Munis little changed, short-term USTs see losses

Munis were little changed Friday as short-term U.S. Treasuries saw losses and equities were up after a mixed jobs report suggested the Federal Reserve would keep rates steady for the time being.

"With decent job growth in December and a downtick in the federal funds rate, the Federal Reserve will likely hold the federal funds rate steady at [its] next decision in late January," said Comerica Bank Chief Economist Bill Adams.

Still, he sees "further cuts" this year, mostly after Chair Jerome Powell's term ends in May, since his successor will probably be "more amenable to lowering rates."

However, Adams said, "job growth will likely broaden over the course of 2026 since economic policies are turning more expansionary."

Barclays (BCS) strategists expected muni buyers in December to "take advantage of the relative cheapness of the muni market, but their demand never materialized."

However, in early January, buyers "woke from hibernation," and both the investment-grade and high-yield muni indices have generated nearly 0.7% returns in only a few trading sessions, with five- and 10-year MMD-UST ratios declining three percentage points, they said.

The two-year muni-UST ratio Friday was at 64%, the five-year at 60%, the 10-year at 64% and the 30-year at 87%, according to Municipal Market Data's 3 p.m. EDT read. ICE Data Services had the two-year at 64%, the five-year at 60%, the 10-year at 63% and the 30-year at 86% at a 4 p.m. read.

With the five-year ratio at 60% and the 10-year at 64% "it is hard for us to call munis cheap," Barclays (BCS) strategists said.

In the past five years, ratios have reached lower levels (the five-year at 40% and the 10-year at 55%), but those levels were never sustainable, they said.

"The five-year average for five-year ratios is close to current levels (63%), but for 10-year it is a lot higher (71%); for 30-year it is actually slightly lower than current levels at 86%.

The long end continues to underperform in the past month and a half ? longer-maturity yields have barely moved downward, while for one- to five-year maturities have seen yields fall close to 15 basis points over the past few trading sessions, Barclays (BCS) strategists said.

"In our view, the front end will continue to outperform, and the curve should continue to steepen, but the long end should finally catch a bid, due to the richness of the curve belly," they said.

Barclays (BCS) strategists remain "a bit cautious ? slower issuance is the main driver for the current spike in investor demand, and we think that the pipeline should remain robust enough."

If the five- to 10-year part of the investment-grade curve continues doing well, "we would start selling into current strength," they said.

New-issue calendar
The new-issue calendar is an estimated $8.298 billion, with $6.362 billion of negotiated deals on tap and $1.936 billion of competitives.

The New York City Transitional Finance Authority leads the new-issue calendar with a $1.8 billion deal, $1.5 billion of tax-exempts set to price in the negotiated market and $300 million of taxables expected to sell in the competitive market.

The other mega deal is the Nashville Metropolitan Airport with $1.276 billion of airport improvement revenue bonds.

AAA scales
MMD's scale was little changed: 2.29% (-2) in 2027 and 2.27% (unch) in 2028. The five-year was 2.27% (unch), the 10-year was 2.67% (unch) and the 30-year was 4.21% (unch) at 3 p.m.

The ICE AAA yield curve was little changed: 2.30% (+1) in 2027 and 2.23% (unch) in 2028. The five-year was at 2.25% (unch), the 10-year was at 2.66% (unch) and the 30-year was at 4.15% (unch) at 4 p.m.

The S&P Global Market Intelligence municipal curve was bumped up to two basis points: The one-year was at 2.31% (-2) in 2027 and 2.28% (-1) in 2028. The five-year was at 2.28% (-2), the 10-year was at 2.67% (-1) and the 30-year yield was at 4.17% (unch) at 3 p.m.

Bloomberg BVAL was little changed: 2.33% (-2) in 2027 and 2.28% (-2) in 2028. The five-year at 2.25% (-1), the 10-year at 2.59% (unch) and the 30-year at 4.09% (unch) at 4 p.m.

Treasuries were weaker on the short end.

The two-year UST was yielding 3.539% (+5), the three-year was at 3.594% (+5), the five-year at 3.754% (+3), the 10-year at 4.172% (flat), the 20-year at 4.767% (-1) and the 30-year at 4.821% (-2) near the close.

Nonfarm payrolls
Analysts said the nonfarm payrolls report won't change the Federal Open Market Committee's plans, with most expecting two cuts this year, but with timing in question.

