Municipals were mixed Wednesday, U.S. Treasury yields rose and equities ended mixed after the Federal Reserve did little to clarify the possibility of a rate cut in September.
With July ending, "the supply/demand mix of business can be expected to continue into early August," said Kim Olsan, senior fixed income portfolio manager at NewSquare Capital.
"There will be some news items to navigate in the meantime, including [Federal Open Market Committee] communications related to easing actions," she said.
A strong seven-year UST auction, which sent UST yields rallying Wednesday, "begs the question if investors are starting to think September may be the month for the next cut," Olsan said.
The FOMC held rates steady at the conclusion of its meeting Wednesday.
The meeting hasn't changed market expectations, according to Lon Erickson, portfolio manager at Thornburg Investment Management. September is "a bit better than a coin flip," he said, with two 25 basis point cuts expected this year.
"The bond market barely reacted to the FOMC's decision," said Economist Daniel Altman, the author of High Yield Economics. "But remarks by [Federal Reserve] Chair Jerome Powell at his afternoon press conference sent [UST] yields shooting higher as he downplayed talk of a cut in September."
The most telling comments, he said, were Powell's saying the economy is "very close to maximum employment," while inflation remains above target even without any tariff impact. "So in his view, there's not much reason to cut rates and every reason to stay on guard against higher prices," Altman said.
"Powell sounds like he's laser-focused on ensuring that a one-time jump in prices as a result of tariffs doesn't turn into persistent inflation," he added. "He essentially promised to raise rates and make sure that didn't happen. Investors expecting to hear about conditions under which Powell would support rate cuts probably had their ears ringing."
The two-year muni-UST ratio Wednesday was at 62%, the five-year at 65%, the 10-year at 77% and the 30-year at 96%, according to Municipal Market Data's 3 p.m. ET read. ICE Data Services had the two-year at 61%, the five-year at 66%, the 10-year at 76% and the 30-year at 96% at a 4 p.m. read.
The Investment Company Institute Wednesday reported $931 million of inflows for the week ending July 23, following $674 million of inflows the previous week.
Exchange-traded funds saw inflows of $1.334 billion after $767 million of inflows the week prior, per ICI data.
Issuance for the week is at $11 billion, buoyed by the $3.4 billion Georgia P3 deals. This, though, is unusual for a FOMC meeting week, as supply typically falls.
The $10-plus billion weekly issuance has become the norm, with June and July seeing heavy supply.
Part of this constant onslaught of deals week after week comes from large capital expenditure deals, said Jamie Iselin, head of the municipal fixed income team and a senior portfolio manager at Neuberger Berman.
Some of the larger deals this year, like New York City Transitional Finance Authority or California GOs, which many market participants already own, continue to do well in retail, he said.
New York City, which has seen pretty stable spreads since the primary, is coming with a $1.8 billion GO deal next week, Iselin said.
Additionally, the secondary market is good, he said. "You can get anything you want in the secondary market. It's very orderly.
Bids wanteds were elevated Tuesday at $1.7 billion, but that isn't unusual for late-month business, Olsan said.
"In a sign that higher redemption credits have helped ease overall cash-raise driven bid lists, this month's daily average (as posted to Bloomberg) is holding just above $1 billion par value," she said.
There is "pretty broad" liquidity in the market, Iselin said.
"When we go bid wanted and try to sell bonds, we're not having any trouble getting levels that we think are in line with fair value, or if there's a portfolio repositioning, traded like we're not having any trouble getting things done," he said.
There continues to be a lot of tax loss swapping in the market, which can sometimes inflate the secondary numbers, he said.
AAA scales
MMD's scale was unchanged: The one-year was at 2.41% and 2.41% in two years. The five-year was at 2.55%, the 10-year at 3.34% and the 30-year at 4.69% at 3 p.m.
The ICE AAA yield curve was cut up to a basis point: 2.43% (unch) in 2026 and 2.38% (unch) in 2027. The five-year was at 2.57% (unch), the 10-year was at 3.28% (unch) and the 30-year was at 4.65% (+1) at 4 p.m.
The S&P Global Market Intelligence municipal curve was little changed: The one-year was at 2.41% (unch) in 2025 and 2.42% (unch) in 2026. The five-year was at 2.55% (-1), the 10-year was at 3.33% (unch) and the 30-year yield was at 4.69% (unch) at 4 p.m.
Bloomberg BVAL was bumped three basis points 10 years and out: 2.38% (unch) in 2025 and 2.40% (unch) in 2026. The five-year at 2.52% (unch), the 10-year at 3.27% (-3) and the 30-year at 4.65% (-3) at 4 p.m.
Treasuries saw losses.
The two-year UST was yielding 3.937% (+7), the three-year was at 3.884% (+7), the five-year at 3.959% (+6), the 10-year at 4.369% (+5), the 20-year at 4.895% (+4) and the 30-year at 4.899% (+4) just before the close.
FOMC
There were no surprises from the FOMC, with rates held in a range from 4.25% to 4.50%, two governors dissenting and no hints of a September cut.
Governors Chris Waller and Michelle Bowman favored a 25-basis-point cut at this meeting, the first time there were two dissents since 1993. Gov. Adriana Kugler was not at the meeting.
The statement said inflation was "somewhat elevated," economic growth moderated in the first half of 2025, unemployment remains low and the labor market "solid." Previously, the Fed said the economy was growing "at a solid pace."
