Securitization

SWBC's Chris Brigati said he doesn't expect the geopolitical tensions to cause similar losses to muni yields unless oil prices or Treasury yields move significantly higher.

With continued geopolitical tensions and surging oil prices, things could change on a dime, said Sweta Singh, founding partner and portfolio manager at City Different Investments.

Munis were quiet on Friday after an eventful April.

Investors are digesting developments in the Middle East and the Fed's decision not to cut rates, according to FHN Financial's Ajay Thomas.

The average muni bond trade size fell below $204,000 in the first quarter, down 5% from 2025, according to Municipal Securities Rulemaking Board data.

"The market is starting to feel a little bit on the heavy side," said Jamie Iselin, head of municipal fixed income at Neuberger Berman. "The Treasury market has been leaking higher as, I think, people are getting concerned that the conflict in the Middle East is going to [last] longer."

Muni yields increased "in sympathy with the Treasury market," according to Charles Schwab's Cooper Howard.

All sectors of the muni market posted gains in April, Kim Olsan wrote, exemplifying the market's better-than-expected resilience.

"What the market's really trying to figure out is what that Warsh regime is going to mean," said Tom Kozlik of HilltopSecurities. "Folks are really trying to position their mindsets, position their portfolios."

"Investors typically start positioning for heavy summer redemptions in summer, so the market typically performs well enough through the first half of June and we do not believe that this year will be any different," Barclays strategists said.

It was another "topsy-turvy day" for munis, said Kim Olsan, senior fixed income portfolio manager at NewSquare Capital. Munis have been weaker on the front end for a few days, leading to a slight inversion of the curve, starting around the 2028 maturities, Olsan said.

The state Supreme Court's ruling comes in a case that targeted the 2022 issuance of nearly $687 million of ratepayer-backed bonds for a utility company.

Mohammed Murad, head of credit research for PT Asset Management, said the ceasefire extension "possibly offers less clues as to what a permanent resolution may look like."

It's difficult to tell whether the markets were more affected by spiking oil prices, eroding peace talks between the United States and Iran, or Kevin Warsh's hawkish comments during his confirmation hearing to chair the Federal Reserve, said James Pruskowski, managing director at Hennion & Walsh.

Market support for taxables, particularly those from active issuers, remains firm. Taxables are seeing gains of 1.08% year-to-date, or 50 basis points above a UST index gain, said Kim Olsan, senior fixed income portfolio manager at NewSquare Capital.

The market is experiencing a "calm before a potential storm," said Chris Brigati, managing director and CIO at SWBC.

"Ceasefire optimism augmented by a liquidity-driven risk-on macro market environment should be neutral for duration and positive for credit spreads," BofA analysts wrote.

The two-week ceasefire with Iran comes to an end Wednesday, though President Donald Trump said Thursday at an event in Las Vegas the war should be ending soon.

News of a 10-day ceasefire between Israel and Lebanon may have reassured investors, said James Pruskowski, managing director at Hennion & Walsh, but it didn't cause munis to richen.

"Some of it is related to the headlines that we're seeing right now, particularly when we think about yields and what we've seen over the last couple of days," said Tim Iltz, fixed-income credit and market analyst at HJ Sims.