PrintMunis pare early weakness after Greenland tariff threats lessen
BY SourceMedia | MUNICIPAL | 01/21/26 04:12 PM ESTEarly muni market weakness largely dissipated by the close Wednesday, as financial markets reacted favorably to President Donald Trump's paring of tariff threats against Greenland. U.S. Treasuries saw gains and equities ended up.
Municipal Market Analytics said a correction is happening this week, Matt Fabian wrote in the firm's Tuesday report.
Current events and financial developments outside of the muni sector mean investors should hold off buying munis until rates correct, Fabian advised.
Muni prices may also come under pressure from national and international headlines, Fabian said, such as the prospect of a trade war with Europe, higher yields in Japan and an impending Supreme Court decision on tariffs.
The ensuing market correction will "facilitate better entry points, [separately managed account] growth, and rollout of a calendar that resembles 2025's," Fabian said.
As things stand now, the front half is theoretically better value for buyers, Fabian said, but he cautions buyers to hold back and wait to see if rising rates prompt net selling. The long end didn't turn cheap and should be avoided for now, he added.
A correction will allow tax-exempts ? which Fabian feels have shown a "drastic outperformance" ? to catch up with the weakness in taxables, he said.
The recent weakness is "due to the run up in U.S. Treasuries, largely due to geopolitical events and therefore the relationship between munis and Treasuries (i.e., the municipal/Treasury ratio) has fallen to a level that tax-exempt yields need to be higher to provide incentive for investors to continue purchasing bonds versus alternative investment vehicles," said Ajay Thomas, head of public finance at FHN Financial.
The two-year muni-UST ratio Wednesday was at 62%, the five-year at 60%, the 10-year at 63% and the 30-year at 88%, according to Municipal Market Data's 3 p.m. EDT read. The two-year muni-UST ratio was at 61%, the five-year at 59%, the 10-year at 63% and the 30-year at 86%, according to ICE Data Services.
One-, two-, five- and 10-year ratios recently reached their respective lowest levels compared to the last 90 days, Thomas said.
The Investment Company Institute Wednesday reported outflows of $1.59 billion for the week ending Jan. 14, following $1.247 billion of inflows the previous week. This differs from LSEG Lipper, which reported investors added $1.825 billion to mutual funds over the same time period.
Exchange-traded funds saw inflows of $5.58 billion after $1.437 billion of inflows the week prior, per ICI data.
This week is a busy one for the new-issue market with volume at $10.836 billion, led by Pennsylvania with $1.75 billion of GOs in three series in the competitive market.
Many shops expect issuance to remain elevated this year, though the pace may be slightly slower than in 2025, said Ryan Friend, a senior investment analyst at Loomis Sayles.
"Issuers continue to face higher project costs from inflation, sunsetting pandemic relief funds and decreased federal support," he said, as this "new reality is likely to drive borrowing needs in the near term."
Robust supply may "oversaturate" the market during times when investors usually reinvest less, Friend said.
However, "continued strong demand from retail investors, mutual fund inflows and a growing ETF segment of the market provide a technical anchor that remains supportive," he said.
Fabian concurred that demand has been strong from ETFs, traditional funds and SMAs, but he called attention to the "$4 billion outflow from 2a7s and weak reinvestment," calling it a "negative backdrop."
"A retail-based demand side is not automatically opportunistic, especially with yields at such unfavorable levels vs USTs," Fabian wrote. "And assuming that more ETF holdings are effectively being managed as cash alternative accounts, the sharp decline in money fund balances raises the risk of similar from ETFs this week."
New-issue market
In the primary market Wednesday, Loop Capital Markets priced for New York City Municipal Water Finance Authority (Aa1/AA+/AA+/) $825 million of water and sewer system second general resolution revenue bonds, Fiscal 2026 Series BB, with 5s of 6/2047 at 4.41%, 5s of 2051 at 4.60%, 5s of 2056 at 4.73%, 5.25s of 2056 at 4.68% and 5.5s of 2056 at 4.61%, callable 6/15/2036.
J.P. Morgan priced for the Maryland Health and Higher Educational Facilities Authority (A2/A//) $724.77 million of MedStar Health issue revenue bonds. The first tranche, $491.28 million of Series 2026A bonds, saw 5s of 8/2026 at 2.56%, 5s of 2031 at 2.75%, 5s of 2036 at 3.28%, 5s of 2041 at 3.84%, 5.25s of 2051 at 4.80% and 5.25s of 2054 at 4.86%, callable 2/15/2036.
