Municipals were steady Monday, mostly ignoring market movements surrounding President Donald Trump's imposed tariffs.
On Saturday, Trump signed an executive order to impose heavy tariffs on goods — 25% on Canada and Mexico and 10% on China — and all three nations planned retaliation.
These tariffs, set to be enacted at midnight Tuesday, "threaten to raise prices and slow economic activity across all four countries," said David Kelly, chief global strategist at J.P. Morgan Asset Management.
"While the end game of this trade war remains very uncertain, it has the potential to impact bonds, stocks and exchange rates," he said.
Monday morning, front-end UST yields were up two to four basis points, while 10- to 30-year spots were down four to five basis points. Meanwhile, munis were bumped up to two basis points, depending on the curve.
However, by mid-morning Monday, it was announced Mexico had reached an agreement with the Trump administration to delay tariffs by a month in exchange for Mexico deploying an additional 10,000 troops to help stop migrants and illegal drugs from crossing the border.
USTs remained mixed, with yields rising on the short end and falling out long, while munis are were changed up to a basis point, depending on the curve.
Munis are fairly enough priced and with the ability for market participants to pick their structure — short calls 5s, longer 4s — where they can "get some extra yield with a short call or some of that play out longer," the asset class avoided major movements, said Kim Olsan, senior fixed income portfolio manager at NewSquare Capital.
Some states will be more affected than others due to the tariffs — Texas with Mexican imports, California with Chinese imports and Michigan and Illinois with Canadian imports, she noted, citing CNBC.
California and Texas saw $135 billion in municipal volume last year, or around 27% of the total market, Olsan said.
It's too soon to know how states will respond, but certain active names, like California GOs, California Public Works and Texas Permanent School Fund, may react at some point, she noted.
"You have to think that whatever tariff materializes … there's a pretty fluid situation with the original target of 25%," such as Mexico seeing a one-month pause, Olsan said.
It's possible Canada could see a lower imposed tariff than 25%, or there may even be a "stay" if there's some progress on what Trump wants to see out of the trio of countries, she said.
"We do not expect the 25% tariffs on Canada and Mexico to be sustained for a prolonged period," said Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management, prior to Trump pausing Mexico's 25% tariffs on goods coming into the U.S.
"The Trump administration would not want to jeopardize U.S. economic growth or risk higher inflation by leaving the tariffs in place for a sustained period, and significant stock market volatility could lead to a change in approach," she said.
The two-year municipal to UST ratio Monday was at 63%, the five-year at 64%, the 10-year at 65% and the 30-year at 83%, according to Municipal Market Data's 3 p.m. EST read. ICE Data Services had the two-year at 63%, the five-year at 63%, the 10-year at 65% and the 30-year at 81% at 3:30 p.m.
After a rough start to January, munis did a "complete 180" and ended the month in the green, said Jason Wong, vice president of municipals at AmeriVet Securities.
During the middle of the month, it seemed like the beginning of 2025 would be in the red; however, due to a strong rally, munis were able to end the month in the black, he said.
Munis saw gains of 0.50% for the month. High-yield munis were +0.76% and taxable munis were +0.47%. USTs were +0.52% and corporates were +0.55%.
A strong new-issue calendar — which saw
"With multiple deals of over a billion dollars … each saw strong demand that helped fuel a rally at the back half of the month," he said.
Muni yields rose by an average of 16.2 basis points through the first half of the month, but with strong demand, yields pared back losses and fell by an average of 16.9 basis points, Wong said.
For the final week of January, the muni market "largely followed the treasury action, with the benchmark MMD curve rallying 5 to 7 basis points on Monday and then little to no movement the rest of the way," said Birch Creek strategists.
The tone was strong following another solid week of inflows as investors added $741.7 million to muni mutual funds, according to LSEG Lipper, while the Federal Open Market Committee meeting kept the primary calendar "at bay," they said.
With the increase in demand, Birch Creek strategists said there was "strong two-sided trading activity," as reported by dealers.
There was a 33% increase in customer bid wanteds, while purchases rose around 30%, they said, citing J.P. Morgan data.
With heavy Feb. 1 reinvestment capital this week and a lighter-than-expected forward new-issue calendar, "the muni market has some wind in its sails, but participants should temper their expectations amidst historically tight valuations and rate volatility expected from the various economic policies that are dripping out by the day," Birch Creek strategists said.
In the primary market Monday, Goldman Sachs priced for the San Joaquin Valley Clean Energy Authority (A2///) $865.9 million of green clean energy project revenue bonds, Series 2025A, with 5s of 7/2027 at 3.72%, 5s of 7/2030 at 4.02% and 5s of 7/2035 at 4.18% and 5.5s of 1/2056 with a mandatory tender date of 7/1/2035 at 4.20%, make whole call.
AAA scales
MMD's scale was unchanged: The one-year was at 2.65% (unch, no Feb. roll) and 2.67% (unch, no Feb. roll) in two years. The five-year was at 2.77% (unch, no Feb. roll), the 10-year at 2.97% (unch, no Feb. roll) and the 30-year at 3.97% (unch) at 3 p.m.
