three-month moving average," he said. "If this trend continues, overall employment health can decay rather quickly, as the government additions are likely to revert to the mean and possibly even decrease in the months ahead."
If market participants discount the government jobs added, Malek said, "the ADP and BEA reports are directionally correlated. This all means that the U.S. labor market is not as healthy as it may appear in the headlines."
While Siebert expected one or two cuts later this year, Malek said, "We are closely monitoring employment data as it is likely to be the driver of the next move. Recent economic as well as anecdotal data has shown signs of a weakening labor market, though it has not shown up in the so-called 'hard numbers' yet."
But the Fed will focus on the headline number and the dip in the unemployment rate, said Fitch Ratings Chief Economist Brian Coulton, which are "likely to keep the Fed quite relaxed about its full employment mandate and hence in no hurry to cut interest rates."
The data "confirms that the labor market remains resolute and slams the door shut on a July rate cut," said Jeff Schulze, head of economic and market strategy at ClearBridge Investments. "Today's report saw a trifecta of positives that should send the labor bears back into hibernation: a drop in the unemployment rate, a solid beat on headline job creation vs. consensus and positive revisions to the prior two months."
The "softer average hourly earnings gains suggest that a wage-price inflationary spiral shouldn't be a near-term concern, setting up something resembling a Goldilocks scenario," he said.
The labor market is slowing gradually, said Scott Wren, senior global market strategist at Wells Fargo Investment Institute. "We continue to believe the hard labor data is likely to weaken in coming months as the economy slows further."
Wells sees the Fed cutting less than what the market has priced in, with no cut in July, and September "at the earliest" if hard data deteriorates further.
The "Fed is and will remain solidly in wait-and-see mode," Wren said.
Financial market volatility will continue because of the "many unknowns out there," he said.
The report suggests resilience and defies "the signs of weakness seen in some leading indicators," said Simon Dangoor, head of fixed income macro strategies at Goldman Sachs Asset Management.
"The FOMC's conviction that it should hold its wait-and-see stance while it braces for an acceleration in inflation over the summer will only be strengthened," he added. "But we still see a path to a resumption of the Fed's easing cycle later in the year should the summer acceleration in inflation prove more modest than expected, or the softening in the labor market exceed the relatively low thresholds implied by the dot plot.
While some Fed officials recently espoused a willingness to cut rates this month, the report "completely dispels their case for imminent rate cuts and implies that there is absolutely no urgency for Fed support," said Seema Shah, chief global strategist at Principal Asset Management. "We expect the first cut to come in late 2025."
ING Chief International Economist James Knightley agreed. "A stronger-than-expected June jobs report means no Federal Reserve rate cut before September despite the president's demands. Nonetheless, households are becoming more pessimistic on employment prospects with the risk of layoffs rising in the second half of the year."
Primary to come
The California State University Trustees (Aa2/AA-//) are set to price Thursday $1.727 billion of systemwide revenue bonds, consisting of $1.613 million of Series A tax-exempt bonds and $113.935 million of Series B taxable bonds. Goldman Sachs.
The Washington Metropolitan Area Transit Authority (/AA//AA/) is set to price Wednesday $653.5 million of Series 2025A second lien dedicated revenue bonds. Barclays.
The Mesquite Independent School District, Texas, (/AAA/AAA/) is set to price Wednesday $496.565 million of PSF-insured unlimited tax school building and refunding bonds. Cabrera Capital Markets.
The Southern California Public Power Authority (Aa2//AA-/) is set to price Wednesday $428.87 million of Southern Transmission System Renewal Project revenue bonds, consisting of $214.725 million of Series 2025-1 fixed rate bonds and $214.145 million of Series 2025-2 fixed tender bonds - term rate mode. RBC Capital Markets.
Pinal County, Arizona, (/AA//) is set to price Tuesday $335.785 million of BAM-insured pledged revenue obligations, consisting of $40.87 million of tax-exempt refunding bonds, $186.83 million of tax-exempt bonds and $108.085 million of taxable bonds. Stifel.
The Texas Public Finance Authority (/AAA/AAA/) is set to price Wednesday $300 million of taxable GO refunding bonds. Raymond James.
The Massachusetts Development Finance Agency is set to price Tuesday $250.03 million of Series A-1 Care Communities issue senior living revenue bonds. D.A. Davidson.
