Municipals were weaker as U.S. Treasury yields rose and equities were mixed toward the end.
Municipals were cut up to four basis points, depending on the scale, while UST yields rose up to four basis points out long.
The two-year municipal to UST ratio Tuesday was at 61%, the five-year at 62%, the 10-year at 65% and the 30-year at 84%, according to Municipal Market Data's 3 p.m. EST read. ICE Data Services had the two-year at 61%, the five-year at 62%, the 10-year at 66% and the 30-year at 83% at 4 p.m.
The muni market has had a "good tone," said Anders S. Persson, Nuveen's chief investment officer for global fixed income, and Daniel J. Close, Nuveen's head of municipals.
"Munis continue to draft off a solid Treasury bond market, in addition to $44 billion of reinvestment money that came into the market on Feb. 1," they said.
While most of this money has been spent, the market should remain "well bid" if USTs continue to be strong.
This week's "outsized" new-issue supply may challenge the market somewhat, Persson and Close said.
Elsewhere, "policy matters continue to dominate economic and financial market headlines as investors grapple with the uncertainties around federal policy on tariffs, immigration, spending, and taxes," said UBS strategists in a report.
Markets could be significantly impacted, but clarity will "take time to emerge as the political process moves forward in D.C. with a substantial degree of unpredictability," they said.
"Policy uncertainties have increased upside inflation risks and downside risks to growth," UBS strategists said.
While they expect the economy to remain resilient and UST rates to be lower by the end of 2025, the near-term risks of higher rate volatility continue to be elevated, they said.
Given the muni market's function of providing essential public services, it has always been linked to policy outcomes, UBS strategists said.
Along with macro uncertainties, munis also face the increased possibility of the elimination of tax exemption, a top issue for muni investors, they said.
UBS strategists believe a full elimination is unlikely, but the risk is higher than before.
Compared to the more than $4 trillion cost of extending the Tax Cuts and Jobs Act tax cuts, revenue raised through the elimination of the tax exemption is relatively small, they said.
Private-activity bonds — which are issued by health care, higher education, airports and housing sector participants — are at the greatest risk of being changed, UBS strategists said.
If the tax exemption is reduced, they think all existing munis will be "grandfathered," possibly increasing their scarcity value, they said.
"Smaller not-for-profit hospitals and private colleges are likely to see a direct adverse credit impact if their tax exemption is eliminated," they said.
In the primary market Tuesday, Jefferies priced and repriced for Ohio (Aaa/AAA/AAA/) $826.015 million of higher education GOs. The first tranche, $350 million of Series 2025A bonds, saw 5s of 5/2026 at 2.66% (+2), 5s of 2030 at 2.85% (+3), 5s of 2035 at 3.10% (-1), 5s of 2040 at 3.41% (unch) and 5s of 2045 at 3.90% (-1), callable 5/1/2034.
The second tranche, $460.95 million of Series 2025B refunding bonds, saw 5s of 5/2026 at 2.61% (unch), 5s of 2030 at 2.86% (+3) and 5s of 2035 at 3.11% (-1), noncall.
J.P. Morgan priced for the Salt River Project Agricultural Improvement and Power District (Aa1/AA+/NR/NR/) $637.23 million of Salt River Project electric system revenue bonds, 2025 Series B, with 5s of 1/2026 at 2.63%, 5s of 2030 at 2.78%, 5s of 2035 at 3.11% and 5s of 2037 at 3.21%, callable 7/1/2035.
Morgan Stanley priced and repriced Wisconsin (Aa1/AA+/NR/AAA/) $454.255 million GO refunding bonds, with small bumps out long from the preliminary pricing: 5s of 5/2026 at 2.64% (unch), 5s of 2030 at 2.84% (unch), 5s of 2035 at 3.10% (-2) and 5s of 2040 at 3.40% (-3), callable 5/1/2035.
Siebert Williams Shank priced for the Arlington Independent School District (Aaa/AAA//) $324.23 million of PSF-insured unlimited tax school building and refunding bonds, with 5s of 2/2026 at 2.74%, 5s of 2030 at 2.88%, 5s of 2035 at 3.13%, 5s of 2040 at 3.47%, 5s of 2045 at 3.97% and 4s of 2050 at 4.28%, callable 2/15/2034.
