Municipals rallied Friday while U.S. Treasuries fell in the morning but pared back gains as the day went on and ended firmer, and equities ended down for a second day after President Donald Trump introduced more severe tariffs than expected.
Munis had a "pretty bad" March, pushing returns of the investment-grade index into the red through the first quarter, said Barclays strategists Mikhail Foux and Grace Cen.
April has started "much better" for all fixed income products, they said, as UST yields have fallen seven to 19 basis points over two trading sessions, responding to harsher-than-expected tariffs.
Munis extended their two-day rally, with MMD AAA yields bumped 18 to 24 basis points since Thursday.
"The market held a widely optimistic and sanguine view pre-election, unwilling to price risk until it became explicitly in your face," said Christian Hoffmann, head of fixed income at Thornburg Investment Management. "Even after trading off the highs in equities and fixed income from a few weeks ago, today feels like a tipping point."
"The tariffs have injected a level of uncertainty and volatility we haven't seen since the early days of the pandemic," said Matt Burdett, head of equities at Thornburg.
"You may think the market may react one way, but who knows if it's going to be a growth issue? Is it going to be higher inflation? Powell coming out and saying that we're going to be on hold one hold and wait and see before the four cuts the market starting to bake in, which may not be realistic," Chad Farrington, co-head of municipal bond investment strategy at DWS said.
"Today's moves in fixed income are not nearly as dramatic as equities, although we saw a flight-to-quality" for USTs and munis, Hoffman said.
Friday's March jobs report was stronger than expected, with 228,000 jobs added in the month.
However, the jobs report did little to move the market, strategists said.
Following the "shockwave" tariff announcement markets were "unmoved" by the jobs report, said Chris Low, chief economist at FHN Financial. "Equity futures are making new lows, so Treasury yields could not have mustered a selloff even on convincing strength, let alone this mixed bag."
"In the aftermath of this week's Treasury yield move lower, MMD-UST ratios have reached short-term highs," Barclays strategists said.
The two-year municipal to UST ratio Friday was at 67%, the five-year at 70%, the 10-year at 74% and the 30-year at 91%, according to Municipal Market Data's 3 p.m. EDT read. ICE Data Services had the two-year at 67%, the five-year at 70%, the 10-year at 74% and the 30-year at 90% at 4 p.m.
Tax-exempts are "especially attractive" in the belly of the curve, as the long end appears to have found some investors as MMD-UST ratios top 90%, but the 10- to 15-year part of the curve has "remained under pressure," Barclay strategists said.
"The 5s10s yield curve of the IG index has reached multi-year highs (just a year ago, it was actually inverted), while the 10s20s finally started to flatten due to stronger demand for longer-dated bonds," they said.
Barclays strategists see "good value" in tax-exempts — especially in the AAAs and AAs — but they think technicals will be challenging this month.
Net issuance of $23 billion, the highest figure since October, contributed to tax-exempts' poor performance in March, they said.
In April, they think there will be a larger net issuance number of around $30 to $35 billion, the largest since October 2020, as supply should remain heavy, while redemptions will be quite low.
New-issue calendar
Issuance for the week of April 7 is estimated at $10.686 billion, with $8.572 billion of negotiated deals and $2.114 billion of competitive deals on tap.
New York City leads the negotiated calendar with $1.57 billion of GOs, followed by Bon Secours Mercy Health with $891.25 billion of hospital facilities revenue bonds in two deals.
The competitive calendar is led by Anne Arundel County with $419.14 million of GOs in four series.
AAA scales
MMD's scale was bumped eight to 12 basis points: The one-year was at 2.43% (-8) and 2.45% (-8) in two years. The five-year was at 2.59% (-10), the 10-year at 2.97% (-12) and the 30-year at 3.99% (-8) at 3 p.m.
The ICE AAA yield curve was bumped five to six basis points: 2.47% (-5) in 2026 and 2.50% (-5) in 2027. The five-year was at 2.64% (-6), the 10-year was at 3.01% (-6) and the 30-year was at 4.06% (-5) at 4 p.m.
The S&P Global Market Intelligence municipal curve was bumped nine to 11 basis points: The one-year was at 2.41% (-10) in 2025 and 2.42% (-10) in 2026. The five-year was at 2.60% (-11), the 10-year was at 2.99% (-11) and the 30-year yield was at 4.07% (-9) at 4 p.m.
Bloomberg BVAL was bumped eight to 11 basis points: 2.35% (-8) in 2025 and 2.44% (-8) in 2026. The five-year at 2.61% (-10), the 10-year at 2.93% (-11) and the 30-year at 3.96% (-9) at 4 p.m.
Treasuries ended firmer.
The two-year UST was yielding 3.674% (-1), the three-year was at 3.644% (-1), the five-year at 3.718% (-1), the 10-year at 4% (-3), the 20-year at 4.443% (-5) and the 30-year at 4.414% (-6) near the close.
Jobs report
The March nonfarm payrolls report took a back seat to tariff news, said economists, most of whom were skeptical about Federal Reserve rate cuts hitting the market's expected five cuts.
