Municipals were weaker, as U.S. Treasuries pared morning losses and equities ended up after the
The two-year municipal to UST ratio Wednesday was at 67%, the five-year at 70%, the 10-year at 74% and the 30-year at 92%, according to Municipal Market Data's 3 p.m. EST read. ICE Data Services had the two-year at 66%, the five-year at 69%, the 10-year at 73% and the 30-year at 91% at 4 p.m.
The Investment Company Institute reported inflows of $376 million for the week ending March 12, following $419 million of inflows the previous week. This differs from LSEG, which reported $373 million of outflows from muni mutual funds over the same period.
Exchange-traded funds saw outflows of $750 million after $370 million of inflows the week prior, per ICI data.
Wednesday marked the first trading session that saw cuts of more than a basis point or two in spots since last week's extended selloff.
Because the muni market is retail-driven, it seems like spreads tighten and prices advance slowly, and yet, when there is a correction, like last week, it "just pushes it off a cliff. It acts up very quickly," said Pat Luby, head of municipal strategy at CreditSights.
The growth of electronic and algo trading has made it happen faster, he noted.
Issuance remains elevated this week despite the Federal Open Market Committee meeting, which usually sees issuance dip for that week.
This year has started with a record pace — just shy of $100 billion — but demand and spreads are "hanging in there," Luby said.
More robust weekly issuance is on the horizon as the next several weeks boast some sizable deals.
For the week of March 24, the Los Angeles International Airport is set to price $1.534 billion of airport subordinate revenue and refunding revenue bonds, along with a $600 million deal from the New York City Municipal Water Finance Authority and a $575 million deal from Ohio State University.
For the week of March 31, the calendar boasts $875 million from the New York Energy Finance Development Corp., $850 million from Illinois' Clean Water Initiative Revolving Fund, $720 million from the California Public Works Board and $625 million from the Port Authority of New York and New Jersey.
Currently, issuance is 89.2% tax-exempt, 5.5% taxable and 5.3% AMT, according to LSEG data.
If issuers come with more taxable debt than they have issued in the past — because of the "wildcard" in Washington, D.C. — that would serve as a "doubly constructive thing" for the market, Luby said.
"It would take tax-exempt supply out of the net supply, and it would satisfy the vast number of investors who have been anxious to replace [Build America Bonds] that are getting called away," he said.
In the primary market Wednesday, Barclays priced for Pennsylvania Economic Development Financing Authority $372.37 million of term-rate mode UPMC revenue bonds, Series 2025A, with 5s of 3/2060 with a mandatory put date of 3/15/2030 at 3.40%, 5s of 3/2060 with a mandatory put date of 3/15/2032 at 3.57% and 5s of 3/2060 with a mandatory put date of 3/15/2035 at 3.87%.
Jefferies priced for Maryland Economic Development Corp. on behalf of Core Natural Resources $102.865 million of non-rated non-AMT port facilities refunding revenue bonds with 5s of 7/2048 with a mandatory tender of 3/27/2035 at par, callable 9/27/2034.
Jefferies priced for the West Virginia Economic Development Authority on behalf of Core Natural Resources $106.355 million of non-rated AMT solid waste disposal facility revenue bonds, with 5.45s of 1/2055 with a mandatory tender date of 3/27/2035 at par, callable 9/27/2034.
In the competitive market, the Franklin Public School District, Wisconsin, sold $145 million of GO school facility improvement bonds, Series 2025A, to Jefferies, with 5s of 10/2025 at 2.80%, 6s of 4/2030 at 2.92%, 5s of 4/2035 at 3.36%, 5s of 4/2040 at 3.77% and 4s of 4/2045 at 4.40%, callable 4/1/2033.
AAA scales
MMD's scale was cut up to four basis points: The one-year was at 2.64% (+3) and 2.65% (+3) in two years. The five-year was at 2.83% (+3), the 10-year at 3.16% (+4) and the 30-year at 4.20% (unch) at 3 p.m.
The ICE AAA yield curve saw cuts 18 years and in: 2.67% (+2) in 2026 and 2.66% (+2) in 2027. The five-year was at 2.83% (+2), the 10-year was at 3.15% (+2) and the 30-year was at 4.16% (-1) at 4 p.m.
The S&P Global Market Intelligence municipal curve was cut one to three basis points: The one-year was at 2.63% (+1) in 2025 and 2.64% (+1) in 2026. The five-year was at 2.81% (+3), the 10-year was at 3.15% (+3) and the 30-year yield was at 4.19% (+1) 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 2.79% (+2), the 10-year at 3.09% (+3) and the 30-year at 4.16% (+1) at 4 p.m.
Treasuries were firmer.
The two-year UST was yielding 3.983% (-6), the three-year was at 3.963% (-5), the five-year at 4.032% (-4), the 10-year at 4.253% (-3), the 20-year at 4.595% (-3) and the 30-year at 4.559% (-3) near the close.
FOMC
The Federal Open Market Committee held rates in a range between 4.25% and 4.50%, as expected, while the Summary of Economic Projections continued to forecast two rate cuts this year, although the dots were more hawkish, while projections were lifted for inflation and cut for growth rate.
In his press conference, Chair Powell reiterated, "We do not need to be in a hurry to adjust our policy stance, and we are well positioned to wait for greater clarity." When asked about the possibility of a May rate cut, he repeated the panel would be patient.
