Munis saw small gains once more, as U.S. Treasury yields fell and equities ended down.
Muni yields were bumped up to two basis points, while UST yields fell three to five basis points, pushing two-, three- and five-year UST yields to yearly lows.
The two-year muni-UST ratio Friday was at 60%, the five-year at 60%, the 10-year at 64% 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.
Friday's release of the producer price index came in hotter than expected.
"Despite the big headline increase, this PPI is mostly friendly, which is why it has not moved the market," FHN Financial Chief Economist Chris Low said.
"The latest news on the PPI had little impact on the bond market, where the yield on the benchmark 10-year Treasury note dipped below 4% in the early going," said Gary Schlossberg, global strategist at Wells Fargo Investment Institute. "Rate cut probabilities by the Fed in the coming months are down, but only slightly in the futures market."
On the week, the muni market performed well, with most investor action happening in the longer half of the curve, said BofA strategists.
Muni curve flattening remains a "focus" for now, they said.
Overall, February was another strong month for munis, said Barclays strategists led by Mikhail Foux.
Investment-grade munis are seeing gains of 1.13% month-to-date, pushing year-to-date returns to 2.08%. High-yield munis are seeing positive returns of 1.49% MTD and 2.48% YTD.
Tax-exempts were the best-performing asset class so far in 2026, partially recouping last year's underperformance, Barclays strategists said.
However, this will become more difficult in the next two months, they said.
"First of all, supply typically picks up around this time of the year, increasing 20-30% on average compared with January-February in the past five years (although it will likely be less this year); meanwhile, redemptions will noticeably dip, making technicals more challenging," Barclays strategists said.
Aside from New York, no other states, including heavy issuers California and Texas, will be "supported" by bond maturities and coupons in March, and no sector redemptions "stand out" in March, they said.
During March and April, the market will contend with the annual seasonality issue, said BofA strategists, who anticipate issuance will exceed expected redemptions and coupon payments.
"However, we are optimistic that this year is likely to be different so long as long-term Treasury yields stay on a declining track," they said.
Muni seasonal cheapening will happen mostly in terms of muni-UST ratios and not necessarily in terms of yields, BofA strategists said.
"As such, we would advise investors to lower hedge ratios, but to stay optimistic this year instead of front running the market," they said.
With almost $20 billion of inflows year-to-date, retail provides a "strong backstop" for the market, according to Barclays strategists.
"Meanwhile, the trend of reallocation out of tax-exempt money market into bond funds is also only in its initial stage and seems to be firmly entrenched at this point, meaning that inflows will likely remain robust," they said.
Cumulative inflows into money market funds are less than $50 billion since 2022, while cumulative outflows out of bond funds are near $20 billion, Barclays strategists said.
Aside from bond redemptions, investors appear to have cash on the sidelines, "ready to deploy" when opportunities arise, they said.
The muni market is most likely to continue "moving sideways" in the near future unless rate volatility picks up again and supply comes in heavier than expected, Barclays strategists said.
"We are not overly concerned, but it is hard for us to be bullish here," they said.
New-issue calendar
The new-issue calendar is an estimated $8.243 billion, with $6.841 billion of negotiated deals on tap and $1.402 billion of competitives.
Houston leads the negotiated calendar with $1.425 million of hotel occupancy tax and special revenue bonds.
The competitive calendar is led by Cambridge, Massachusetts, with $162.81 million of GO municipal purpose loan bonds.
AAA scales
MMD's scale was bumped up to two basis points: 2.02% (-1) in 2027 and 2.03% (-1) in 2028. The five-year was 2.10% (-1), the 10-year was 2.52% (unch) and the 30-year was 4.17% (-2) at 3 p.m.
The ICE AAA yield curve was bumped up to two basis points: 2.04% (unch) in 2027 and 2.04% (unch) in 2028. The five-year was at 2.09% (unch), the 10-year was at 2.50% (unch) and the 30-year was at 4.14% (-2) at 4 p.m.
The S&P Global Market Intelligence municipal curve was bumped up to two basis points: The one-year was at 2.03% (unch) in 2027 and 2.04% (-1) in 2028. The five-year was at 2.11% (-1), the 10-year was at 2.51% (unch) and the 30-year yield was at 4.16% (-2) at 3 p.m.
Bloomberg BVAL was bumped one to two basis points: 2.02% (-2) in 2027 and 2.01% (-2) in 2028. The five-year at 2.07% (-1), the 10-year at 2.47% (-1) and the 30-year at 4.04% (-1) at 4 p.m.