Fed Chair Jerome Powell, addressing reporters in Virginia, said the economy is in a good place and it's too early to predict the impact of tariffs on the economy. "While uncertainty remains elevated, it is now becoming clear that the tariff increases will be significantly larger than expected," he said. "The same is likely to be true of the economic effects, which will include higher inflation and slower growth."
The higher-than-expected 228,000 jobs added in the month prompted the markets to lift expectations to five rate cuts from two, but Natalia Lojevsky, managing director at CIFC Asset Management, said, "the central bank will likely need to see the 'hard data' deteriorate much more significantly before taking such aggressive action, given current inflation that is still well above their target range and the still unknown inflationary impacts of the tariffs."
Adam Hetts, global head of multi-asset at Janus Henderson Investors, agreed. "Strong payrolls, with 228k beating expectations of 140k, is hardly a counterpunch to tariff news, and the focus is already shifting to next month's NFP report."
The report shows the economy's underlying strength, he noted, "but continued prints like this could be bad news for the level of Fed cuts currently priced in."
The Fed, which is data-dependent, "is likely to remain cautious with respect to any rate cuts so long as inflation is above target, and the job market data continues to come in strong," said Mortgage Bankers Association SVP and Chief Economist Mike Fratantoni.
Noting tariff news eclipsed the report, Olu Sonola, head of U.S. economic research at Fitch Ratings, said, "This is a drop of good news in a sea of uncertainty, a footnote given the barrage of activities this week."
But the April jobs data "will be more consequential," he added. "The Fed will take an ounce of comfort from this and quickly move on to incoming growth and inflation risks related to tariffs. Sooner [rather] than later, the Fed will have to confront the consequences of an environment where recession risks are significantly higher and inflation is moving further away from their 2% target."
Markets are "likely overestimating" the number of rate cuts this year, according to Wells Fargo Investment Institute Senior Global Market Strategist Scott Wren. "Wage pressure is a key factor the Fed will consider in its decisionmaking process."
Wren sees deceleration ahead in the labor market, with the unemployment rate higher by yearend.
"Financial markets are now pricing in 100 or even 125 bps of cuts this year, which seems excessive to us," he said.
"The market needed today's number," said Seema Shah, chief global strategist at Principal Asset Management. "Everyone knows that economic weakness is coming, but at least we can be reassured that the labor market was robust coming into this policy-driven shock and therefore, the slowdown should not be overly steep."
This report won't prevent the Fed from cutting rates, she said. "The Fed will likely provide some stimulus over the coming months. But this is a government-driven shock, not a central bank-driven shock — the Fed can only soothe the pain around the edges."
Although there are "no major flashing red signs" from the higher unemployment rate, Scott Anderson, chief U.S. economist and managing director at BMO Economics, said, "the rising trend over the past two months will get noticed by the Fed, and we forecast the unemployment rate will keep rising over the rest of the year as nonfarm payroll growth continues to slow."
While the report was in line with those from the past year, he said, "there are some more signs of weakness coming from durable goods, mining, temporary help firms and the federal government that suggest the good news on the labor market won't last much longer."
Primary to come
New York City (Aa2/AA/AA/AA+/) is set to price Tuesday $1.571 billion of GOs, consisting of $1.5 million of Fiscal 2025 Series G, Subseries G-1, serials 2027-2046, terms 2050, 2053, and $70.77 million of Fiscal 2012 Series D, Subseries D-3A, serials 2027-2028, 2037-2039. Loop Capital Markets.
Bon Secours Mercy Health (A1/A+/AA-/) is set to price Tuesday $705.7 million of hospital facilities revenue bonds, Series 2025A: $391.225 million through the Allen County, Ohio; $69.585 million through the South Carolina Jobs-Economic Development Authority; and $244.89 million through the Henrico County Economic Development Authority of Virginia. RBC Capital Markets.
The health system is also set to price $185.545 million of long-term mode hospital facilities revenue bonds: $119.42 million through Allen County, Ohio, and $66.125 million through the South Carolina Jobs-Economic Development Authority. RBC Capital Markets.
The California State Public Works Board (Aa3/A+/AA-/) is set to price Tuesday $585.92 million of various capital projects lease revenue bonds, 2025 Series A, serials 2026-2045, term 2050. Ramirez.
The Oregon Department of Administrative Services (Aa2/AAA//AAA/) is set to price Tuesday $466.095 million of tax-exempt projects and refunding Oregon State lottery bonds, 2025 Series A. Jefferies.
The Aurora Public Schools Joint School District No. 28J (Aa2/AA//) is set to price Wednesday $450 million of Colorado State Intercept Program-insured GOs, serials 2025-2026, 2033-2047. Stifel.
The Broward County School Board, Florida, (Aa3/AA/A+/) is set to price a $308.89 million deal: $206.045 million of COPs, Series 2025A, and $102.845 million of Assured Guaranty-insured GO school refunding bonds, serials 2026-2032. J.P. Morgan.
