Munis were a touch weaker in spots as U.S. Treasuries were narrowly mixed and equities saw losses after a weak jobs report.
Treasuries have pared recent gains after the focus moved from flight-to-quality to inflation concerns due to higher oil prices, which are up around 15%, said Barclays strategists led by Mikhail Foux.
Usually, tax-exempts should outperform when rates "abruptly" sell off, but this did not happen this time, they said.
The two-year muni-UST ratio Friday was at 60%, the five-year at 61%, the 10-year at 66% 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 61%, the five-year at 61%, the 10-year at 65% and the 30-year at 90%, according to ICE Data Services.
MMD-UST ratios have risen two to three percentage points for five- and 10-year maturities, which have become unreasonably rich, but less so for 30-year bonds, Barclays strategists said.
Investment-grade munis have underperformed slightly more than high-yield munis, despite their shorter duration, they said.
"High-quality names in the IG universe (triple-As), as well as triple-Bs and non-rated names (which include MSA Tobacco and Puerto Rico) have also lagged a bit," Barclays strategists said.
Tax-exempts have lagged due to the heavier new-issue calendar and richer valuations in the belly, they said.
"In our view, this adjustment is only healthy," Barclays strategists said. "However, we are still not overly concerned about the effect of the geopolitical concerns on municipals — in our view, the muni market is well insulated."
"History shows that even major geopolitical conflicts exert less influence on bond markets than Fed policy shifts," but oil is a big consideration, said Gayl Mileszko, senior vice president and director of credit analysis at HJ Sims.
If oil prices keep rising, it will "feed inflation and limit the Fed's rate-cutting flexibility," she said.
"Higher oil prices (if they stay elevated for a long period of time), might be a negative for the transportation sector (airports, toll roads); consumer spending might also be negatively affected, diminishing sales tax revenues; and the Fed might be less inclined to cut rates," per Barclays strategists, though they noted oil-producing states could benefit.
If the U.S-Iran war "drags on," there could be a haven rally or some prices may keep falling if investors stay on the sidelines at a time when the market is seeing near-record-high supply, Mileszko said.
New-issue calendar
The new-issue calendar is an estimated $9.861 billion, with $7.684 billion of negotiated deals on tap and $2.177 billion of competitives.
The Dormitory Authority of the State of New York leads the negotiated calendar with $2.575 billion of general purpose state personal income tax revenue bonds, followed by the state of California with $2.387 billion of various purpose GOs.
The competitive calendar is led by Baltimore County with $460.49 million of GOs in four series.
AAA scales
MMD's scale was cut up to two basis points: 2.12% (unch) in 2027 and 2.13% (unch) in 2028. The five-year was 2.25% (unch), the 10-year was 2.70% (+2) and the 30-year was 4.26% (unch) at 3 p.m.
The ICE AAA yield curve was cut one to two basis points: 2.15% (+1) in 2027 and 2.18% (+1) in 2028. The five-year was at 2.29% (+2), the 10-year was at 2.70% (+2) and the 30-year was at 4.28% (+2) at 4 p.m.
The S&P Global Market Intelligence municipal curve was cut up to three basis points: The one-year was at 2.12% (unch) in 2027 and 2.13% (unch) in 2028. The five-year was at 2.25% (+1), the 10-year was at 2.67% (+3) and the 30-year yield was at 4.26% (unch) at 3 p.m.
Bloomberg BVAL was cut up to a basis point: 2.14% (unch) in 2027 and 2.14% (unch) in 2028. The five-year at 2.23% (unch), the 10-year at 2.65% (+1) and the 30-year at 4.19% (+1) at 4 p.m.
U.S. Treasuries were narrowly mixed.
The two-year UST was yielding 3.562% (-2), the three-year was at 3.594% (flat), the five-year at 3.728% (flat), the 10-year at 4.145% (+1), the 20-year at 4.739% (+2) and the 30-year at 4.765% (+1) near the close.
Employment report
While analysts agreed the employment report showed labor market weakness, some offered factors that could account for some of the softness in the data.
Calling the report "unambiguously weak," FHN Financial Chief Economist Chris Low noted the market didn't react because of weather issues in late January-early February, which "can have significant short-term effects on payrolls." The rising price of oil, which "closely correlates with yields, especially when there are big price swings," also kept the market from reacting, he said.
