The muni market remained little changed Monday amid ongoing macro events, while U.S. Treasuries saw gains and equities ended down.
"Despite the Supreme Court's ruling on the IEEPA tariffs, the administration pledged to swiftly reintroduce levies via other legal means and signed a 10% global tariff rate by [Friday] afternoon," said Birch Creek strategists. Over the weekend, President Donald Trump announced he would raise global tariffs to 15%.
"Trump indicated the administration will implement additional tariffs under different authorities, and we expect the aggregate effective tariff rate to ultimately settle around 13%, largely unchanged from current levels," Nuveen strategists said.
"This tempered the market's move but opens the risk that the curve could steepen if the Treasury Department must issue more bonds to cover a wider-than-expected deficit without the previously anticipated tariff revenues," they said.
"People thought the bond market was going to get clobbered on the news, but there are other avenues to pursue," said Tim McGregor, managing partner at Riverbend Capital Advisors, Friday of the administration finding other ways to keep tariffs.
"It doesn't feel like the impact from Liberation Day last year yet. I think we've become a little bit numb to all of the news that comes out every day," said Craig Brandon, co-head of muni investments at Morgan Stanley Investment Management.
It is probably not "that bad" in the short term, he said, as USTs are rallying Monday and munis are correlated to USTs.
"So this Treasury rally [will] probably, in a weird way, help us today. Munis tend to be risk-off product. We're probably benefiting from the risk-off trade," Brandon said.
However, in the long term, from a credit perspective, there will be winners and losers from the tariffs, on top of the challenges states and localities are already contending with, he noted.
Eaton Vance's "State of the States: How Do They Rank?" report notes that states with large export footprints could see sizable impacts as tariff policies and global demand conditions shift.
Louisiana has the highest exports-to-GDP ratio at 26.4%, making the state the most exposed to tariff-related changes in global demand.
Additionally, states with higher import dependence are more sensitive to tariffs, along with global supply chain shocks, according to the report. Kentucky has the highest imports-to-GDP ratio at 32%, indicating an elevated reliance on imported inputs for production.
However, this is just one thing states are dealing with right now, with Brandon believing they face greater challenges in Medicaid costs and potential cuts to SNAP benefits.
The two-year muni-UST ratio Monday was at 60%, the five-year at 59%, the 10-year at 63% 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 59%, the five-year at 58%, the 10-year at 62% and the 30-year at 89%, according to ICE Data Services.
Overall, munis saw strength last week, with month-to-date gains at 0.92%, pushing year-to-date returns to 1.86%, said Jason Wong, vice president of municipals at AmeriVet Securities.
Last week, the 2027-2031 maturity range saw yields fall 1 basis point, while 2032-2038 saw bumps of 1-2.7 basis points. The 2039-2056 maturities saw bumps of 3-3.8 basis points, he said.
With yields falling, along with USTs "pulling back sharply," munis outperformed USTs across the curve, a move driven by strong tax-exempt demand as seen in recent positive fund flows and reinvestment demand outdriving supply, Wong said.
While exchange-traded fund redemptions early last week led to some "sizable BWICs and more cautious trading, ultimately the influx of cash and smaller primary calendar kept the good times rolling," Birch Creek strategists said.
Muni mutual funds saw inflows of $1.269 billion last week, according to LSEG Lipper data. This is the sixth time in seven weeks that inflows have topped $1 billion.
Given reinvestment cash is set to slow and some tax-related selling will likely happen over the next two months, "many accounts are comfortable waiting for cheap new issues to get invested, said Birch Creek strategists.
However, it has become more difficult for accounts to remain uninvested given the rapid rate of new cash flowing into the market, they said.
In the coming weeks, fund flows will help determine whether "this time will be different" and the market can "continue its run of performance" rather than weaken in the spring technical period, Birch Creek strategists said.
AAA scales
MMD's scale was unchanged: 2.06% in 2027 and 2.06% in 2028. The five-year was 2.13%, the 10-year was 2.52% and the 30-year was 4.23% at 3 p.m.