"Markets are likely to interpret today's outcome as a continuation of the Fed's wait-and-see strategy, with a dovish lean emerging through the dissents and softer language," said Dan Siluk, head of global short duration and liquidity and portfolio manager at Janus Henderson Investors. "The September meeting will be a live one."
"Market participants find themselves in a holding pattern, broadly expecting the Fed to maintain its current stance through the summer months whilst increasingly positioning for a 25-basis-point reduction come September," said Lauren Hyslop, fund manager at Mattioli Woods.
Powell again said monetary policy is "modestly restrictive." He refused to speculate about a September rate cut, saying they'd have to see data before making any decision.
Uncertainty is about the same as it was six weeks ago, he said, but he said "there's still a ways to go" before all uncertainty about the economic impact resolves.
"It appears that the odds are slowly gathering in favor of a September cut, but ultimately the incoming jobs data and inflation prints likely still hold the key," said Seema Shah, chief global strategist at Principal Asset Management.
"Barring any major surprises with the July or August employment reports, the Fed will cut policy rates in September," said Jack McIntyre, portfolio manager at Brandywine Global. "That meeting will have fireworks; today was just sparklers."
Ashish Shah, CIO of public investing at Goldman Sachs Asset Management, said, "The next two months' data will be pivotal and we see a path to a resumption of the Fed's easing cycle in the autumn should tariff inflation prove more modest than expected or the labor market show signs of weakness."
"A rate cut is getting closer, but the Fed is holding its ground for now," said Brian Coulton, chief economist at Fitch Ratings. "The statement acknowledges that economic growth has moderated — as evidenced by the weakening in growth of final sales to domestic purchasers (GDP excluding net trade and inventories) in today's Q2 national accounts release — but also notes that labor market conditions remain solid, and unemployment remains low."
Inflation remains "somewhat elevated" and is seen rising in the second half when tariffs impact the economy, he noted, but "the slowdown in underlying GDP growth has not been enough to unlock a rate cut."
GDP
While gross domestic product came in stronger than expected, some economists saw underlying weakness in the numbers.
"For the second straight quarter, headline GDP numbers mask the real story," said Olu Sonola, head of U.S. economic research at Fitch Ratings. "A 3.0% expansion in Q2 doesn't signal a roaring economy any more than the 0.5% contraction in Q1 pointed to an economic downturn."
"Private domestic final purchases suggest a slowing in the private sector economy," he said, and "government spending has [also] decreased."
BMO Chief U.S. Economist Scott Anderson also looked at the real final sales to domestic purchasers' component. "On that basis, the trend of cooling demand is very clear over the past two quarters, and growth now appears to be slipping below its longer-term potential pace."
As a result, the FOMC will soon be able to cut "despite the threat of temporarily higher inflation from tariffs," he said.
But others looked elsewhere in the report, which "implies a stronger core PCE reading tomorrow as well as upward revisions to prior months, which chips away at the case for Fed rate cuts in the near term, pushing Treasury yields higher across the curve this morning," said Josh Jamner, senior investment strategy analyst at ClearBridge Investments.
Lara Castleton, U.S. head of portfolio construction and strategy (PCS) at Janus Henderson Investors, said GDP "starkly contrasts the doomsday predictions post tariff announcements, showing the growth is far from recession levels."
While tariff preparation was critical to the swings, she said, "these numbers are not all distortions. Personal consumption, the primary contributor to GDP, came in at 1.4%, a sign the consumer is still strong on the surface."
"Recession calls are misplaced," Castleton said, as "the economy is stronger than many would have expected, but sorting through the data will be important to fund sustainable growth for the remainder of the year."
The Fed likely will remain on hold, she said, "and investors should be wary of extending duration beyond the belly of the curve in preparation for the doomsday that hasn't materialized."
Growth and inflation data in the report back "the case for rate cuts laid out by Governors Chris Waller and Miki Bowman, while undermining the final-word case for holding steady made by Governor Adrianna Kugler and New York Fed President John Williams two weeks ago," said FHN Financial Chief Economist Chris Low. "After all, if you think tariff-induced inflation is the reason to hold rates steady, you'd hardly expect inflation to slow significantly in Q2 given tariffs on the three biggest U.S. trade partners went into effect early in Q1."
Primary to come
Orlando, Florida, is set to price Thursday $420.115 million of non-rated contract tourist development tax revenue bonds (Camping World Stadium), insured by Assured Guaranty. J.P. Morgan.
The Dormitory Authority of the State of New York (Baa3/BBB//) is set to price Thursday $246.52 million of Mount Sinai Obligated Group revenue bonds. Jefferies.
The Comal Independent School District, Texas, is set to price $213 million of PSF-insured unlimited tax school building bonds. Mesirow Financial.
The Public Finance Authority is set to price Thursday $153.11 million of non-rated taxable revenue bonds (Prestwick Holdings LLC project). Morgan Stanley.
The New York State Housing Finance Agency (Aa2///) is set to price $108.6 million of sustainability affordable housing revenue bonds, consisting of $20.65 million of 2025 Series C-1 and $87.95 million of 2025 Series C-2. Ramirez.
Competitive
Washington (Aaa/AA+/AA+/) is set to sell $539.43 million of various purpose GOs, Series 2026A, Bid group 1 at 10:15 a.m. Eastern Thursday; $486.66 million of various purpose GOs, Series 2026A, Bid group 2 at 10:45 a.m.; $283.335 million of motor vehicle fuel tax and vehicle-related fees GOs, Series 2026B at 11:45 a.m.; and $152.835 million of taxable GOs, Series 2026T at 11:15 a.m., Eastern.
Gary Siegel contributed to this story.