The rise in jobs "is close enough to consensus to satisfy markets," said Wells Fargo Investment Institute Senior Investment Strategy Analyst Jennifer Timmerman.

"Investors focused on an unexpected decline in the unemployment rate, to 4.4%, in sending stock prices higher and bond prices lower."

She sees the Fed holding in January, "biased toward further rate cuts this year as long as inflation remains contained." Wells expects two 25-basis-point cuts, "likely in the first half of this year."

"The unemployment rate fell, and fell hard, despite job losses," FHN Financial Chief Economist Chris Low noted. "It was only a tenth lower than expected but was close to rounding down to two-tenths lower than expected."

While it was just one read, he said, "it is one month moving in the right direction after last year's September and October rate cuts. The survey was conducted before the December cut. It is reasonable to conclude the Fed cut rates to stop unemployment from rising and the cuts are starting to work."

The unemployment rate will be used by FOMC members who want to hold rates "as evidence that perhaps last year's cuts were enough to stabilize jobs," Low said, suggesting the Fed can watch for lower inflation "before thinking about cutting again."

The lower unemployment rate "likely reduces the urgency for the Fed to cut interest rates again in January or anytime soon," according to BMO Chief U.S. Economist Scott Anderson.

The "report was not a game changer for the markets or the Fed," he said.

"The Fed will likely hold course for now with the labor market showing tentative signs of stabilizing," agreed Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management. "We expect the Fed to remain on hold for now but still pencil in two cuts for the rest of 2026."

But Art Hogan, B. Riley Wealth chief market strategist, called it "a mixed bag," with jobs created and the unemployment rate both below projections.

"We continue to see an environment where companies are slow to hire and slow to fire," he said. "The overarching takeaway in today's report is that there is more good news than bad in the first on-time Jobs report in three months."

Chris Zaccarelli, chief investment officer for Northlight Asset Management, noted, "We are seeing validation of the idea that job creation is very weak and companies have been letting workers go at a slow pace. There aren't any red flashing lights indicating an imminent recession, but there are plenty of yellow warning lights flashing and there is the risk that we could approach stall speed."

While the Fed is rightly concerned about still above target inflation, he said, "they should be more concerned (at this time) about supporting the labor market, which is why they need to keep cutting interest rates."

The report "did little to provide clarity about the state of the labor market given its mixed reading," said Jeff Schulze, head of economic and market strategy at ClearBridge Investments.

The report "should keep the Fed on hold for now, although the committee will remain vigilant for signs of further labor softening," he said. "For markets, today's print is likely to have little impact but is positive for risk assets at the margin in that it keeps hopes alive for further monetary policy accommodation later in 2026."

Harris Financial Group Managing Partner Jamie Cox said, "The good news is that the economy only needs 50,000 jobs/month to keep the labor market stable ? the better news is that incomes are up and growing."

As such, he expects the Fed to lower rates but added no specifics.

"On the surface, this (report) paints a picture of continued labor market resilience, with wages keeping pace with inflation, something market bulls will welcome," said Lara Castleton, U.S. head of portfolio construction and strategy at Janus Henderson Investors.

Still, she said this "effectively removes any chance of a January Fed rate cut. Investors should prepare for a status quo on rates, emphasizing spread and yield carry while focusing on fundamental sector opportunities."

The data "buys the Fed time and makes a January cut a much tougher sell," said Olu Sonola, head of U.S. economic research at Fitch Ratings. "That said, the weak headline job-growth story can't be brushed aside. Hiring is still stuck in stall speed, and job growth in the cyclical parts of the economy [isn't] sending a comforting signal.

"For now, the labor market is stable enough for investors to focus more on the tailwinds of large tax refunds and the promises of greater productivity growth to fuel the economy in 2026," said LPL Financial (LPLA) Chief Economist Jeffrey Roach. "But revisions are an important signal and there is a note of caution here in this morning's NFP print."

The report was "not weak enough to derail the Fed's pause signal, but not strong enough to remove its rate-cutting bias," said Angelo Kourkafas, senior global strategist of investment strategy at Edward Jones.

The firm expects "slow, gradual cuts" this year.

"December's jobs report hit a soft spot, but it's the kind of softness markets can work with," said Gina Bolvin, president of Bolvin Wealth Management Group. "For investors, it reinforces the case for rate cuts in early 2026 and favors a strategy focused on growth with discipline and income with durability."

