Secondary bond market

Investors added $1.029 billion to municipal bond mutual funds in the week ended Wednesday, following $1.269 billion of inflows the prior week, according to LSEG Lipper data. This is the seventh time in eight weeks that inflows have topped $1 billion.

There is a positive view of the muni market in the long-term due to a mix of attractive tax-adjusted yields and a generally favorable credit backdrop, said Cooper Howard, director of fixed income research and strategy at Charles Schwab.

While broader economic risks remain, market dynamics are being driven by supply, demand and income generation, rather than macro headlines, said Pat Haskell, head of the municipal bond group at BlackRock.

"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.

Bond markets believed Trump would likely keep tariffs in place in some form — even before the president made his announcement later in the afternoon — which partly explains their muted response throughout the day.

This is the sixth time in seven weeks that inflows have topped $1 billion.

"For 2026, we expect municipal bonds to remain compelling as reinvestment demand stays strong and rate normalization progresses," said Brian Barney, municipal portfolio manager at Parametric.

Following this week, the pace of issuance should pick up, Birch Creek strategists said.

"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.

Currently, munis are largely operating "in their own world" — ignoring rich valuations and upcoming supply, said Kim Olsan, senior fixed income portfolio manager at NewSquare Capital, in a report.

"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.

The price drops follow a lawsuit filed Friday by bondholders alleging the mall's owners colluded with the city of East Rutherford to lower the property assessment.

Tuesday was a particularly heavy day of supply at an estimated $7.5 billion, per J.P. Morgan strategists.

This week's expected elevated $12.6 billion in supply" "coincides with a recent uptick in secondary offerings … and may skim some froth from the market, particularly where spreads have hit one-year tights," said J.P. Morgan strategists led by Peter DeGroot.

The downgrade reflects ongoing underperformance in ridership and revenues relative to Kroll's expectations.

The new-issue calendar is led by Washington with $1.3 billion of GOs selling by competitive bid in three series.

Munis enter this year with "strong credit fundamentals, elevated tax-equivalent yields, and a steeper curve that supports duration extension," said James Welch, municipal portfolio manager at Principal Asset Management.

Yields have seen "intermittent volatility from broader macro and geopolitical crosscurrents, keeping sentiment cautious despite relatively muted headline moves," said James Pruskowski, managing director at Hennion & Walsh.

Supply should be "well-received, given strong inflows and the increase in reinvestment capital for the new month," said Chris Brigati, managing director and CIO at SWBC, and Ryan Riffe, senior vice president of capital markets at the firm.

The market is well-positioned for February, after January's near-record tax-exempt supply, said J.P. Morgan strategists led by Peter DeGroot.