"You would think global instability leads to flight for quality, but you also have the inflationary pressures that come with higher oil prices. I would say the inflationary pressures have been winning, and that's why you're seeing Treasury and muni rates move higher," said Keith Richard, head of public finance at Siebert Williams Shank.

The weakness in fixed-income markets comes after stocks and bonds saw strength Monday following President Donald Trump's announcement of a five-day pause on strikes on Iranian power plants amid talks between the two countries.

José Torres, senior economist at Interactive Brokers, breaks down the FOMC decision and Fed Chair Jerome Powell's press conference.

Federal Reserve Gov. Stephen Miran said it is too early to judge how U.S. involvement in the war with Iran will affect inflation and monetary policy.

While it's unclear how long the war in the Middle East will drag on, once President Donald Trump announces an end to the war, things could change "on a dime," as happened with the tariff-induced volatility in April 2025, said Peter Block, managing director of credit strategy at Ramirez.

"Looking at where oil was and the potential for disruption, and this being tax season and issuers having to pull deals, there's no reason why yields wouldn't have been higher," said Matt Fabian, president of Municipal Market Analytics.

"A slightly less hawkish decision than had been anticipated," said Art Hogan, B. Riley Wealth chief market strategist.

With no rate change expected, analysts are watching the new Summary of Economic Projections and the statement for insight into the panel's thinking.

A federal judge wrote in an opinion that a "mountain of evidence" suggests the subpoenas were an effort to push Federal Reserve Chair Jerome Powell to lower interest rates or resign.

"We are still not overly concerned about the effect of the geopolitical concerns on municipals — in our view, the muni market is well insulated," said Barclays strategists.

Federal Reserve Gov. Lisa Cook said AI could boost productivity, but warned the transition may raise unemployment and force difficult tradeoffs between inflation and jobs.

Federal Reserve Bank of Chicago President Austan Goolsbee said the central bank should focus on getting inflation to its 2% target before making any additional cuts to short-term interest rates.

Federal Reserve Gov. Christopher Waller said during an appearance Monday his decision on whether or not to support a cut to short-term interest rates depends on labor market indicators.

The Bond Buyer's 2026 Predictions Report shows professionals expect growth for the year ahead, but are cautious about changes coming to the central bank.

"Unsurprisingly, the market is taking these numbers in stride, with the bond market only slightly higher after a large rally over the last couple of days due to the equity market sell-off," said John Kerschner, global head of securitized products and portfolio manager at Janus Henderson Investors.

"The bond market marked down the odds of rate cuts after the release," said FHN Financial Chief Economist Chris Low. "The fact long yields are still lower than two days ago suggests traders are skeptical of the quality of the employment data but are confident the Fed will use it as a reason to keep rates steady," he said.

Sean Snaith, Director of the Institute for Economic Forecasting at the University of Central Florida, will provide insight into the FOMC meeting.

Analysts were pleased that a known quantity with bona fides was the pick, but Warsh may bring about changes in the Fed that have some concerned.

Warsh, who served on the U.S. central bank's Board of Governors from 2006 to 2011 and has previously advised Trump on economic policy, would succeed Jerome Powell when his term at the helm ends in May.

Over the past five years, January has seen a relatively stable market tone, said Jeff Timlin, managing partner and head of municipal bond investing at Sage Advisory.