Munis were weaker on Tuesday, as U.S. Treasuries cheapened and equities ended higher.
Muni yields were cut by two to five basis points, depending on the scale. UST yields also cheapened by two to six basis points.
The week has a light economic calendar and no news from the Federal Reserve, which is in a blackout period ahead of next week's Federal Open Market Committee meeting, Cooper Howard, director of fixed income at Schwab, noted. "Geopolitical concerns are what's more likely to drive rates this week, so I think that that's something to watch," Howard said.
On Tuesday, President Donald Trump announced plans to reimpose tariffs on Canada, while the conflict in Iran persists and is leading to higher oil prices, said Jeff Timlin, managing partner and head of municipal bond investing at Sage Advisory.
"We were expecting a little bit of volatility with the things going on with [Strait of Hormuz] and then now with the Red Sea, that's added even more uncertainty," said Dora Lee, director of research and partner at Belle Haven, referring to the Houthi's threat to blockade the Red Sea.
All those things are all working "in tandem on the municipal side to slow down some of the aggressive interest that was there in the beginning of summer," Timlin said.
Despite this, markets are functioning well, Lee said.
Furthermore, investor demand has stayed so solid, buffering munis from a lot of the volatility in the UST market, Lee said.
Based on early reads, issuers were being a bit selective on Tuesday about where they're redeploying their capital, Timlin said.
An estimated $6.5 billion was expected to come to market Tuesday, according to J.P. Morgan strategists, including sizable offerings from the District of Columbia with a $1.172 billion deal and San Antonio with an $868.91 million deal. For the latter, BAM insured $377 million.
While sizable deals like the ones from D.C. and San Antonio used to be headline grabbers, now it's just another ordinary week, where the mega deals are well absorbed, Lee said.
The pair of large deals, along with others, should get investors' attention, but it is not expected that the exuberant demand seen for the Aquarian bonds will carry over to this week, said Pat Luby, head of municipal strategy at CreditSights.
There will be a "slackening" of supply next week when the FOMC meets, where there is a 21.9% chance of a rate hike, according to the Fed funds futures contracts.
The market has had "a little bit of a summer slowdown," Howard said, but he expects issuance to remain robust through the rest of the year.
New-issue market
In the primary market Tuesday, Ramirez priced for the District of Columbia (Aa1/AAA//) $1.172 billion of income tax secured revenue bonds. The first tranche, $745.31 million of tax-exempt Series 2026A bonds, saw 5s of 6/2039 at 3.66%, 5s of 2041 at 3.89%, 5s of 2046 at 4.19%, 5s of 2051 at 4.49% and 5.25s of 2051 at 4.44%, callable 6/2036.
The second tranche, $426.34 million of taxable Series 2026B bonds, saw 4.342s of 6/2027, 4.611s of 2031, 5.01s of 2036 and 5.25s of 2039 all priced at par, callable 6/2036.
RBC Capital Markets priced for San Antonio, Texas, (A2/A+/A+/) $868.91 million of AMT airport system revenue and refunding bonds, with 5s of 7/2027 at 2.97%, 5s of 2031 at 3.39%, 5s of 2036 at 3.82%, 5.25s of 2041 at 4.23%, 5.25s of 2046 at 4.53%, 5.5s of 2056 at 4.85% (BAM insured), 5s of 2060 at 5.01% and 5.5s of 2060 at 4.87% (BAM insured), callable 7/2036.
BofA Securities priced for the Municipal Improvement Corp. of Los Angeles (A1//AA-/) $438.455 million of real property lease revenue refunding bonds, Series 2026-B, with 5s of 11/2026 at 2.45%, 5s of 2031 at 2.95%, 5s of 2036 at 3.42% and 5s of 2038 at 3.56%, callable 11/2035.
J.P. Morgan priced for the Texas Transportation Commission (Aaa///) $334.28 million of state highway fund first tier revenue refunding bonds, with 5s of 4/2028 at 2.53%, 5s of 2031 at 2.97% and 5s of 2032 at 3.06%, noncall.
In the competitive market, Denton, Texas, (/AA+/AA+/) sold to Wells Fargo $281.26 million of certificates of obligation, with 5.25s of 2/2027 at 2.57%, 5.25s of 2031 at 2.96%, 5.25s of 2036 at 3.39%, 5.25s of 2041 at 3.85%, 4.25s of 2046 at 4.43%, 4.375s of 2051 at 4.58% and 4.5s of 2056 at 4.689%, callable 2/2035.
