Municipals were slightly firmer, as U.S. Treasuries and equities rallied after Federal Reserve Chair Jerome Powell solidified a rate cut at the Fed's September meeting.
The two-year muni-UST ratio Friday was at 59%, the five-year at 63%, 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 58%, the five-year at 62%, the 10-year at 73% and the 30-year at 93% at a 4 p.m. read.
Municipals were bumped one to four basis points, depending on the scale, while U.S. Treasury yields fell up to 10 basis points, with the largest gains on the front end.
Munis underperformed a UST rally, which had everything to do with Powell's speech at the Jackson Hole symposium and future Fed action, said Cooper Howard, a fixed income strategist at Charles Schwab.
"The notable takeaway from Chair Powell's speech was that the current situation may warrant adjusting the policy stance," he said. "He very much opened the door to more of a dovish approach, saying that we should all expect a September rate cut."
The markets "reacted with glee," said Chris Zaccarelli, chief investment officer at Northlight Asset Management. "Powell did something that no one thought he would — he went ahead and signaled that the Fed is ready to cut interest rates at their next meeting."
Powell's performance was "flawless," said Michael Arone, chief investment strategist at State Street Investment Management. "Flawless execution. He delivered what the market was looking for but left himself plenty of wiggle room" should data disappoint.
There is a high probability of a 25-basis-point rate cut next month, with at least one more rate cut in 2025, depending on how the market and data develop, Howard said.
"The real question is, will this be a prolonged easing cycle or one and done?" Arone said.
He praised Powell's ability to block out the political attacks.
Peter Graf, Chief Investment Officer at Nikko Asset Management Americas, agreed. "By focusing much of the speech on structural changes to the economy, Chair Powell also effectively defused political attacks on Fed independence by illustrating the importance of a thoughtful, long-term approach to monetary policy."
Elsewhere, macro market volatilities rose this week, while Treasury rates stalled regardless of "a sizable drop in the Nasdaq index" and muni yields "barely moved," according to BofA strategists.
"Both Treasuries and munis appear to be in a waiting mode [and] we continue to think that a clearer bullish resolution for munis will have to wait for the final months of 2025," they said.
For the past 25 years, September and October are traditionally months with "high macro volatilities," with 2006, 2007 and 2017 being the lone exceptions where the "highest volatility of the year occurred in earlier month(s)," BofA strategists said, adding that this year appears to resemble those exception years.
"As such, the usual catalysts for a bond market rally during the September [to] October time window will be less likely to come this time," BofA strategists said.
Next week brings a third consecutive week of manageable supply at $6.639 billion which, depending on "stable-to-lower [U.S. Treasury] rates" is expected to be "easily digested," according to J.P. Morgan strategists, led by Peter DeGroot.
"In the 27 weeks before the passage of the [One Big Beautiful Bill Act], this year's tax-exempt supply was 20% higher (+$43 billion) vs. 2024, while below 2024 levels over the final three weeks of August (-$10 billion, -29%)," they said, adding this indicates downside risk to supply forecasts for September and October.
Even with the possibility of "somewhat lower-than-forecast supply," diminishing fall reinvestment capital "increases the market's reliance on rates/flows just as interest rate volatility could rise in advance of the potentially live September 16 [Federal Open Market Committee] meeting," J.P. Morgan strategists said.
J.P. Morgan strategists looking at a longer horizon are favoring "the longer portions of the curve given cheap valuations, an expected deceleration in new issue volume in [the fourth quarter of 2025], and our revised call for an earlier resumption in the Fed easing cycle, which could delay some refunding issuance while the Fed is active," they said.
New-issue calendar
Issuance for the week of Aug. 25 is at an estimated $6.639 billion, with $3.922 billion of negotiated deals and $2.718 billion of competitive deals on tap, according to LSEG.
The new-issue calendar is led by Illinois with $1.775 billion of GOs in six series in the competitive market.
The San Francisco Bay Area Rapid Transit District leads the negotiated calendar with $929.77 million of green GOs.
