Munis were mixed Wednesday as U.S. Treasury yields rose following a better-than-expected jobs report, which indicated the Federal Reserve could take its time before its next rate cut. Equities ended lower.
"The bond market marked down the odds of rate cuts after the release," said FHN Financial Chief Economist Chris Low. "The fact long yields are still lower than two days ago suggests traders are skeptical of the quality of the employment data but are confident the Fed will use it as a reason to keep rates steady," he said.
The two-year muni-UST ratio Wednesday was at 59%, the five-year at 57%, 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 57%, the 10-year at 62% and the 30-year at 89%, according to ICE Data Services.
The Investment Company Institute Wednesday reported inflows of $2.983 billion for the week ending Feb. 4, following $1.911 billion of inflows the previous week.
Exchange-traded funds saw inflows of $721 million after $2.021 billion of inflows the week prior, per ICI data.
This week's new-issue calendar is a nice mix of negotiated and competitive deals, said Jamie Iselin, head of the municipal fixed income team and a senior portfolio manager at Neuberger Berman.
"The competitives are nice, especially when you have names like [the state of Washington]. Those help sharpen everyone's pencil on where the high-grade scale should be," he said.
There is a lot of steepness in the muni curve when "you go from 10 to 30 years, or 15 to 30 years," Iselin said.
"It feels like with yields a little less appetizing on the shorter end, people would jump out there a little bit more. And it hasn't happened. Maybe people still have some scars from 2022 or a lot of this money is coming into immediate strategies, but those yields out there are very appetizing for someone who can tolerate the volatility," he said.
The long end remains attractive.
"Given how expensive the short end of the muni curve has become, it's not surprising that investors are seeking out value in longer maturity bonds," Daryl Clements, a municipal portfolio manager at AllianceBernstein.
Considering the steepness of the muni curve, investors are "being rewarded in yield plus roll to step out along the curve," he said.
However, some are hesitant about extending duration, Iselin said.
"While people are getting more comfortable with inflation, there still is concern around that, especially with an administration that appears to want to run the economy on the hotter side into this year. Therefore, there may be folks that are still cautious about putting money out to 25, 30 years," he noted.
New-issue market
In the primary market Wednesday, BofA Securities priced for the Massachusetts Development Finance Agency (/BBB-/) $369.695 million of revenue bonds (Middlesex Sustainable Energy Partners). The first tranche, $162.175 million of tax-exempt Series A bonds, saw 5s of 10/2029 at 3.40%, 5s of 2031 at 3.48%, 5.25s of 2036 at 3.95%, 5.5s of 2041 at 4.51%, 5.5s of 2045 at 5.05% and 6s of 2049 at 5.32%, callable 4/1/2036.
The second tranche, $207.52 million of taxable Series B bonds, saw all bonds price at par: 6.75s of 10/30 and 7.375s of 2035, noncall.
BofA Securities priced for the Lee County Industrial Development Authority (A1/A+//) $266.38 million of hospital revenue bonds (Lee Healthy System, Inc. Project), Series 2026A. The first tranche, $66.07 million of Series A-1, saw 5s of 4/2030 at 2.47% and 5s of 2033 at 2.76%, noncall.
The second tranche, $89.57 million of Series A-2, saw 5s of 4/2065 with a tender date of 4/1/2033 priced at 2.92%, noncall.
J.P. Morgan priced for the Round Rock Independent School District, Texas, (Aaa///AAA/) $181.83 million of PSF-insured unlimited tax school building bonds, Series 2026A, with 5s of 8/2030 at 2.26%, 5s of 2031 at 2.32%, 5s of 2036 at 2.83%, 5s of 2041 at 3.38% and 5s of 2046 at 4.07%, callable 8/1/2035.
In the competitive market, the Las Vegas Valley Water District, Nevada, (Aa1/AA+//) sold $343.31 million of GO water refunding bonds to J.P. Morgan with 5s of 6/2027 at 2.06%, 5s of 2031 at 2.18%, 5s of 2036 at 2.70%, 5s of 2041 at 3.31% and 5s of 2046 at 4.05%, callable 6/1/2036.
Memphis, Tennessee, (Aa2/AA//) sold $137.705 million of general improvement bonds to J.P. Morgan with 5s of 11/2026 at 2.20%, 5s of 5/2033 at 2.27%, 5s of 11/2031 at 2.30%, 5s of 5/2035 at 2.58%, 5s of 5/2041 at 3.32% and 5s of 5/2046 at 4.10%, callable 5/1/2035.
AAA scales
MMD's scale was unchanged: 2.08% in 2027 and 2.08% in 2028. The five-year was 2.15%, the 10-year was 2.57% and the 30-year was 4.31% at 3 p.m.
The ICE AAA yield curve was cut out long: 2.12% (unch) in 2027 and 2.09% (-1) in 2028. The five-year was at 2.12% (unch), the 10-year was at 2.57% (unch) and the 30-year was at 4.26% (+3) at 4 p.m.
The S&P Global Market Intelligence municipal curve was bumped up to a basis point: The one-year was at 2.08% (-1) in 2027 and 2.09% (-1) in 2028. The five-year was at 2.16% (-1), the 10-year was at 2.57% (-1) and the 30-year yield was at 4.24% (unch) at 3 p.m.
Bloomberg BVAL was little changed: 2.09% (unch) in 2027 and 2.08% (unch) in 2028. The five-year at 2.13% (unch), the 10-year at 2.55% (unch) and the 30-year at 4.15% (unch) at 4 p.m.
U.S. Treasuries were weaker.
