Munis were little changed Wednesday as U.S. Treasuries saw small losses and equities ended up.
The two-year muni-UST ratio Wednesday was at 60%, the five-year at 58%, the 10-year at 62% and the 30-year at 90%, according to Municipal Market Data's 3 p.m. EDT read. The two-year muni-UST ratio was at 60%, the five-year at 58%, the 10-year at 62% and the 30-year at 90%, according to ICE Data Services.
The Investment Company Institute Wednesday reported inflows of $2.784 billion for the week ending Feb. 11, following $3.024 billion of inflows the previous week.
Exchange-traded funds saw inflows of $841 million after $721 million of inflows the week prior, per ICI data.
"For 2026, we expect municipal bonds to remain compelling as reinvestment demand stays strong and rate normalization progresses," said Brian Barney, municipal portfolio manager at Parametric. "We see a continued opportunity for investors seeking tax‑efficient income with disciplined, research‑driven structures."
The U.S. economy is expected to "hold up well" in the coming year, he said.
While muni credit quality remains "sound," Medicaid cuts could pressure budgets and create headline risk, Barney said.
Elevated supply will likely continue and may challenge 2025's record $580 billion, he said.
"Ample demand is likely to greet it, but periods of oversupply may create attractive entry points," Barney said.
However, sustained muni primary market growth could be hit hard by recent Congressional Budget Office projections, which forecast the federal government is on track to nearly double to $56 trillion from $30 trillion the amount of USTs held by the public by 2036, said Matt Fabian, president of Municipal Market Analytics.
Excessive UST supply and its potential to disrupt yield curves could pose a significant threat to continued growth by making it more difficult to achieve the "needed" underperformance, Fabian said.
Year-to-date, munis are "biased" toward richness, he noted.
"That the [year-to-date] price rally has been concentrated at, but not constrained to, the front of the yield curve means it may [come] from automatic reinvestment activity by short SMA ladders that, away from a tax-aware strategy, will care little for relative value," Fabian said.
With recent SMA growth — which continues to be explosive — the implication is a "higher expected capture rate of potential reinvestment per scheduled principal maturities and a more seasonally driven market overall," he said.
This offers "good news" for March, as year-to-date refundings have increased scheduled maturities by $2 billion, indicating an improved ability to digest a likely growing new-issue calendar, Fabian said.
Amid muni gains and UST "ambivalence," muni-UST ratios have moved into the high 50s/low 60s from the two- to 10-year spots: levels that will deter crossover buyers and increase expected reliance on existing SMA/ETF demand, he said, noting the latter has been, and could continue, at a record pace.
Risks, though, are also seasonal, "especially with April tax payments coming just as reinvestment dips; to the extent (some) ETFs have transformed into cash alternative tools, tax-related liquidations could do more than just encourage higher yields," Fabian said.
New-issue market
In the primary market Wednesday, Jefferies priced for the Chicago (/A+/A+/A+/) an upsized $614.14 million of non-AMT Chicago O'Hare International Airport general airport senior lien revenue bonds, Series 2026A, with 5s of 1/2043 at 3.73%, 5s of 2046 at 4.19%, 5s of 2048 at 4.44%, 5.25s of 2056 at 4.69% and 5.25s of 2061 at 4.77%, callable 7/1/2035.
Barclays priced for the Bay Area Toll Authority (/AA/AA//) an upsized $554.345 million of San Francisco Bay Area toll bridge refunding revenue bonds. The first tranche, $166.76 million of Series 2026A, saw 5s of 4/2061 with a tender date of 10/1/2033 at 2.31%, callable 4/1/2033.
The second tranche, $387.585 million of Series 2026F-1, saw 5s of 4/2037 at 2.40%, 5s of 2041 at 3.06% and 5s of 2044 at 3.48%, noncall.
J.P. Morgan priced for the South Carolina Public Service Authority (Aa3/A-/A-//) $355.155 million of revenue obligations. The first tranche, $209.43 million of Series 2026A tax-exempt improvement bonds, saw 5s of 12/2028 at 2.22%, 5s of 2031 at 2.46%, 5s of 2036 at 2.96%, 5s of 2041 at 3.51%, 5s of 2046 at 4.20%, 5s of 2051 at 4.52% and 5.25s of 2056 at 4.61%, callable 6/1/2036.
The second tranche, $145.725 million of Series 2026C tax-exempt refunding bonds, saw 5s of 12/2026 at 2.19%, 5s of 2031 at 2.46%, 5s of 2036 at 2.96% and 5s of 2038 at 3.24%, callable 6/1/2036.