In response to questions, Powell said it's too early to see significant effects from tariffs, and he expects the inflationary impacts of tariffs to be transitory. He added it will be difficult to determine how much of inflationary gains are related to tariffs, but some will be, which may delay progress toward 2% inflation.
He noted the potential for a recession has increased but remains low. Powell said the SEP still expects two cuts because the economy seems to be healthy despite consumer sentiment declining.
The statement acknowledged: "Uncertainty around the economic outlook has increased."
Four officials expect no rate cuts this year, up from one in the last SEP, despite the median still expecting two rate cuts. Nine of the 19 Fed officials expect two cuts, four officials expect one rate cut this year, and two see three cuts as appropriate this year.
Officials expect inflation to end the year at 2.7% and 2.2% next year, slightly higher than the previous SEP projected.
The post-meeting statement no longer said the risks are in balance, noting, "The Committee is attentive to the risks to both sides of its dual mandate." Powell said this was not meant as a signal, with the more important statement being participants see greater risk to growth in employment and inflation mandates.
The implication of leaving policy rates unchanged but slowing balance sheet reduction "is a significant increase in Fed reinvestment starting in April," said Chris Low, chief economist at FHN Financial. "The Fed's new forecast suggests heightened uncertainty this year, with growth expected to be weaker, but inflation momentarily higher. The median Fed funds forecast did not change, but some FOMC participants believe the rate will have to remain higher for longer."
In April, the Fed will reduce its runoff of securities, lowering the monthly redemption cap on Treasury securities from $25 billion to $5 billion, while the agency debt and agency mortgage-backed securities cap will remain at $35 billion.
Mortgage Bankers Association SVP and Chief Economist Mike Fratantoni said, "The most significant change to policy at this meeting was a decision to markedly slow the pace of quantitative tightening (QT) beginning in April, dropping the pace of Treasury runoff from $25 billion to $5 billion per month. The MBS cap of $35 billion per month remains the same. A slower pace of QT will prevent further liquidity strains in financial markets."
"Perhaps if the Fed had policy clarity, and therefore a reduced chance of making a policy misstep, they would have cut rates today," said Principal Asset Management chief global strategist Seema Shah. "The stagflationary shift in Fed economic projections may instill additional fear in markets."
The economic situation is complex, said Richard Flax, chief investment officer at Moneyfarm. "A sharp reversal in equity market gains that followed Trump's victory, persistently sticky inflation, and heightened geopolitical and trade tensions" set a difficult backdrop.
"The challenge facing both the Federal Reserve and Wall Street is separating meaningful economic signals from political noise," he said.
Lowered growth projections and higher expectations for inflation "is telling," said Brian Coulton, chief economist at Fitch Ratings. "It speaks to the adverse impact of the surge in U.S. import tariffs underway, which will raise the prices of imported finished consumer goods and the cost to U.S. firms of imported capital goods and intermediate inputs."
Tariffs and higher inflation expectations make "the Fed's job a lot harder and means they will hold off on further rate cuts for quite a while, despite the fact that 'uncertainty surrounding the economic outlook has increased,'" he said.
The SEP revisions "had a somewhat stagflationary feel," said Whitney Watson, global co-head and co-chief investment officer of Fixed Income and Liquidity Solutions within Goldman Sachs Asset Management, as "forecasts for growth and inflation [are] moving in opposite directions."
The market's initial response was more about weaker growth and higher unemployment rather than inflation projections, said Dan Siluk, head of global short duration and liquidity and portfolio manager at Janus Henderson.
"This shift underscores a recent change in market focus, with greater emphasis now placed on the risks of weaker growth outcomes, rather than the inflationary concerns that dominated discourse in recent years," he said.
ING Chief International Economist James Knightley said, "The Fed remains in no hurry to cut interest rates, but President Trump's spending cuts and trade protectionist policies are hurting growth prospects and will likely force the central bank's hand later in the year."
Primary to come
The Public Finance Authority (/BBB-//) is set to price Thursday $145.16 million of Lindenwood Education System educational facilities revenue bonds, consisting of $130.16 million of tax-exempt Series 2025A bonds, serials 2025-2035, term 2040; and $15 million of taxable Series 2025B bonds, serials 2027-2029 RBC Capital Markets.
Hamilton County, Ohio, (Baa3/BBB-//) is set to price Thursday $137.225 million of UC Health hospital facilities revenue refunding bonds, Series 2025A, serials 2030-2045, term 2051. RBC Capital Markets.
UC Health (Baa3/BBB-//) is set to price Thursday $122.464 million of taxable corporate CUSIPs, Series 2025B, serials 2035,2040. RBC Capital Markets.
Competitive
The Dormitory Authority of the State of New York is set to sell $2.041 billion of general purpose state personal income tax revenue bonds in five series: $577.68 million of tax-exempt Series 2025A Bidding Group 1 bonds at 10:15 a.m. Thursday; $533.915 million of tax-exempt Series 2025A Bidding Group 2 bonds at 10:45 a.m. Thursday; $437.43 million of tax-exempt Series 2025A Bidding Group 3 bonds at 11:15 a.m. Thursday; $435.43 million of tax-exempt Series 2025A Bidding Group 4 bonds at 11:45 a.m. Thursday; and $56.965 million of taxable Series 2025B bonds at 12:15 p.m. Thursday.
Gary Siegel contributed to this story.