The ICE AAA yield curve saw small bumps throughout most of the curve: 2.09% (-1) in 2027 and 2.06% (-1) in 2028. The five-year was at 2.12% (+1), the 10-year was at 2.53% (-1) and the 30-year was at 4.19% (-1) at 4 p.m.
The S&P Global Market Intelligence municipal curve was unchanged: The one-year was at 2.06% in 2027 and 2.07% in 2028. The five-year was at 2.13%, the 10-year was at 2.52% and the 30-year yield was at 4.20% at 3 p.m.
Bloomberg BVAL was little changed: 2.04% (-1) in 2027 and 2.04% (unch) in 2028. The five-year at 2.08% (unch), the 10-year at 2.49% (unch) and the 30-year at 4.08% (-1) at 4 p.m.
U.S. Treasuries were firmer.
The two-year UST was yielding 3.439% (-4), the three-year was at 3.445% (-6), the five-year at 3.682% (-7), the 10-year at 4.032% (-5), the 20-year at 4.639% (-3) and the 30-year at 4.702% (-2) near the close.
Primary to come
The Regents of the University of California (Aa2/AA/AA/) is set to price $1.934 billion of general revenue bonds, consisting of $962.275 million of Series 2026CE and $976.27 million of Series CF. J.P. Morgan.
The Black Belt Energy Gas District (A2///) is set to price $1.1 billion of gas project revenue bonds, Series 2026E. Goldman Sachs.
The Arizona Board of Regents (Aa2/AA//) is set to price Tuesday $268.81 million of Arizona State University System revenue bonds, Series 2026A. Wells Fargo.
The Monmouth County Improvement Authority, New Jersey, is set to price Tuesday $251.219 million of governmental pooled loan project notes. Raymond James.
The New York State Environmental Facilities Corp. (Aaa/AAA/AAA/) is set to price Tuesday $234.395 million of State Clean Water and Drinking Water Revolving Funds revenue bonds (New York City Municipal Water Finance Authority Projects-Second Resolution bonds), Series 2026A. Goldman Sachs.
The Western Maricopa Education Center District No. 402, Arizona, (/AA//) is set to price Wednesday a $223.545 million deal. Stifel, Nicolaus & Co.
Orlando, Florida, (/AA+/AAA/) is set to price Tuesday $200.225 million of capital improvement special revenue bonds, consisting of $41.08 million of refunding Series 2026A bonds and $159.145 million of Series 2026B bonds. Ramirez.
The Public Finance Authority (//A-/) is set to price $132.385 million of tax-exempt revenue bonds, Series 2026 (Maniilaq Association Employee Housing Project). Goldman Sachs.
The Pittsburgh Water and Sewer Authority (A2/A+//) is set to price Tuesday $126.295 million of water and sewer system first lien revenue bonds, Series A of 2026. Ramirez.
The Cuyahoga Community College District, Ohio, (/AA+//) is set to price Tuesday $108.510 million of facilities construction and improvement refunding bonds. KeyBanc Capital Markets.
Competitive
The Santa Clara County Financing Authority, California, (/AA+/AA+/) is set to sell $400 million of lease revenue bonds, 2026 Series A, at 11:30 a.m. Eastern Thursday.
The Clark County School District, Nevada, (A1/AA-//) is set to sell $300.145 million of GO building and refunding bonds, Series 2026A, at 11:30 a.m. Thursday.
Hoboken, New Jersey, is set to sell $193.441 million of bond anticipation notes of 2026, Series A, at 11:00 a.m. Thursday.
The Virginia Commonwealth Transportation Board (Aa1/AA+/AA+/) is set to sell $118.96 million of Commonwealth of Virginia transportation capital projects revenue refunding bonds at 10:30 a.m. Wednesday.
Franklin, Tennessee, (Aaa///) is set to sell $105.690 million of GOs at 11 a.m. Wednesday.
