Municipals outperformed a U.S. Treasury selloff following a stronger-than-expected jobs report, which led to bond market weakness. Equities rallied.
The two-year muni-UST ratio Friday was at 67%, the five-year at 68%, the 10-year at 74% and the 30-year at 92%, according to Municipal Market Data's 3 p.m. ET read. ICE Data Services had the two-year at 68%, the five-year at 70%, the 10-year at 74% and the 30-year at 93% at 4 p.m.
The labor market saw 139,000 jobs added in May versus expectations of 126,000, an upside surprise, but still down from the prior release of 177,000 jobs added, which was revised downward to 147,000 additions for April.
The nonfarm payrolls report shows the economy is "hanging in there," though it is slowing, said Jeff MacDonald, EVP and head of fixed income strategies at Fiduciary Trust International.
The economy has "some headwinds with tariffs, which is a moving target because of this whole 'TACO' thing," he said, referring to some traders' basing strategies on "Trump Always Chickens Out" on steep tariff pronouncements.
"It's somewhat real, but the idea that we're moving into an easier or neutral tariff position is probably wishful thinking, and that when this all shakes out, we will have tariffs that are higher than we have been used to," he said.
There are also headwinds with inflation and the Federal Reserve, "which, if you take the Fed at their word, they still believe they are in restricted territory. And if they are in restricted territory, plus the trade headwinds, plus business sentiment, you're really having a difficult time making capital investment decisions with all those headwinds in place," MacDonald said.
And while the headwinds "keep a lid on economic growth, [the jobs report does] not suggest that we are headed into an imminent recession based on an incredible amount of economic weakness," he noted.
"The slowing economy has emerged as a new focus for the bond market and re-energized speculation of Fed rate cuts in the coming months," said BofA strategists.
The Federal Open Market Committee
Currently, the Fed Funds futures market expects the first Fed rate cut to occur in September, but BofA economists believe there will be no Fed rate cuts this year, but 100 basis points of cuts next year, they said.
"After all, the economy has been weaker-than-expected since the beginning of the year," BofA strategists said.
First quarter GDP growth was nearly flat, and manufacturing has been at recessionary levels for over two years. Meanwhile, the ISM Service Index for May is "flirting" with recessionary levels after a "solid" 12 months, they said, noting April and June 2024 were the last time ISM Service Index fell to recessionary levels.
"It was no coincidence that Treasury yields took a bullish turn in April 2024 and munis' followed in June 2024," BofA strategists said.
"Munis were the first to reach peak yields (in April) while Treasury yields continued their climb post-April," they said.
It's unclear if UST yields reached their peaks in May, but slowing service data is "a good driver for a likely better Treasury rates environment to come," BofA strategists, giving the muni market rally a "much-needed boost."
Munis were little changed in May, driven primarily by falling muni-UST ratios, they said.
"If the Treasury market were to take a bullish turn in a more sustainable way, we expect munis to follow in stride when ratios cheapen some. We believe such a time is around the corner; either it's here already or near," BofA strategists said.
New-issue calendar
Issuance for the week of June 9 is estimated at $13.184 billion, with $9.269 billion of negotiated deals and 3.915 billion of competitive deals on tap, according to LSEG.
Georgia's Private Colleges and Universities Authority leads the negotiated calendar with $1.034 billion of Emory University revenue bonds, followed by Philadelphia with $816 million of GOs.
The competitive calendar is
AAA scales
MMD's scale was unchanged: The one-year was at 2.72% and 2.70% in two years. The five-year was at 2.79%, the 10-year at 3.34% and the 30-year at 4.56% at 3 p.m.
The ICE AAA yield curve was cut up to three basis points: 2.74% (unch) in 2026 and 2.68% (+1) in 2027. The five-year was at 2.80% (+3), the 10-year was at 3.27% (+3) and the 30-year was at 4.53% (+3) at 4 p.m.
The S&P Global Market Intelligence municipal curve was unchanged: The one-year was at 2.73% in 2025 and 2.71% in 2026. The five-year was at 2.79%, the 10-year was at 3.34% and the 30-year yield was at 4.56% at 4 p.m.
Bloomberg BVAL saw was little changed: 2.71% (unch) in 2025 and 2.73% (unch) in 2026. The five-year at 2.83% (unch), the 10-year at 3.30% (unch) and the 30-year at 4.52% (unch) at 4 p.m.
Treasuries sold off.
The two-year UST was yielding 4.036% (+11), the three-year was at 4.022% (+13), the five-year at 4.123% (+13), the 10-year at 4.507% (+11), the 20-year at 4.989% (+9) and the 30-year at 4.963% (+8) near the close.
Primary to come
The Private Colleges and Universities Authority (Aa2/AA//) is set to price Wednesday $1.034 million of Emory University revenue bonds. RBC Capital Markets.
Philadelphia (A1/A+/A+/) is set to price Tuesday $816.495 million of tax-exempt and taxable GOs. BofA Securities.
Los Angeles County is set to price Tuesday $700 million of 2025-2026 tax and revenue anticipation notes. Raymond James.