U.S. Treasuries saw gains.
The two-year UST was yielding 3.382% (-5), the three-year was at 3.384% (-6), the five-year at 3.515% (-6), the 10-year at 3.961% (-4), the 20-year at 4.569% (-3) and the 30-year at 4.631% (-3) near the close.
Primary to come
Houston is set to price Thursday on behalf of the Convention and Entertainment Facilities Department $1.425 million of hotel occupancy tax and special revenue bonds, consisting of $200 million of Series 2026A refunding bonds (/AA-//), $75 million of Series 2026B taxable refunding bonds (/AA-//), $1.05 million of Series 2026C first lien refunding bonds (/A-//) and $100 million of Series 2026D second lien bonds (/BBB+//). J.P. Morgan.
The California Community Choice Financing Authority (A3///) is set to price $900 million of green clean energy project revenue bonds. Goldman Sachs.
The Triborough Bridge and Tunnel Authority (/AA+//AA+/) is set to price Wednesday $820 million of payroll mobility tax senior lien refunding bonds, consisting of $775 million of Subseries 2026A-1 and $45 million of Subseries 2026A-2. Jefferies.
Arizona Transportation Board (Aa1/AA+//) is set to price Tuesday $786.25 million of highway revenue and revenue refunding bonds. Wells Fargo.
The Lamar Consolidated Independent School District (Aaa/AAA//) is set to price Thursday $545 million of PSF-insured unlimited tax schoolhouse bonds. RBC Capital Markets.
The Missouri Health and Educational Facilities Authority (Aa2/AA//) is set to price Tuesday $517.56 million of health facilities revenue bonds (BJC Health System), Series 2026A. BofA Securities.
The Lower Colorado River Authority (A1/A/A+/) is set to price Tuesday $478.55 million of transmission contract refunding and improvement revenue bonds (LCRA Transmission Services Corporation Project). BofA Securities.
The University of Texas System Board of Regents (Aaa/AAA/AAA/) is set to price Wednesday $392.51 million of permanent university fund bonds, Series 2026A. J.P. Morgan.
The Manatee County School Board, Florida, (/A+/AA-/) is set to price Tuesday $226.74 million of certificates of participation, consisting of $207.27 million of Series 2026 A bonds and $19.47 million of Series 2026B refunding bonds. BofA Securities.
The Troy School District, Michigan, (/AA//) is set to price Wednesday $203.405 million of school building and site and refunding bonds. Huntington Securities.
The National Finance Authority is set to price Thursday $194.202 million of social affordable housing certificates, consisting of $161.752 million of Series 2026A-1 and $32.45 million of Series 2026A-2. Wells Fargo.
Lee's Summit R-7 School District, Missouri, (/AA//) is set to price Monday $180 million of GO school building bonds. Piper Sandler.
Auburn University (Aa2/AA//) is set to price Wednesday $163.25 million of general fee revenue refunding bonds. Wells Fargo.
The New Hampshire Health and Education Facilities Authority (Aa3/AA//) is set to price Thursday $149.045 million of BAM-insured University System of New Hampshire issue revenue bonds. RBC Capital Markets.
The Rhode Island Housing and Mortgage Finance Corp. (Aa1/AA+//) is set to price Tuesday $125 million of social homeownership opportunity bonds, consisting of $120.165 million of Series 88-A non-AMT bonds and $4.835 million of Series 88-B AMT bonds. BofA Securities.
The Nevada Housing Division (/AA+//) is set to price Wednesday $107.28 million of senior single-family mortgage revenue bonds, consisting of $54.295 million of Series 2026A n non-AMT bonds and $52.985 million of Series 2026B taxable bonds. J.P. Morgan.
The Illinois Finance Authority (/A+//) is set to price Tuesday $100.795 million of revenue bonds (Springfield Sustainable Energy Partners). Piper Sandler.
Competitive
Cambridge, Massachusetts, (Aaa/AAA/AAA/) is set to sell $162.81 million of GO municipal purpose loan bonds, at 11 a.m. Eastern Wednesday.
Las Vegas (Aa2/AA+//) is set to sell $109.84 million of limited tax GO city hall refunding bonds, Series 2026C, at 11:30 a.m. Thursday.
North Hempstead, New York, is set to sell $101.919 million of GO bond anticipation notes, Series 2026A, at 11:15 a.m. Thursday.
The Grand Strand Water and Sewer Authority, South Carolina, (Aa1/AA+//) is set to sell $100 million of waterworks and sewer system improvement revenue bonds at 11 a.m. Tuesday.