"That said, this report is something to bear in mind as a set-up to a potential shift in thinking, again, at the Fed," Low said.
But BMO Chief U.S. Economist Scott Anderson sees a reaction. "Treasuries catching a bit of a bid, and the U.S. dollar rising on safe-haven flows," he said.
Additionally, fed funds futures suggest "a higher probability of two Fed rate cuts this year," Anderson said.
While it generally takes three or more data points to show a trend, Chris Zaccarelli, chief investment officer at Northlight Asset Management, said, "If the market were to take this well, it would only be because it would make the Fed more likely to cut rates, given the bad news from the jobs market."
Peter Graf, chief investment officer at Amova Asset Management Americas, said the report "is a bracing splash of cold water for investors who assumed that the U.S. economy could emerge unscathed from both the AI productivity revolution and capricious government policy zigzags."
The war with Iran could cause inflation and reignite stagflation concerns, he said.
"However, the fact that this report is a mirror image of the January data may couple with lingering questions about the quality of government statistics and cause many to discount the significance of one weak month," Graf said. "So far, inflation and fiscal deficit concerns have outweighed the usual wartime bid for the safety of bonds, and skeptical investors seem unlikely to reverse the trend higher in yields based on questionable data when uncertainty about the cost and knock-on effects of the Iran conflict remains so high."
The report "creates a complicated picture" for the Federal Reserve, said Gina Bolvin, president of Bolvin Wealth Management Group. "A softer labor market argues for eventual rate cuts, but policymakers will need clearer evidence that inflation is easing before making that move."
The takeaway for investors, she said, is "this reinforces a bifurcated market — slower macro growth paired with accelerating technological transformation."
Still, Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management, said the data are "a reminder to the Fed that there could be a price to pay for delaying cuts, although near-term policy remains dictated by the ongoing Middle East conflict. Developments in Iran and their potential consequences on inflation have overshadowed the U.S. employment picture to a degree, making the path forward to potential policy normalization less clear."
While Rosner expects two rate cuts this year "to return rates to neutral, the timing is up in the air given current uncertainty."
Fed officials are "between a rock and a hard place as the labor market remains at stall speed but inflationary pressures are building due to both events in the Middle East and continued firm wages," said Jeff Schulze, head of economic and market strategy at ClearBridge Investments.
This "is a negative for risk assets given its read-through to a softer economic outlook in a period where the Fed is likely to remain on the sidelines," he said.
But since it's just one data point, "we should avoid over‑extrapolating the trend, particularly given that severe weather and labor disruptions may have weighed on hiring," said Angelo Kourkafas, senior global strategist of investment strategy at Edward Jones. "However, with global geopolitical uncertainty elevated, it is reasonable to expect that job growth may remain subdued in the months ahead."
He expects one or two rate cuts later this year.
The report shows the labor market has gone from "lackluster" last year to near "a standstill," said Jeffrey Roach, chief economist at LPL Financial.
He sees the unemployment rate rising. "I don't expect the Fed to act sooner than June, but if the labor market deteriorates faster than expected, officials could cut rates on April 29," Roach said.
But strikes, bad weather and benchmark methodology revisions "make the print less useful," said Brad Smith, portfolio manager at Janus Henderson Investors. "Averaging the strong print from January and this print shows a labor market that is tepid and below replacement in line with the low-hire, low-fire economy."
While Jennifer Timmerman, senior investment strategy analyst at Wells Fargo Investment Institute, agrees the weakness "may have been overstated" due to weather and strikes, "our takeaway is that labor-market conditions may have softened another notch on the eve of the Iran war."
Still, she said, "the weakening remains modest, judging from earlier companion reports, including initial jobless claims, recent layoff announcements, and the employment component of the February purchasing managers' surveys."
Primary to come
The New York Dormitory Authority (Aa1///AAA/) is set to price Tuesday $2.575 billion of general purpose state personal income tax revenue bonds, consisting of $2.528 billion of tax-exempt Series 2026A bonds and $47.495 million of taxable Series 2026B bonds. Ramirez.
California (Aa2/AA-/AA/) is set to price Wednesday $2.387 billion of various purpose GOs, consisting of $1.4 billion of new-issue bonds and $987.435 million of refunding bonds. RBC Capital Markets.