The Pennsylvania Housing Finance Agency (Aa1///) is set to price Tuesday $578.89 million of non-AMT social and taxable single-family mortgage revenue bonds. BofA Securities.
The North Carolina Medical Care Commission (Aa3/AA-/AA-/) is set to price Wednesday $489.575 million of Duke University Health System health care facilities revenue bonds. J.P. Morgan.
The Lower Colorado River Authority (A2/A/AA-/) is set to price Tuesday $482.115 million of refunding revenue bonds. J.P. Morgan.
The Metropolitan Government of Nashville and Davidson County (Aa2/AA//AA/) is set to price Thursday $451.895 million of water and sewer revenue refunding and improvement bonds. BofA Securities.
The West Virginia Hospital Finance Authority (A2/A//) is set to price Tuesday $419.18 million of fixed-rate and long-term rate West Virginia University Health System Obligated Group hospital revenue improvement bonds. RBC Capital Markets.
The Providence St. Joseph Health Obligated Group (/A/A/) is set to price Tuesday $400 million of taxable refunding bonds. J.P. Morgan.
The New York City Housing Development Corp. (Aa2/AA+//) is set to price Tuesday $385.915 million of sustainable development multi-family housing revenue bonds. Morgan Stanley.
The California Health Facilities Financing Authority (/A/A/) is set to price Tuesday $365 million of fixed-rate and term-rate Providence St. Joseph Health revenue bonds. BofA Securities.
The Sacramento Municipal Utility District, California, (Aa3//AA/) is set to price Tuesday $300,000 of subordinated electric revenue refunding bonds and electric revenue bonds. Barclays.
The Massachusetts Educational Financing Authority is set to price Tuesday $282.415 million of senior and subordinate education loan revenue bonds. RBC Capital Markets.
Rhode Island (Aa2/AA/AA+/) is set to price Tuesday $273.38 million of GOs. J.P. Morgan.
The Clifton Higher Education Finance Corp. (/AAA//) is set to price Wednesday $240 million of PSF-insured education revenue bonds and refunding bonds. Baird.
The School Facilities Improvement District No. 1 of the Santa Monica-Malibu Unified School District, California, (Aa1/AA+//) is set to price Tuesday $200 million of Election of 2024 GOs. Baird.
The Shelby County Health, Educational and Housing Facility Board, Tennessee, (A1/AA//) is set to price Wednesday $195.44 million of fixed-rate and long-term-rate Methodist Le Bonheur Healthcare revenue bonds, insured by Assured Guaranty. J.P. Morgan.
The Denton Independent School District, Texas, (/AAA/AAA/) is set to price Tuesday $181.86 million of PSF-insured unlimited tax school building bonds. Raymond James.
The Massachusetts Development Finance Agency (/A//) is set to price Thursday $179.03 million of Tufts University student housing project revenue bonds. Barclays.
Tampa Bay Water (Aa1/AA+//) is set to price Tuesday $158.985 million of utility system refunding revenue bonds. Wells Fargo.
The Frisco Independent School District, Texas, (Aaa/AAA//) is set to price Tuesday $147.82 million of PSF-insured unlimited tax refunding bonds. RBC Capital Markets, Chicago
The Fontana Unified School District, California, (Aa2///) is set to price $136 million of Election of 2024 GOs. Loop Capital Markets.
The Santa Rosa High School District (Aa3///) is set to price Wednesday $100 million of Election of 2022 GOs. Raymond James.
Competitive
Maryland (Aa1/AAA/AAA/) is set to sell $485.195 million of GOs, State and Local Facilities Loan of 2025, First Series A, Bidding Group 1, at 10:30 a.m. Wednesday; $414.805 million of GOs, State and Local Facilities Loan of 2025, First Series A, Bidding Group 2, at 11 a.m. Wednesday; $366.915 million of GO refunding bonds, State and Local Facilities Loan of 2025, First Series B, Bidding Group 1, at 11:30 a.m. Wednesday; and $294.735 million of GO refunding bonds, State and Local Facilities Loan of 2025, First Series B, Bidding Group 2, at noon Wednesday.
Massachusetts (Aa1/AA+/AA+/) is set to sell $385 million of GO Consolidated Loan of 2025 bonds, Series C, at 10:30 a.m. Tuesday; $215 million of GO Consolidated Loan of 2025 bonds, Series B, at 10 a.m. Tuesday; and $100 million of taxable GO Consolidated Loan of 2025 bonds, Series D, at 11 a.m. Tuesday.
The Anaheim Union High School District, California, (Aa1///) is set to sell $180 million of tax-exempt Election of 2024 GOs, Series A, at 12:30 p.m. Tuesday.
The Iowa State Board of Regents (Aa2/AA-//) is set to sell $138.845 million of parking system revenue refunding bonds at 11 a.m. Tuesday.
The Horseheads Central School District, New York, is set to sell $102 million of GO bond anticipation notes at 10:30 a.m. Wednesday.
The Newburgh Enlarged City School District, New York, is set to sell $100 million of GO bond anticipation notes at 11 a.m. Wednesday.