The ICE AAA yield curve was bumped up to a basis point: 2.66% (unch) in 2026 and 2.66% (unch) in 2027. The five-year was at 2.74% (-1), the 10-year was at 2.97% (-1) and the 30-year was at 3.90% (-1) at 3:30 p.m.
The S&P Global Market Intelligence municipal curve was little changed: The one-year was at 2.67% (unch) in 2025 and 2.69% (unch) in 2026. The five-year was at 2.76% (unch), the 10-year was at 2.98% (unch) and the 30-year yield was at 3.88% (+1) at 3 p.m.
Bloomberg BVAL was bumped one basis point: 2.62% (-1) in 2025 and 2.69% (-1) in 2026. The five-year at 2.79% (-1), the 10-year at 3.03% (-1) and the 30-year at 3.90% (-1) at 3:30 p.m.
Treasuries were mixed.
The two-year UST was yielding 4.262% (+6), the three-year was at 4.293% (+5), the five-year at 4.356% (+3), the 10-year at 4.542% (flat), the 20-year at 4.826% (-2) and the 30-year at 4.769% (-2) at 3:30 p.m.
Primary to come
The Florida Development Finance Corp. leads the negotiated calendar with $985 million of non-rated Series 2025A revenue bonds for the Brightline Florida Passenger Rail Expansion Project. Term bonds due 2057. The issue is scheduled to be priced Thursday by Morgan Stanley.
The Dallas Independent School District (Aaa/NR/NR/AAA) is set to price Thursday $612.265 million of Series 2025B unlimited tax school building and refunding bonds and $163.785 million Series 2025C unlimited tax refunding bonds. The Series B bonds consist of serial bonds due 2026-2045 and term bonds due in 2050 and 2055. The Series C bonds consist of serial bonds maturing 2026-2034. The bonds are insured by the Permanent School Fund Guarantee Program. Ramirez.
The Lower Colorado River Authority, Texas, (A1/A/A+/NR) is set to price Tuesday $544.8 million of Series 2025 transmission contract refunding revenue bonds for the LCRA Transmission Services Corporation Project. The issue includes serial bonds due 2026-2045 and term bonds due 2050 and 2055. BofA Securities.
The Tarrant County Cultural Education Facilities Finance Corporation, Texas, (Aa2/AA/NR/NR) is set to price Thursday $370.54 million of fixed-rate hospital revenue bonds for the Cook Children's Medical Center. J.P. Morgan.
The North Carolina Housing Finance Agency is set to price Wednesday $299.0 million of home ownership revenue bonds, consisting of $91.765 million of Series 57A Non-AMT bonds due in 2056 and $207.235 million of Series 57B federally taxable bonds consisting of serial bonds due 2026-2036 and term bonds due 2040, 2045, 2050 and 2056. Wells Fargo.
The Round Rock Independent School District, Texas, (Aaa/NR/NR/AAA) is slated to price Tuesday $232.61 million of Series 2025B unlimited tax school building bonds insured by the Permanent School Fund Guarantee Program. J.P. Morgan.
The Riverside Community College District, California, (Aa1/AA) is slated to sell Tuesday $205 million of Series 2025A Election of 2024 general obligation bonds. Piper Sandler.
The Nebraska Investment Finance Authority (NR/AAA/NR/NR) is slated to sell Tuesday $174.525 million of single-family housing revenue bonds, consisting of $110 million 2025 Series A (Non-AMT) social bonds and $65 million of 2025 Series B (Taxable) bonds. J.P. Morgan.
The Massachusetts Development Finance Agency (Aa1/AA+/NR/NR) is slated to sell Thursday $134.23 million of Series 2025 Smith College refunding revenue bonds due 2035 and 2045. Barclays.
The Kentucky Bond Development Corp. (A1/NR/A+/NR) is slated to sell Tuesday $130.22 million of Series 2025A City of Williamsburg hospital revenue bonds for the Baptist Healthcare System Obligated Group due in 2055. BofA Securities.
The California Public Finance Authority is slated to sell $123.47 million of non-rated senior living rental housing revenue bonds, consisting of Series 2025A-1 senior lien bonds and Series 2025A-2 senior lien federally taxable bonds for Sunrise of Manhattan Beach. Goldman Sachs.
The Alaska Housing Finance Corp. (Aaa/AA+/NR/NR) is slated to sell Tuesday $110 million of 2025 Series A general mortgage revenue bonds II, consisting of serial bonds due 2025-2037 and term bonds due in 2038, 2039, 2040, 2042, 2045, 2048, 2051, and 2054. Jefferies.
Competitive
The Triborough Bridge and Tunnel Authority, New York, is slated to sell $500 million of bonds at 11:15 a.m., Eastern, Tuesday.
Westchester County, New York, is slated to sell $129.18 million of GO bonds at 11 a.m. Wednesday.
The Washington Suburban Sanitary District, Maryland (Aaa/AAA/AAA/) is slated to sell $315.95 million of GO bonds at 10:15 a.m.