The report won't meaningfully change the monetary policy outlook, according to Wells Fargo (WFC) senior economists Sarah House and Michael Pugliese and economist Nicole Cervi. "The cooling in the labor market still appears to be proceeding at an orderly and gradual pace, which likely will leave the FOMC on hold at its upcoming meeting."

However, "with the unemployment rate still above our estimate of full employment, underlying inflation slowly cooling and the policy rate setting above neutral, we remain of the view that a couple more rate cuts this year is a reasonable base case," they said.

Primary to come
The New York City Transitional Finance Authority (Aa1/AAA/AAA/) is set to price Wednesday $1.5 billion of tax-exempt future tax secured subordinate bonds, Fiscal 2026 Series F, Subseries F-1. Ramirez.

The Nashville Metropolitan Airport Authority (/AA-/A+/AA/) is set to price Wednesday $1.276 billion of airport improvement revenue bonds, consisting of $460.94 million of Series 2026A bonds, $669.19 million of AMT Series 2026B bonds, $66.21 million of Series 2026C bonds and $79.91 million of AMT Series D bonds. BofA Securities.

The Dallas Independent School District (Aaa///AAA/) is set to price Wednesday $760.375 million of PSF-insured unlimited tax school building bonds, Series 2026A. Cabrera Capital Markets.

Fort Carson Family Housing (/AA//) is set to price Monday $419.195 million of taxable military housing revenue bonds, consisting of $307.025 million of Series 2026 Class I bonds and $112.17 million of Series 2026 Class II bonds. BofA Securities.

The New Hope Higher Education Finance Corp. (Aa3//AA-/) is set to price Tuesday $339.965 million of higher education revenue bonds (Texas Christian University Project), Series 2026A. Jefferies.

Boys Town Village, Nebraska, (/AA-//) is set to price Thursday $317.68 million of revenue bonds (Boys Town Projects. Stifel.

The Texas Department of Housing and Community Affairs (Aa1/AA+//) is set to price Tuesday $250 million of non-amt residential mortgage revenue and refunding bonds, Series 2026A. Morgan Stanley (MS).

Raleigh, North Carolina, (Aaa/AAA//) is set to price Wednesday $240.835 million of combined enterprise system revenue and revenue refunding bonds. BofA Securities.

Queen Creek, Arizona, (/AA/AA/) is set to price Thursday $236.585 million of certificates of participation. BofA Securities.

The Tarrant County Cultural Education Facilities Finance Corp. (Aa2/AA-//) is set to price Thursday $235.75 million of hospital revenue bonds (Baylor Scott & White Health Project), Series 2026E. J.P. Morgan.

The Maine Municipal Bond Bank (Aa2/AA//) is set to price Thursday $190 million of transportation infrastructure revenue bonds (TransCap Program) highway and bridge bonds, Series 2026A. BofA Securities.

The Desert Community College District, California, (Aa1///) is set to price Tuesday $157.86 million of election of 2016 GOs. Raymond James.

The El Paso Independent School District, Texas, (Aaa//AAA/) is set to price Thursday $154.075 million of PSF-insured forward delivery unlimited tax refunding bonds, Series 2026A. RBC Capital Markets.

The Greenville Independent School District, Texas, (Aaa///) is set to price Tuesday $150 million of PSF-insured unlimited tax school building bonds. Jefferies.

The San Bernardino County Transportation Authority (/AAA/AAA/) is set to price Wednesday $132.78 million of sales tax revenue bonds, 2026 Series A. BofA Securities.

The College of the Law, San Francisco, (Baa1/AA//) is set to price Tuesday $132.115 million of BAM-insured taxable revenue bonds. Raymond James.

The Ohio Air Quality Development Authority (Baa3//BBB-/) is set to price Thursday $100 million of state of Ohio air quality revenue refunding bonds (Ohio Valley Electric Corp. Project), consisting of $50 million of Series 2026A and $50 million of Series 2026B. KeyBanc Capital Markets.

Competitive
The New York City Transitional Finance Authority (Aa1/AAA/AAA/) is set to sell $300 million of taxable future tax secured taxable subordinate bonds, Fiscal 2026 Subseries F-2, at 10:45 a.m., Eastern, Wednesday.

Chandler, Arizona, (Aaa/AAA/AAA/) is set to sell $160 million of GOs at 11 a.m. Tuesday and $190 million of excise tax revenue obligations at noon Tuesday.

Gary Siegel contributed to this report.