Securitization

"The equity market is looking at this more positively, but bonds are still thinking, 'Well, these tariffs still have to be resolved,'" said Kim Olsan, a senior fixed income portfolio manager at NewSquare Capital.

Municipal AAA yield curves were cut up to another 42 basis points, depending on the curve, as of noon, pushing yields to multi-year highs and long-end muni to UST ratios above 100%. Muni yields have risen up to nearly 100 basis points in spots since the bond market rout began.

Weakness in the muni market has been partly amplified by ETF selling; high-grade yields rose more than 60 basis points on parts of the curve over two sessions.

"The changing momentum on what the market is looking for on tariffs and the volatility in the equity market is spilling over into the Treasury market, and munis can only fight the Treasury market for so long," said Pat Luby, head of municipal strategy at CreditSights.

"In the aftermath of this week's Treasury yield move lower, MMD-UST ratios have reached short-term highs," Barclays strategists said.

"With the initial announcement proving to be more aggressive than expected, the market responded overwhelmingly negatively," said Principal Asset's Seema Shah.

Details surrounding the tariffs — which could be anything from reciprocal tariffs to finally implementing delayed tariffs on Canada and Mexico and on pharmaceuticals — have remained unclear, but uncertainty has plagued the market for weeks.

Triple-A yields have fallen as much as 12 basis points over the past three trading sessions.

New York Power Authority CFO Adam Barsky and Battery Park City Authority CFO Pamela Frederick join The Bond Buyer's Lynne Funk to unpack the far-reaching consequences of eliminating, reducing, or limiting the federal tax exemption for municipal bonds.

The asset class extended its selloff last week as concerns regarding the tax-exempt status of munis continued to mount, combined with a heavy new-issue calendar and tax season selling by investors, said Jason Wong, vice president of municipals at AmeriVet Securities.

Issuance for the week of March 31 is at $9.29 billion, with $8.011 billion of negotiated deals and $1.28 billion of competitive deals on tap.

Following Wednesday's selloff, muni yields were cut even further, with yields rising up to six basis points, depending on the scale. Meanwhile, UST yields rose two basis points out long.

"We're navigating a crosscurrent of macro risks — tariffs, tax policy proposals, DOGE cuts, and evolving economic data — layered on top of a broader risk-off tone," said James Pruskowski, CIO of 16Rock Asset Management.

What's happening to the muni market is the "confluence of modest selling (via fund outflows and retail perhaps pausing during tax season); a heavy new issue calendar; and very thin near-term reinvestment expectations," said Matt Fabian, a partner at Municipal Market Analytics.

Lighter supply, at an estimated $7.9 billion, and still-attractive valuations should allow for solid muni performance this week, said J.P. Morgan strategists.

Municipal bond issuance for the week of March 24 is at $7.923 billion, with $6.673 billion of negotiated deals and $1.251 billion of competitive deals on tap.

Separately managed accounts have exploded in the muni market in recent years but high-yield SMAs remain rare.

Most of Thursday's issuance came from competitive deals, the largest being the Dormitory Authority of the State of New York with $2 billion-plus and California with $889 billion.

Wednesday marked the first trading session that saw cuts more than a basis point or two in spots since last week's extended selloff.

"While there has been some reported buying by relative value institutions amid higher ratios from the muni-centric price correction, the market as a whole may not rally this week," said Matt Fabian, a partner at Municipal Market Analytics.