The Miami Beach Redevelopment Agency, Florida, (A1/AA//) is set to price Tuesday $238.96 million of City Center/Historic Convention Village tax increment revenue refunding bonds, insured by Assured Guaranty. BofA Securities.
Collin County, Texas, is set to price Wednesday a $229.85 million deal, consisting of $221.85 million of limited tax permanent improvement and refunding bonds (Aaa/AAA//) and $8 million of tax notes (/AAA//). Jefferies.
The Sherman Independent School District, Texas, (Aaa/AAA//) is set to price Tuesday $226.29 million of PSF-insured unlimited tax school building bonds. Raymond James.
The Hampton Roads Sanitation District, Virginia, is set to price Tuesday $223.995 million of subordinate wastewater revenue bonds, Series 2025A. J.P. Morgan.
The Lubbock Independent School District, Texas, (Aaa/AAA//) is set to price Wednesday $222.625 million of PSF-insured unlimited tax school building bonds. RBC Capital Markets.
The Local Building Authority of Alpine School District, Utah, (Aa2//AA+/) is set to price Thursday $201.045 million of West School District lease revenue bonds. Morgan Stanley.
The Denton Independent School District, Texas, (/AAA/AAA/) is set to price Monday $194.79 million of PSF-insured variable rate unlimited tax school building bonds, Series 2025-B. FHN Financial.
The Flour Bluff Independent School District, Texas, (/AAA//) is set to price Thursday $193.49 million of PSF-insured unlimited tax school building bonds Ramirez.
The Tomball Independent School District, Texas, (Aaa/AAA//) is set to price Tuesday $191.4 million of PSF-insured unlimited tax school building bonds. Raymond James.
The Public Finance Authority is set to price $175 million of nonrated tax-exempt pooled securities, Series 2025-1 Class A certificates. J.P. Morgan.
The Nevada Housing Division (/AA+//) is set to price Wednesday $158.835 million of senior single-family mortgage revenue bonds, consisting of $60 million of non-AMT Series C bonds and $98.835 million of taxable Series D bonds. J.P. Morgan.
The Foothill-De Anza Community College District, California, (Aaa/AAA//) is set to price Wednesday $151 million of Election of 2020 GOs, Series D. Piper Sandler.
The Public Finance Authority is set to price Thursday $150.212 million of Cuyahoga River Capital Portfolio municipal certificates, Series 20205-1 Class A. HilltopSecurities.
The Palm Beach County Health Facilities Authority (/BBB-/BBB/) is set to price Wednesday $148.775 million of Jupiter Medical Center Project hospital revenue bonds. RBC Capital Markets.
El Paso, Texas, (/AA//AA+/) is set to price Thursday $102.565 million of GO refunding bonds. Jefferies.
Redmond, Oregon, (Aa2///) is set to price Tuesday $101.915 million of airport expansion projects full faith and credit bonds, consisting of $96.885 million of AMT Series A bonds and $5.03 million of taxable Series B bonds. Morgan Stanley.
Competitive
The Livonia Central School District, New York, is set to sell $366.076 million of bond anticipation notes at 10:30 a.m. Tuesday.
The Broward County School District, Florida, is set to sell $250 million of tax anticipation notes at 11 a.m. Tuesday.
Miami-Dade County, Florida, (Aa2/AA//) is set to sell $242.195 million of BuildingBetter Communities Program GO refunding bonds, Series 2025A, at 9:30 a.m. Thursday.
The Maryland Economic Development Corp. (//AA+/) is set to sell $212.92 million of Series A and Series B lease revenue bonds at 10:30 a.m. Tuesday.
San Jose, California, (Aa1//AAA/) is set to sell $209.57 million of Series A and Series B disaster preparedness, public safety and infrastructure GOs at noon Wednesday.
Frisco, Texas, is set to sell $147.29 million of GO refunding and improvement bonds at 10:45 a.m. Wednesday.
Washington County, Oregon, (Aaa///) is set to sell $142 million of full faith and credit obligations at noon Wednesday.
The Greater Fall River Regional Vocational Technical School District, Massachusetts, is set to sell $104.995 million of state-qualified GO school project loan chapter 70B bonds at 11 a.m. Wednesday.
The Athens Independent School District, Texas, is set to sell $100 million of PSF-insured unlimited tax school building bonds at 11 a.m. Tuesday.
Gary Siegel contributed to this report.