Chicago (/BBB/BBB+/BBB+/) is set to price Tuesday $800.29 million of GOs, consisting of $481.94 million of taxable Series 2026A bonds, $17.39 million of Series 2026B bonds, $28.47 million of Series 2026C bonds, $116.81 million of Series 2026D bonds, $115.985 million of Series 2026E bonds, $13.505 million of Series 2026F bonds and $26.19 million of taxable Series 2026G bonds. BofA Securities.
The Minnesota Municipal Gas Agency (Baa1///) is set to price $750 million of gas project revenue bonds, Series 2026A. J.P. Morgan.
The University of Connecticut (Aa2/AA-/AA//) is set to price Tuesday $432.305 million of GO refunding bonds, 2026 Series A. RBC Capital Markets.
Ohio (Aaa/AAA/AAA//) is set to price Tuesday $362.95 million of common schools GOs, Series 2026A; $60 million of taxable third frontier research development GOs, Series 2026A; and $36 million of taxable higher education GOs, Series 2026A. Loop Capital Markets.
The Texas Transportation Commission (Aaa/AAA/AAA//) is set to price Wednesday $250 million of GO mobility fund put remarketing bonds, Series 2014-B. FHN Financial
The University of Texas System Board of Regents (Aaa/AAA/AAA/) is set to price Wednesday $250 million of revenue financing system bonds, Series 2026B, Subseries 2026B-1. Morgan Stanley.
The Bay Area Toll Authority (/AA/AA/) is set to price Monday $232.48 million of San Francisco Bay Area Toll Bridge revenue refunding bonds, 2026 Series F-2. Barclays.
The University of Vermont and State Agricultural College (Aa3/A+//) is set to price Tuesday $221.365 million of GOs, Series 2026A. BofA Securities.
The Los Angeles Municipal Improvement Corp. (A1//AA/) is set to price Tuesday $216.135 million of lease revenue refunding bonds (Capital Equipment and Real Property), Series 2026-A Barclays.
Jacksonville, Florida, (/AA/AA+/) is set to price Tuesday $129.595 million of transportation refunding revenue bonds. Raymond James.
The Buffalo Municipal Water Finance Authority (A1///) is set to price Wednesday $127.485 million of bonds, consisting of $85.68 million of Series 2026A and $41.805 million of Series 2026B. FHN Financial/
The Florida Development Finance Corp. is set to price Thursday $120 million of nonrated AMT solid waste disposal revenue remarketing bonds (Waste Pro USA, Inc. Project), Series 2023. Barclays.
The Missouri Public Utilities Commission is set to price Thursday $110 million of interim construction notes, Series 2026. D.A. Davidson.
The New York State Mortgage Agency (Aa1///) is set to price Wednesday $107.425 million of social homeowner mortgage revenue bonds, consisting of $88.655 million of non-AMT Series 274 bonds and $18.77 million of AMT Series 275 bonds. RBC Capital Markets.
The Clark-Pleasant Community School Corp. Building Corp. (/AA+//) is set to price Wednesday $106.295 million of ad valorem property tax first mortgage bonds. Stifel.
Competitive
The Omaha Metropolitan Utilities District, Nebraska, (Aa2/AA+//) is set to sell $268.415 million of water system revenue and refunding bonds at 11 a.m. Eastern Wednesday.
Westchester County, New York, is set to sell $250.306 million of GOs, 2026 Series A, at 11 a.m. Wednesday.
Baltimore County (Aaa/AAA/AAA/) is set to sell $184 million of consolidated public improvement bonds, at 10:15 a.m. Tuesday; $116.65 million of GO metropolitan district refunding bonds, at 11:15 a.m. Tuesday; $90 million of 87th issue metropolitan district bonds at 10:45 a.m. Tuesday; and $69.84 million of consolidated public improvement refunding bonds, at 11:45 a.m. Tuesday.
The Rosemount-Apple Valley-Eagan School District, Minnesota, (Aa1///) is set to sell $145.830 million of GO school building and refunding bonds, Series 2026A, at 11:30 a.m. Monday.
Albany, New York, is set to sell $142.939 million of bond anticipation notes, at 11 a.m. Tuesday.