J.P. Morgan priced for Sarasota County Public Hospital District (Aa3//AA-/) $159.075 million of hospital revenue and revenue refunding bonds (Sarasota Memorial Hospital Project), Series 2026A, with 5s of 7/2029 at 2.32%, 5s of 2031 at 2.43%, 5s of 2036 at 2.95% and 5s of 2037 at 3.05%, noncall.
In the competitive market, the Miami-Dade County School District, Florida, (Aa3///) sold $354.415 million of general obligation school refunding bonds, to BofA Securities, with 5s of 3/2027 at 2.10%, 5s of 2031 at 2.22%, 5s of 2036 at 2.69%, 5s of 2041 at 3.33% and 5s of 2046 at 4.09%, callable 3/15/2036.
Denver (Aaa/AAA/AAA/) sold $217.575 million of GO Vibrant Denver bonds, Series 2026A, to Jefferies, with 5s of 8/2026 at 2.04%, 5s of 2034 at 2.37%, 5s of 2036 at 2.58%, 5.5s of 2041 at 3.15%, 5.5s of 2046 at 3.90% and 5.5s of 2050 at 4.11%, callable 8/1/2036.
The issuer also sold $192.5 million of taxable GO Vibrant Denver bonds, Series 2026B, to Wells Fargo, with 5s of 8/2026 at 3.616%, 5s of 2031 at 3.802%, 4.33s of 2036 at par, 4.69s of 2041 at par and 4.97s of 2045 at par, callable 8/1/2036.
AAA scales
MMD's scale was little changed: 2.06% (unch) in 2027 and 2.06% (unch) in 2028. The five-year was 2.13% (unch), the 10-year was 2.52% (unch) and the 30-year was 4.23% (-1) at 3 p.m.
The ICE AAA yield curve was little changed: 2.10% (unch) in 2027 and 2.07% (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 4.21% (unch) at 4 p.m.
The S&P Global Market Intelligence municipal curve was little changed: The one-year was at 2.06% (unch) in 2027 and 2.07% (unch) in 2028. The five-year was at 2.13% (unch), the 10-year was at 2.52% (-1) and the 30-year yield was at 4.20% (unch) at 3 p.m.
Bloomberg BVAL was little changed: 2.05% (unch) in 2027 and 2.04% (unch) in 2028. The five-year at 2.09% (unch), the 10-year at 2.50% (unch) and the 30-year at 4.09% (-1) at 4 p.m.
U.S. Treasuries were slightly weaker.
The two-year UST was yielding 3.463% (+3), the three-year was at 3.498% (+3), the five-year at 3.651% (+3), the 10-year at 4.086% (+3), the 20-year at 4.659% (+2) and the 30-year at 4.711% (+2) near the close.
Fed minutes
The key takeaway from the Federal Open Market Committee meeting minutes was that several participants suggested the next move could be a rate increase if inflation falls.
"Several participants indicated that they would have supported a two-sided description of the Committee's future interest rate decisions, reflecting the possibility that upward adjustments to the target range for the federal funds rate could be appropriate if inflation remains at above-target levels," the minutes noted.
"The minutes showed the hawkish tilt at the January FOMC meeting was not an illusion and might actually be a bit more than a tilt in the hawkish direction," said BMO Chief U.S. Economist Scott Anderson. "Outside the two dissenters, there appeared to be widespread agreement that downside risks to the labor market have diminished, while the risk of persistent elevated inflation was very real given the firm growth outlook and strong demand."
The talk of a possible hike "was a telling reminder that the monetary winds could still swiftly change direction."
"Two weeks ago, we wrote that the Fed transitioned from a pause to fully on hold at the January meeting," FHN Financial Chief Economist Chris Low said. "We also noted forward guidance was now symmetrical."
The minutes support "why guidance was made symmetrical," he said. They also show "the progress of inflation this year will decide the direction of policy."
"One of the more interesting items teased out from the minutes is the Fed seems to think financial‑stability risks are building under the surface," said LPL Financial Chief Economist Jeffrey Roach. "Asset valuations are high, credit spreads are tight, and AI‑related investment has created new pockets of risk, especially in private credit, leveraged firms, and highly concentrated tech names. They specifically called out the hedge funds. Hedge‑fund leverage and Treasury‑market vulnerabilities remain key concerns."
Still, he said, "anticipation is building for the updated Summary of Economic Projections released at the March 18 meeting. I expect the next cut in fed funds won't be until June."