The two-year UST was yielding 3.509% (+6), the three-year was at 3.568% (+5), the five-year at 3.74% (+4), the 10-year at 4.171% (+3), the 20-year at 4.753% (+3) and the 30-year at 4.812% (+3) near the close.
Nonfarm payrolls
As always, analysts disagreed whether the employment report did or did not show strength, but overall, they believe it will not change Federal Reserve officials' minds and rates will stay put for now.
January's nonfarm payrolls report wasn't "a game-changer," said
"This report feels more like a security blanket than a wake-up call," said Snaith. "It tells us the economy is on solid footing, but it doesn't force the Fed's hand."
Still, FHN Financial's Low said the bottom line was "confusion."
Although it beat expectations, he said, the numbers were not strong, as "revisions were breathtakingly bad."
Any strength "in January was remarkably narrow and within the range of recent revisions, which have been almost uniformly downward. In other words, jobs were reported to have risen 130,000 today, but two months from now, based on recent experience, the rise could stand at zero," Low said.
"Nevertheless, at face value, this is a decent report," he said.
Fed officials, Low said, "are likely to pronounce it robust, or solid."
Gina Bolvin, president of Bolvin Wealth Management Group, agreed the report "doesn't change the bigger picture."
While January's jobs gained "shows the labor market is stabilizing," she said, "downward revisions to 2025 confirm growth slowed meaningfully last year. With unemployment still elevated, the Fed has room to stay patient and keep rate cuts on the table."
"Markets took the data in stride and that reaction is telling," Bolvin said. "Investors are shifting from trading headlines to focusing on earnings durability, balance-sheet strength, and selective growth, knowing volatility and rotation are likely as 2026 unfolds."
Still, Brad Smith, portfolio manager at Janus Henderson Investors, said, "The market got the jobs report it needed," especially with the unemployment rate dipping.
"This print provides a solid datapoint on the side of robust economic growth, an improving labor market and wage growth that can support consumer spending," he said.
The numbers suggest the Fed will not lower rates next month, Smith said. "Ultimately, this print is an indication that the feared softness in the labor market is not materializing and that the strong productivity-led economic growth we are experiencing is not coming at the cost of jobs. Despite tight spreads and elevated multiples, we view this as a favorable backdrop for risk assets."
"The release was broadly strong, with job gains, hours worked, and the unemployment rate all exceeding expectations," said Kevin O'Neil, associate portfolio manager and senior research analyst at Brandywine Global. "Consistent with Brandywine Global's outlook for firmer economic growth, we would expect labor market conditions to remain solid through 2026."
Sal Guatieri, senior economist at BMO, said the "report could mark the start of a gradual recovery amid resilient economic growth."
The takeaways for Fitch Ratings Chief Economist Brian Coulton were that the slowdown in employment growth in 2025 "was even more pronounced than previously estimated," but the pace has improved.
"The downside risks to the labor market the Fed was fretting about late last year have not evaporated, but they definitely look to be receding," he said.
The report gives Fed hawks fuel to push for patience, said Angelo Kourkafas, senior global strategist of investment strategy at Edward Jones.
"Markets have adjusted accordingly, with bond futures now fully pricing in a Fed cut by July instead of June," he said. "From a portfolio standpoint, we expect the 10‑year yield to drift back toward the middle of its 4%–4.5% range, and we believe the rotation toward 'old economy' and pro‑cyclical sectors should continue."
The better-than-expected job gains "could easily be overshadowed by the final revisions" to 2025 job totals, said Chris Zaccarelli, chief investment officer at Northlight Asset Management.
The strength in headline numbers, he said, "will likely lead to a knee-jerk reaction in the bond market that overnight rates won't be coming down as quickly as last year."
While the report "was an unequivocal positive," Jeff Schulze, head of economic and market strategy at ClearBridge Investments, said, "it is important to remember that January data often has outsized seasonal impacts," and this year's "could have even more noise than usual due to the BLS introducing an updated Birth-Death model. Taken together, these two dynamics take a bit of the shine off of today's release."
"This was not a weak print; it was a very strong one, even allowing for the considerable noise likely embedded in the data," said Seema Shah, chief global strategist at Principal Asset Management.
"The case for imminent Federal Reserve rate cuts looks thin," she said. "It will not be an easy task for Kevin Warsh to persuade the FOMC to ease policy at his first meeting: absent a clearer and sustained deceleration in inflation, the labor market will not make that case for him."
"The labor market is showing some tentative signs of re-tightening, although there remains a way to go," said Kay Haigh, global co-head of fixed income and liquidity solutions in Goldman Sachs Asset Management. "The FOMC's gaze instead will turn to the inflation picture with the economy continuing to perform above expectations. We still see room for two more cuts this year; however, an upside surprise in the consumer price index on Friday could tilt the balance of risks in a hawkish direction."
Primary to come
The University of Oregon (Aa2/AA-//) is set to price Thursday $205.8 million of general revenue and refunding bonds, Series 2026A. BofA Securities.
The Richardson Independent School District, Texas, (Aaa/AAA//) is set to price Thursday $183.105 million of PSF-insured unlimited tax refunding bonds. FHN Financial.
The Public Finance Authority (//A-/) Thursday $132.385 million of tax-exempt revenue bonds (Maniilaq Association Employee Housing Project). Goldman Sachs.
The Unified Government of Wyandotte County/Kansas City, Kansas, is set to price Thursday $119.275 million of sales tax special obligation revenue bonds (Northwest Speedway Star Bond District Project). Piper Sandler.
Competitive
Virginia Beach, Virginia, (Aaa/AAA/AAA/) is set to sell $146.425 million of GO public improvement bonds, Series 2026A, at 10:30 a.m. Thursday.
Gary Siegel contributed to this article.