AAA scales
MMD's scale was bumped two to three basis points: The one-year was at 2.17% (-3) and 2.19% (-3) in two years. The five-year was at 2.37% (-2), the 10-year at 3.23% (-2) and the 30-year at 4.61% (-2) at 3 p.m.
The ICE AAA yield curve was bumped one to four basis points: 2.23% (-1) in 2026 and 2.20% (-3) in 2027. The five-year was at 2.39% (-3), the 10-year was at 3.16% (-3) and the 30-year was at 4.59% (-3) at 4 p.m.
The S&P Global Market Intelligence municipal curve was unchanged: The one-year was at 2.18% (-2) in 2025 and 2.20% (-2) in 2026. The five-year was at 2.36% (-2), the 10-year was at 3.23% (-2) and the 30-year yield was at 4.60% (-2) at 4 p.m.
Bloomberg BVAL was bumped two basis points: 2.18% (-2) in 2025 and 2.20% (-2) in 2026. The five-year at 2.36% (-2), the 10-year at 3.20% (-2) and the 30-year at 4.60% (-2) at 4 p.m.
Treasuries rallied.
The two-year UST was yielding 3.693% (-10), the three-year was at 3.643% (-10), the five-year at 3.762% (-9), the 10-year at 4.26% (-7), the 20-year at 4.851% (-5) and the 30-year at 4.884% (-3) near the close.
Powell
The markets interpreted Powell's words as hinting at a September rate cut.
Markets keyed on the statement: "With policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance."
"The market's initial reaction was positive and the market-based probability of a rate cut in September spiked to about 100%," noted
Powell said "a one-time price adjustment does not mean that prices all adjust at the exact same time," Welch noted. "The path of inflation is somewhat unpredictable, but it would appear that Powell is becoming more comfortable with a resumption of the easing cycle in September."
"The Fed chief's illustration of the societal pain of job losses and rising unemployment has fixed-income watchers penciling in two to three reductions by year-end while sparking investor enthusiasm amidst a near certainty of a quarter-point trim at next month's meeting," said José Torres, senior economist at Interactive Brokers. "Indeed, participants understood those comments to mean that the FOMC is increasingly focused on employment weakness rather than price pressures at this juncture, even though Powell did allude to inflation uncertainties persisting."
"Powell essentially delivered September's rate cut, taking out all the steam and speculation of next month's meeting," said Seema Shah, chief global strategist at Principal Asset Management. "His speech accurately described the tension between the dual parts of the Fed's mandate but, with the clear emphasis on the downside risks for employment, the remarks clearly make the case for a careful, cautious resumption of rate cuts. And so, while the speech clearly leaned dovish, his remarks signal that a 25-basis point cut is valid, but a 50-basis point cut is not."
The case for a cut has increased, she said, but a half-point cut is not justified. "Should the Fed opt for such a move, markets may interpret it as a sign of political influence rather than data-driven decision-making." Such a move "could backfire," Shah said.
Jeffrey Roach, chief economist for LPL Financial, said the suggestion of easing "will tamp down yields and bolster markets in the near term."
Longer term, he said, "structural shifts in the economy have created uncertainty about the long-run fed funds rate. Suffice it to say, the neutral rate will be higher than during the 2010s."
The chair's remarks "were more dovish than many including myself expected," said Larry Tentarelli, chief technical strategist for Blue Chip Daily Trend Report. "Our view has been that the Fed would prioritize the labor market more than inflation concerns and that is what Powell indicated today."
Still, BMO Deputy Chief Economist Michael Gregory noted, while the hint at easing "was stronger than expected," a September cut "is still not guaranteed. There is almost a month's worth of data and potential administration policy developments in the interim."
But BMO is leaning "toward a rate cut."
Elsewhere in the speech, Powell said labor supply softened and the breakeven rate for jobs needed to keep the unemployment rate steady has sharply lowered, but the overall jobs market seems to be in "a curious kind of balance that results from a marked slowing in both the supply of and demand for workers."
His takeaway is "downside risks to employment are rising. And if those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment."