The second tranche, $233.49 million of Series 2026B bonds, saw 5s of 8/2056 with a put/tender date of 8/2033 at 3.16%, callable 2/15/2033, and 5s of 2056 with a put/tender date of 8/2036 at 3.48%, callable 2/15/2036,
Barclays
In the competitive market, Pennsylvania (Aa2/A+/AA/) sold $795 million of general obligation bonds, First Series of 2026 (Bid Group C), to Wells Fargo
The commonwealth sold $775 million of GOs, First Series of 2026 (Bid Group B) to, J.P. Morgan, with 5s of 4/2037 at 3.00%, 5s of 2041 at 3.51% and 4.25s of 2046 at 4.362%, callable 4/1/2036.
Pennsylvania sold $180.76 million of GO refunding bonds, First Refunding Series of 2026 (Bid Group A), to J.P. Morgan, with 5s of 8/2026 at 2.25%, 5s of 2031 at 2.38% and 5s of 2033 at 2.55%, noncall.
Fairfax County, Virginia, (Aaa/AAA/AAA/) sold $376.845 million of public improvement bonds to BofA Securities, with 4s of 10/2026 at 2.30%, 5s of 2031 at 2.37%, 4s of 2036 at 2.81%, 4s of 2041 at 3.62%, and 4.125s of 2045 at 4.13%, callable 4/1/2035.
CUSIP requests fall
In December, the aggregate total of identifier requests for new municipal securities ? including municipal bonds, long-term and short-term notes, and commercial paper ? fell 20.2% versus November totals.
On a year-over-year basis, overall municipal volumes were up 14.6% through the end of December.
Texas led state-level municipal request volume with a total of 105 new CUSIP requests in December, followed by New York (81) and California (60).
For the specific category of municipal bonds, there was a decline of 28.9% month-over-month, but these requests were still up 13.8% year-over-year.
AAA scales
MMD's scale was little changed: 2.22% (unch) in 2027 and 2.22% (unch) in 2028. The five-year was 2.29% (unch), the 10-year was 2.68% (unch) and the 30-year was 4.29% (+1) at 3 p.m.
The ICE AAA yield curve was changed up to one basis point: 2.22% (-1) in 2027 and 2.21% (unch) in 2028. The five-year was at 2.27% (+1), the 10-year was at 2.70% (+1) and the 30-year was at 4.25% (+1) at 4 p.m.
The S&P Global Market Intelligence municipal curve was little changed: The one-year was at 2.23% (-2) in 2027 and 2.23% (unch) in 2028. The five-year was at 2.30% (unch), the 10-year was at 2.70% (unch) and the 30-year yield was at 4.24% (+1) at 4 p.m.
Bloomberg BVAL was little changed: 2.27% (-1) in 2027 and 2.24% (-1) in 2028. The five-year at 2.25% (unch), the 10-year at 2.64% (unch) and the 30-year at 4.17% (+1) at 4 p.m.
Treasuries saw gains.
The two-year UST was yielding 3.598% (-1), the three-year was at 3.657% (-2) the five-year at 3.829% (-3), the 10-year at 4.252% (-4), the 20-year at 4.833% (-5) and the 30-year at 4.875% (-5) at the close.
Primary to come
The Massachusetts Clean Water Trust (Aaa/AAA/AAA/) is set to price Thursday $705.595 million of green state revolving fund bonds, Series 27. Morgan Stanley
The Los Angeles Department of Water and Power (Aa2//AA-/AA/) is set to price Thursday $544.325 million of power system revenue bonds, Series 2025D. Siebert Williams.
The Delaware Health Facilities Authority (Aa2/AA//) is set to price Thursday $332.62 million of revenue bonds (Christiana Care Health System), Series 2026. J.P. Morgan.
Hays County, Texas, (/AA+/AA+/) is set to price Thursday a $134.715 million deal, consisting of $100 million of combination tax and revenue certificates of obligation and $34.715 million of limited tax refunding bonds. Jefferies.
The Rhode Island Health Educational Building Corp. (/BBB+/BBB+/) is set to price Thursday $126.5 million of hospital financing revenue bonds (Brown University Health Obligated Group issue), Series 2026B. Morgan Stanley
Brown University Health (/AA/BBB+/) is set to price Thursday $101.775 million of taxable bonds, Series 2026A. Morgan Stanley
Competitive
Greenwich, Connecticut, is set to sell $140 million of GO bond anticipation notes, at 11:30 a.m. Thursday.
