"You would think global instability leads to flight for quality, but you also have the inflationary pressures that come with higher oil prices. I would say the inflationary pressures have been winning, and that's why you're seeing Treasury and muni rates move higher," said Keith Richard, head of public finance at Siebert Williams Shank.
The weakness in fixed-income markets comes after stocks and bonds saw strength Monday following President Donald Trump's announcement of a five-day pause on strikes on Iranian power plants amid talks between the two countries.
"We are in interesting times as the market must now balance these robust technicals against a backdrop of geopolitical tension in the Middle East and the nomination of Kevin Warsh, whose hawkish reputation is already being weighed by participants," said Jason Wong, vice president of municipals at AmeriVet Securities.
"The secondary infrastructure demands [of data centers] will increasingly flow through to municipal balance sheets, driving incremental issuance across multiple sectors," said J.P. Morgan strategists.
A fatal crash and closure at New York's LaGuardia Airport adds to the list of transportation hurdles that includes a jump in jet fuel prices, and travel delays due to a lapse in TSA funding.
While it's unclear how long the war in the Middle East will drag on, once President Donald Trump announces an end to the war, things could change "on a dime," as happened with the tariff-induced volatility in April 2025, said Peter Block, managing director of credit strategy at Ramirez.
"Looking at where oil was and the potential for disruption, and this being tax season and issuers having to pull deals, there's no reason why yields wouldn't have been higher," said Matt Fabian, president of Municipal Market Analytics.
Some states and local governments "went on spending sprees" with pandemic funds and "got ratings upgrades that didn't have a lot to do with fiscal management," said an investor.
With front-end rates off so much Thursday morning, "liquidity providers backed off noticeably in the morning in terms of bid with offers slow to follow," said Matt Smith, founder and CEO of Spline Data, noting it was likely a response to elevated bids wanted counts, along with rates.
The MINT Act, which would enable Federal Home Loan Bank members to issue tax exempt bonds is working its way through committees in both House and Senate.
Illinois returns to market with about $1.4 billion of GO bonds on Tuesday, with proceeds funding accelerated pension benefit payments and capital projects.
The deal includes a current refunding of general obligation bonds issued in 2016 and a tender offer for bonds that have not yet reached their call date.
The parent of New York's Metropolitan Opera fell deeper into junk-bond status this week, while the New School university has a lower investment-grade rating.
Currently, it's a Goldilocks market, said Kim Olsan, senior fixed income portfolio manager at NewSquare Capital: "Just right enough for just enough people, and steady [enough] that there doesn't seem to be any [big] price pressure at the moment."
In this Market Intelligence analysis, Jeff Lipton warns that granting states access to Chapter 9 would be deeply disruptive, likely forcing muni yields higher and liquidity lower, while underscoring why states' legal protections and reserves still support strong willingness to pay.
In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.
Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.
Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.
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