Economic growth "slowed notably in the first half," he said, while tariff effects are being seen in some goods categories and will "accumulate over coming months, with high uncertainty about timing and amounts."
He expects the impacts "will be relatively short-lived — a one-time shift in the price level. Of course, 'one-time' does not mean 'all at once'."
Monetary policy is "100 basis points closer to neutral than it was a year ago, and the stability of the unemployment rate and other labor market measures allows us to proceed carefully as we consider changes to our policy stance," Powell said.
Still, he reiterated, no preset course exists, and incoming data will be urgent.
Primary to come
The San Francisco Bay Area Rapid Transit District (Aa1//AAA/) is set to price Tuesday $929.77 million of green GOs, consisting of $651.755 million of Series 2025E-1 bonds, $48.245 million of taxable Series 2025E-2 bonds and $229.77 million of Series 2025H refunding bonds. Barclays.
The Arizona Board of Regents (Aa2/AA//) is set to price Tuesday $301.905 million of Arizona State University System tax-exempt revenue bonds, Series 2025A. Morgan Stanley.
The Washington State Housing Finance Commission is set to price Tuesday $262.231 million of municipal certificates, Series 2025-1, consisting of $213.718 million of Class A-1 bonds (/AA-//), $41.301 million of Class A-2 bonds (/BBB+//) and $7.212 million of nonrated subordinate Class B bonds. BofA Securities.
The Anaheim Housing and Public Improvements Authority (/AA-/AA-/AA) is set to price Tuesday $210.6 million of electric utility distribution system revenue bonds, consisting of $97.97 million of Series 2025-A improvement bonds and $112.63 million of Series 2025-B refunding bonds. J.P. Morgan.
The Utah Housing Corporation (Aa2///) is set to price Tuesday $170 million of taxable single-family mortgage bonds, Series 2025I. BofA Securities.
The Rhode Island Health and Educational Building Corp. (/BB-//) is set to price Wednesday $141.36 million of hospital financing revenue bonds (Chartercare Health of Rhode Island Obligated Group), consisting of $127.86 million of Series 2025A bonds and $13.5 million of taxable Series 2025B bonds. Barclays.
The Michigan Finance Authority (/A-/A-/) is set to price Wednesday $131.225 million of local government loan program revenue refunding bonds (Public Lighting Authority Refunding Local Project), Series 2025A. Siebert Williams Shank.
The Tennessee Housing Development Agency (Aa1/AA+//) is set to price Monday $114.01 million of non-AMT social residential finance program bonds, Series 2025-2A. Raymond James.
The Saratoga County Capital Resource Corp. (/AA-//) is set to price Tuesday $110.17 million of tax-exempt lease revenue bonds (WSWHE BOCES Project). KeyBanc Capital Markets.
Competitive:
Illinois (A3/A-/A-/) is set to sell $240 million of taxable GOs, Series of September 2025A, at 10:15 a.m. Eastern Tuesday; $235 million of GOs, Series of September 2025B at 10:45 a.m. Tuesday; and $235 million of GOs, Series of September 2025C, at 11:15 a.m. Tuesday; $355 million of GOs, Series of September 2025D at 11:45 a.m. Eastern Tuesday; $355 million of GOs, Series of September 2025E, at 12:45 p.m. Tuesday; and $355 million of GOs, Series of September 2025F, at 12:45 p.m. Tuesday.
The South Carolina Association of Governmental Organizations is set to sell $306.945 million of certificates of participation, Series 2025B (South Carolina School District Credit Enhancement Program), at 11 a.m. Thursday.
North Hempstead is set to sell $142.701 million of bond anticipation notes at 10:30 a.m. Thursday.
The Berkeley County School District is set to sell $111 million of GOs, Series 2025A, at 10 a.m. on Tuesday.
The Santa Clara Valley Water District (Aa1//AA+/) is set to sell $110.275 million of water system refunding revenue bonds, Series 2025A, at 10:45 a.m. Tuesday.
Gary Siegel contributed to this report.
