Munis steady, fiscal conditions remain 'strong'

Munis were steady Tuesday as longer-maturity U.S. Treasuries cheapened and equities ended mixed.

The two-year muni-UST ratio Tuesday was at 61%, the five-year at 59% the 10-year at 63% and the 30-year at 89%, according to Municipal Market Data's 3 p.m. EDT read. The two-year muni-UST ratio was at 61%, the five-year at 58%, the 10-year at 64% and the 30-year at 88%, according to ICE Data Services.

The muni market has rebounded from the technical pressures of the first half of last year ? a result of surging issuance ? said John Miller, head and CIO of First Eagle's municipal credit team.

Municipal fiscal conditions remain strong, he said.

"State budgets for fiscal 2026 overall reflect a healthy environment and general fund balances remain well above the historical average even as they continue to ease from 2023's peak," Miller said.

While state general fund revenue has fallen from the record pace of fiscal years 2021 and 2022, it keeps growing, and modest revenue gains are expected in this fiscal year, he said.

"Budgets enacted to date suggest flat general fund spending in 2026 and most states plan to maintain or increase the size of their rainy-day fund ? many of which are already at nominal highs ? in anticipation of future needs," Miller said.

Improved pension funding is another sign of fiscal strength, as the aggregate median ratio for local government pensions rose to 80% in fiscal 2024 from 78% in fiscal 2022, he said.

Market performance has helped, but "local governments have increased contributions and tweaked their benefit structures, demonstrating improved funding discipline and better long-term sustainability," Miller said.

Overall, ratings activity was positive last year, but not by much: Positive activity outpaced negative activity by 1.4 times through November 2025, he said.

Both defaults and first-time distressed debt remained very low in 2025, Miller said.

This year, UBS analysts expect many trends from 2025 to continue, including elevated supply, robust demand and flows.

"However," they wrote, "opportunities could emerge during periods where heavy supply coincides with weaker demand, fund outflows, and rate volatility."

UBS analysts feel the AAA tax-exempt curve is steep compared to the Treasury curve in the 10-to-30 year range, with the 15-to-20-year area offering value "from an absolute total return perspective."

But the analysts cautioned that they're beginning the year from a defensive perspective due to supply and rate risks.

The analysts currently prefer the 3- to 7-year area of the curve, with an effective duration of around four years, and 5% coupon bonds.

New-issue market
In the primary market Tuesday, J.P. Morgan priced for the Florida Development Finance Corp. (/A-/A/) $389.89 million of healthcare facilities revenue bonds (Tampa General Hospital project). The first tranche, $256.89 million of Series 2026A, saw 5s of 8/2027 at 2.48%, 5s of 2031 at 2.73%, 5s of 2036 at 3.27%, 5s of 2041 at 3.85%, 5s of 2046 at 4.55% and 5.25s of 2051 at 4.79%, callable 8/1/2035.

The second tranche, $133 million of 2026B, saw 5s of 8/2056 with a put date of 10/1/2031 at 2.99%, callable 10/1/2030.

BofA Securities priced for the Lansing Board of Water and Light (Aa3/AA-//) $124.785 million of utility system revenue refunding bonds. The first tranche, $64.83 million of Series 2026A, saw 5s of 7/2051 with a tender date of 7/1/2031 at 2.74%, callable 1/1/2031.

The second tranche, $59.955 million of Series 2026B, with 5s of 7/2027 at 2.30%, 5s of 2031 at 2.46%, 5s of 2-36 at 2.94%, 5s of 2041 at 3.53% and 5s of 2042 at 3.67%, callable 7/1/2036.

BofA Securities priced for the Maine State Housing Authority (Aa1/AA+//) $112.25 million of social mortgage purchase bonds, 2026 Series A, with all bonds priced at par ? 2.7s of 11/2028, 2.9s of 2031, 3.6s of 2036, 4.15s of 2041, 4.65s of 1046 and 4.8s of 2051 ? except for 6s of 2056 at 3.23%, callable 5/15/2034.

AAA scales
MMD's scale was little changed: 2.18% (-2) in 2027 and 2.18% (-2) in 2028. The five-year was 2.27% (unch), the 10-year was 2.65% (unch) and the 30-year was 4.29% (unch) at 3 p.m.

The ICE AAA yield curve was little changed: 2.21% (-1) in 2027 and 2.20% (-1) in 2028. The five-year was at 2.24% (-1), the 10-year was at 2.68% (-1) and the 30-year was at 4.23% (+1) at 4 p.m.

The S&P Global Market Intelligence municipal curve saw small bumps: The one-year was at 2.18% (-2) in 2027 and 2.19% (-2) in 2028. The five-year was at 2.27% (-1), the 10-year was at 2.68% (-2) and the 30-year yield was at 4.24% (unch) at 3 p.m.

Bloomberg BVAL was little changed: 2.24% (-1) in 2027 and 2.21% (-1) in 2028. The five-year at 2.23% (unch), the 10-year at 2.63% (unch) and the 30-year at 4.16% (unch) at 4 p.m.

Treasuries were weaker out long.

The two-year UST was yielding 3.568% (-2), the three-year was at 3.638% (-2), the five-year at 3.817% (flat), the 10-year at 4.226% (+1), the 20-year at 4.791% (+3) and the 30-year at 4.834% (+3) near the close.

Primary to come
The Public Finance Authority is set to price Thursday $100 million of AMT revenue bonds (Sky Harbour Capital III LLC Aviation Facilities Project). Barclays (BCS).

Competitive
Triborough Bridge and Tunnel Authority is set to sell $300 million of payroll mobility tax bond anticipation notes, Subseries 2026A-1, at 10:15 a.m. Eastern Thursday, and $450 million of payroll mobility tax bond anticipation notes, Subseries 2026A-2, at 11:45 a.m. Thursday.

Christy Baker contributed to this report.