Municipals were steady Friday ahead of a paltry new-issue calendar, as U.S. Treasury yields fell slightly and equities ended up.
The two-year muni-UST ratio Friday was at 70%, the five-year at 67%, the 10-year at 68% and the 30-year at 88%, according to Municipal Market Data's 3 p.m. EDT read. ICE Data Services had the two-year at 69%, the five-year at 66%, the 10-year at 68% and the 30-year at 87% at a 4 p.m. read.
The muni market is slowing, Barclays analysts wrote, but not enough to cause concern.
The market is winding down from "a long period of outperformance," Mikhail Foux and other strategists wrote in Barclays' Municipal Weekly.
Issuance has been robust, at $11 billion this week , while inflows slowed as of late, with nearly $1 billion of outflows this week, they said.
"Muni-UST ratios have been moving sideways for several weeks in the front-end and the belly, while long ratios have continued slowly moving lower," Barclays strategists wrote, "but it finally felt like the market has hit a wall, at least in the near term."
Investors should get a break thanks to next week's light calendar and healthy December redemptions, so they are "not overly concerned," and still expect the market to outperform for the rest of the year.
The long end of the curve is under pressure, but demand for 15- to 20-year bonds remains strong, according to Barclays strategists.
"This part of the curve is extremely steep both outright and versus Treasury, and investors benefit from a very steep roll-down," they wrote. "This part of the yield curve remains our favorite for investors who are not overly afraid of being long duration."
Investors are finally receiving economic data that the federal shutdown had delayed.
"September nonfarm payrolls increased 119,000, with the downward two-month revision," Barclays strategists wrote. "Meanwhile, the unemployment rate and initial jobless claims have been inching higher."
Investors are less hopeful of a Fed rate cut next month.
Barclays economists still expect a cut in December, although they view it as a toss-up.
The minutes from the Federal Open Market Committee's last meeting show that several policymakers opposed lowering the benchmark rate, although nearly all of them supported halting "the runoff of securities from the Fed's balance sheet," according to Barclays strategists. Plus, the Bureau of Labor Statistics will release October jobs data after the Fed's December decision.
Barclays sees the future of the Affordable Care Act subsidies as "one of the most pressing items on the policy agenda for the remainder of the year." There will be a vote on the subsidies in the Senate, but the Republican-controlled body is unlikely to save the subsidies, and the president opposes them. If the issue is not resolved, there may be another shutdown in 2026, Barclays strategists wrote.
The muni default rate for 2025 is 0.8%, below Barclays' forecast; defaults have dropped significantly in the second half of the year.
"For 2026, we expect a 1%-1.5% default rate for the [high-yield] index, excluding Brightline from the consideration," Barclays strategists said.
The prepay gas sector has underperformed the rest of the muni market this fall, they said..
"For more attractive spread pickup, investors should consider 4% bonds, some of the older deals, and bonds backed by non-traditional guarantors," Barclays strategists wrote.
Spreads for New York City paper have not displayed any weakness in the wake of the mayoral election. But this week, NYC GO spreads started widening, which Barclays strategists attribute to heavier supply and "profit-taking by fast money investors."
Although the spreads are more attractive, they suggest waiting to see if they widen by another 10 basis points to 15 basis points.
"We do not expect to see immediate credit developments that should negatively affect this credit," they said. "However, investors should remain tactical, as we will likely see more volatility for NYC spreads in 2026."
New-issue calendar
The new-issue calendar falls to an estimated $1.154 billion, with $939.1 million negotiated deals on tap and $214.8 million of competitives.
The Pennsylvania Housing Finance Agency leads the negotiated calendar with $275.54 million of single-family mortgage revenue bonds.
The competitive calendar is led by Bloomingdale, Illinois, with $50.4 million of GOs.
AAA scales
MMD's scale was unchanged: 2.52% in 2026 and 2.46% in 2027. The five-year was 2.41%, the 10-year was 2.75% and the 30-year was 4.16% at 3 p.m.
The ICE AAA yield curve was little changed: 2.50% (-1) in 2026 and 2.46% (unch) in 2027. The five-year was at 2.43% (+1), the 10-year was at 2.77% (+1) and the 30-year was at 4.11% (unch) at 4 p.m.
The S&P Global Market Intelligence municipal curve was unchanged: The one-year was at 2.51% in 2025 and 2.45% in 2026. The five-year was at 2.40%, the 10-year was at 2.75% and the 30-year yield was at 4.13% at 3 p.m.
Bloomberg BVAL was unchanged: 2.51% in 2025 and 2.46% in 2026. The five-year at 2.39%, the 10-year at 2.72% and the 30-year at 4.06% at 4 p.m.
Treasuries saw small gains.
The two-year UST was yielding 3.513% (-2), the three-year was at 3.501% (-3), the five-year at 3.618% (-3), the 10-year at 4.062% (-2), the 20-year at 4.677% (-1) and the 30-year at 4.714% (-1) near the close.
Primary to come
The Pennsylvania Housing Finance Agency (Aa1///) is set to price Tuesday $275.54 million of single-family mortgage revenue bonds, consisting of $254.2 million of non-AMT social bonds, Series 2025-151A, and $21.34 million of taxable, Series 2025-151B. Barclays.
The New York State Mortgage Agency (Aa1///) is set to price Tuesday $107.805 million of social non-AMT homeowner mortgage revenue bonds, Series 273. Jefferies LLC.
The Los Angeles Housing Authority (Aa1///) is set to price Tuesday $78.697 million of multifamily housing revenue bonds (Victory Blvd), Series 2025A. RBC Capital Markets.
The Jersey City Redevelopment Agency is set to price Tuesday $69.87 million of bonds from the Bayfront Redevelopment Project, consisting of $60.3 million of Series A and $9.57 million of Series B. Stifel Nicolaus.
Competitive
Bloomingdale, Illinois, is set to sell $50.435 million of GOs at 11 a.m. Eastern Monday.
Farmington Area Public Schools, Minnesota, (Aa1///) is set to sell $40.39 million of GO school building refunding bonds, Series 2025A, at 10:30 a.m. Monday.
New Rochelle, New York, is set to sell $40.874 million of bond anticipation notes at 11 a.m. Eastern Tuesday.
Jessica Lerner contributed to this report.