Goldman Sachs priced for the University of Washington (Aa1/AA+/NR/NR/) $211.795 million of general revenue and refunding bonds, Series 2025A, with 5s of 4/2026 at 2.67%, 5s of 2030 at 2.83%, 5s of 2035 at 3.14%, 5s of 2040 at 3.51% and 5s of 2045 at 4.00%, callable 4/1/2035.
J.P. Morgan priced for the Ohio Housing Finance Agency (Aaa/NR/NR/NR/) $225 million of non-AMT social mortgage-backed securities program residential mortgage revenue bonds, 2025 Series A, with 6s of 3/2026 at 2.73%, 6s of 3/2030 at 3.02%, 6s of 9/2030 at 3.08%, 3.7s of 3/2035 at par, 3.8s of 9/2035 at par, 4.15s of 9/2040, 4.55s of 9/2045 at par, 4.65s of 9/2050 at par, 4.7s of 9/2055 at par and 6.25s of 3/2056 at 3.71%, callable 3/1/2034.
In the competitive market, the Tarrant Regional Water District, Texas, (/AAA/AAA/) sold $422.85 million of water transmission facilities contract revenue bonds to J.P. Morgan, with 5s of 9/2026 at 2.66%, 5s of 2030 at2.82%, 5s of 2035 at 3.12%, 5s of 2040 at 3.43%, 4s of 2045 at 4.18%, 4.25s of 2050 at 4.32% and 4.25s of 2055 at 4.42%, callable 3/1/2035.
AAA scales
MMD's scale was cut two to four basis points: The one-year was at 2.60% (+2) and 2.62% (+2) in two years. The five-year was at 2.71% (+2), the 10-year at 2.95% (+4) and the 30-year at 3.97% (+4) at 3 p.m.
The ICE AAA yield curve saw cuts four years and out: 2.64% (unch) in 2026 and 2.61% (-1) in 2027. The five-year was at 2.72% (+2), the 10-year was at 2.95% (+3) and the 30-year was at 3.89% (+3) at 4 p.m.
The S&P Global Market Intelligence municipal curve saw cuts: The one-year was at 2.63% (+3) in 2025 and 2.64% (+3) in 2026. The five-year was at 2.71% (+1), the 10-year was at 2.95% (+1) and the 30-year yield was at 3.89% (+4) at 4 p.m.
Bloomberg BVAL was cut one to three basis points: 2.56% (+1) in 2025 and 2.63% (+1) in 2026. The five-year at 2.73% (+2), the 10-year at 2.97% (+2) and the 30-year at 3.91% (+3) at 4 p.m.
Treasuries were weaker.
The two-year UST was yielding 4.290% (+1), the three-year was at 4.311% (+1), the five-year at 4.371% (+3), the 10-year at 4.536% (+4), the 20-year at 4.804% (+4) and the 30-year at 4.750% (+4) at 4 p.m.
Powell
The Senate Committee on Banking, Housing, and Urban Affairs grilled Federal Reserve Board Chair Jerome Powell about regulation, with the Consumer Financial Protection Bureau especially on senators' minds, and left monetary policy questions on hold.
In his opening statement, Powell preached patience. "With our policy stance now significantly less restrictive than it had been and the economy remaining strong, we do not need to be in a hurry to adjust our policy stance," he said.
In response to a question, Powell said he and his colleagues believe the neutral rate — the level that neither hinders or boosts the economy — has risen, although he didn't offer the level he now estimates the rate is.
"Against a background of uncertainty over trade, fiscal, immigration and regulatory policies (and their impacts on the economy), Powell's main message should be that the FOMC will need to move cautiously on further rate cuts," said BMO Deputy Chief Economist Michael Gregory.
Primary to come
The
The
Denver Public Schools (Aa2/AA+//) is set to price Wednesday $310.15 million of Colorado State Intercept Program-insured GOs, Series 2025C, serials 2046-2049. Stifel.
The Humble Independent School District (Aaa/AAA//) is set to price $270.35 million of PSF-insured unlimited tax school building and refunding bonds. Wells Fargo.
The Tolleson Union High School District No. 214 (AAA/AA//) is set to price Thursday $114.93 million of Projects of 2023 and 2024 school improvement bonds, serials 2026-2028, 2031-2041. Stifel.
Competitive
Danbury, Connecticut, is set to sell $155.25 million of GO bond anticipation notes at 11 a.m. Thursday.
The Cherokee County School District, Georgia, (Aa1/AA//) is set to sell $100 million of GOs at 10:30 a.m. Thursday.