Wake County, North Carolina, (Aa1/AA+/AA+/) is set to price Wednesday $276.825 million of limited obligation bonds, consisting of $266.185 million of Series 2025A, serials 2026-2044, and $10.64 million of Series 2025B, serials 2026-2044. J.P. Morgan.
Austin, Texas, (A1/A+//AA-/) is set to price Tuesday $233.82 million of AMT airport system revenue refunding bonds, serials 2026-2044. Siebert Williams Shank.
The Colorado Bridge and Tunnel Enterprise (A1/AA//) is set to price Tuesday $212.455 million of Assured Guaranty-insured senior infrastructure revenue bonds, Series 2025A, serials 2029-2045, terms 2050, 2054. J.P. Morgan.
The Connecticut Health and Educational Facilities Authority (A3/A-//) is set to price Wednesday $188.78 million of Quinnipiac University Issue revenue refunding bonds, Series O, serials 2026-2036, 2041-2045. Barclays.
Howell Public Schools, Michigan, (/AA//) is set to price Tuesday $180.905 million of Michigan School Bond Qualification and Loan Program-insured GO unlimited tax 2025 school building and site bonds, Series II, serials 2026-2045. J.P. Morgan.
The Inglewood Unified School District, California, (A3//AA+/) is set to price Wednesday $165 million of Election of 2020 GOs, Series B, serials 2026-2043. Stifel.
The Arizona Board of Regents (Aa3/AA-//) is set to price Tuesday $160.815 million of University of Arizona system revenue and revenue refunding bonds, consisting of $119.34 million of Series A, serials 2026-2045, terms 2050, 2055, and $41.475 million of Series B, serials 2027-2045. J.P. Morgan.
Pflugerville, Texas, (/AA+//AA+/) is set to price Tuesday a $157.93 million deal: $127 million of combination tax and limited revenue certificates of obligation, serials 2025-2045, terms 2050, 2055, and $30.93 million of limited tax refunding bonds, serials 2025-2045. Siebert Williams Shank.
The STC Metropolitan District No. 2, Colorado, is set to price Thursday a $155.155 million deal $87 million of Assured Guaranty-insured Series 2025A-1 bonds (A1/AA//), $46.445 million of non-rated Series 2025A-2 bonds and $21.71 million of non-rated Series 2025B bonds. D.A. Davidson.
The Harris County Cultural Education Facilities Finance Corp. (/A//) is set to price Tuesday $150 million of Baylor College of Medicine medical facilities mortgage revenue bonds, Series 2025A. Barclays.
The Massachusetts Development Finance Agency (//A-/) is set to price Tuesday $133.12 million of Lasell Village revenue and revenue refunding bonds, serials 2026-2037, terms 2040, 2045, 2050, 2055. Barclays.
The Capital Projects Finance Authority is set to price Thursday $129.64 million of Millenia Orlando Project senior living revenue bonds, Series 2025A. H.J. Sims.
The San Bernardino City Unified School District, California, (/AA//) is set to price Wednesday a $125 million deal: $95 million of COPs and $30 million of GO refunding bonds. Baird.
The Indianapolis Local Public Improvement Bond Bank (AA-//) is set to price Tuesday $125 million of Indianapolis Public Transportation Corp. Project local income tax revenue bonds, Series 2025 A, serials 2025-2045. Stifel.
The Colorado Housing and Finance Authority (Aaa/AAA//) is set to price Tuesday $122.735 million of Class I social single family mortgage bonds, consisting of $9.5 million of AMT 2025 Series E bonds, 2026-2028, term 2040; $45.5 million of non-AMT 2025 Series F bonds, term 2055; and $67.735 million of taxable 2025 Series G-1 bonds, serials 2026-2037, terms 2040, 2046, 2055. BofA Securities
The California State Public Works Board (Aa3/A+/AA-/) is set to price Tuesday $103.71 million of lease revenue bonds, Series B, serials 2026-2034. Wells Fargo.
The Duval County School Board, Florida, (/AA/A+/) is set to price Tuesday $102.805 million of Assured Guaranty-insured refunding COPs, Series 2025A, serials 2025-2033. RBC Capital Markets.
Competitive
Louisiana is set to sell $351.13 million of GOs, Series 2025-B, at 10:30 a.m. Wednesday.
Anne Arundel County, Maryland, is set to sell $267.545 million of GOs at 10:45 a.m. Wednesday and $151.59 million of GOs at 11:15 a.m. Wednesday.
Gaston County, North Carolina, is set to sell $178 million of GOs at 11 a.m. Tuesday.
The Tennessee State School Bond Authority is set to sell $160.495 million of higher educational facilities second program bonds, 2025 Series A, at 10 a.m. Wednesday.
The Charleston County School District, South Carolina, is set to sell $154.325 million of GO bond anticipation notes, Series 2025B, at 11 a.m. Thursday.
The Berkeley Unified School District, California, is set to sell $150 million of Election of 2020 GOs, Series E and Series F, at 11:15 a.m. Wednesday.
