Markets quiet as inflation concerns remain

Municipals were steady, U.S. Treasuries were little changed and equities ended mixed after the Federal Open Market Committee meeting minutes showed inflation is still top of mind for the Federal Reserve.

“Inflation remains on the front burner for Fed officials as tariffs still pose a risk to the economy and a pickup in inflation,” said Comerica Wealth Management CIO Eric Teal.

“The labor market remains a wild card, but the high-frequency data has yet to substantiate the concerns created by the July jobs report,” he said.

FOMC meeting minutes “clearly show why they didn’t cut rates,” said Northlight Asset Management Chief Investment Officer Chris Zaccarelli.

Officials were convinced “the risk of higher inflation outweighed the risk of higher unemployment,” he said. “But the far more important question is how they weigh the risks at the next meeting.”

While Zaccarelli expects the Fed to lower rates next month, unless inflation numbers disappoint, it depends on FOMC voters seeing “the unemployment risk as greater than the risk of persistent inflation.”

Don’t expect Fed Chair Jerome Powell to divulge anything at the Jackson Hole symposium later this week, he added, since a decision will be based on upcoming inflation data and the employment report.

BMO Deputy Chief Economist Michael Gregory noted the minutes offered “divergent views about the balance of risks to the economic outlook and, in turn, how soon the Fed should consider cutting policy rates.”

It will be up to Powell to explain if the balance of risks have changed since the meeting, he said. “We doubt it’s enough for an outright rate cut tilt on the scale, so Powell’s messaging is probably going to be subtle.”

Elsewhere, the two-year muni-UST ratio Wednesday was at 59%, the five-year at 63%, the 10-year at 76% and the 30-year at 94%, according to Municipal Market Data’s 3 p.m. ET read. ICE Data Services had the two-year at 59%, the five-year at 63%, the 10-year at 74% and the 30-year at 94% at a 4 p.m. read.

The Investment Company Institute Wednesday reported $663 million of inflows for the week ending Aug. 13, following $117 million of inflows the previous week. This differs widely from LSEG Lipper’s $107.9 million of outflows over the same period.

Exchange-traded funds saw outflows of $206 million after $1.049 billion of inflows the week prior, per ICI data.

Over the past several weeks, the market has gravitated toward new names or infrequent issuers, driven by high demand, while big generic issuers have seen less demand, according to Brad Libby, a fixed income portfolio manager and credit analyst at Hartford Funds. However, this week, the trend reversed.

For example, the Philadelphia Housing Authority’s $311.095 million of guaranteed revenue bonds had to make some adjustments, whereas if it priced two to three weeks ago, the deal would have gotten priced closer to where it was originally proposed, he said.

Additionally, Alaska’s CIVICVentures $62.83 million revenue refunding bonds, a new name, would have done better than it did had it been priced a few weeks ago when coupon reinvestments were coming into the market, Libby said.

Issuance has been elevated for the past several weeks, but supply slowed to $6.166 billion this week, according to LSEG.

Next week will also be a quiet week, with only $7 billion to $8 billion in volume slated, including $1.775 billion from Illinois general obligation bonds. The lighter supply will be helpful, Libby said.

However, supply will pick back up in September, as even the Labor Day holiday week will see $10 billion in issuance, followed by weekly issuance of $12 billion to $15 billion the rest of the month, he said.

“That’s going to be a more [challenging] environment than we saw in the summer, because the flow environment, the reinvestment environment, is vastly different in September and October than it is in June, July and August,” Libby said.

In the summer months, there was $40-plus billion in reinvestment capital available to support new deals, but it drops to $26 billion in September and $27 billion in October, he noted.

“So then you’re really counting on fund flows to help you absorb that big amount of supply,” Libby said.

Muni mutual funds have seen $10.652 billion in inflows year-to-date, according to LSEG Lipper, but as of late, fund flows have seen some swings.

Last week saw $107.9 million of outflows compared to the previous week’s $1.656 billion of inflows, according to LSEG Lipper.

Even with the large inflows two weeks ago, the market didn’t feel heavy because of the reinvestment capital, Libby said.

“If we continue to see more volatile supply where some weeks are inflows, some weeks are outflows, then we’re probably going to struggle, particularly when we start to see that supply in September,” he said.

In the primary market Wednesday, BofA Securities priced for the Los Angeles County Public Works Financing Authority (/AA+/AA+/) $827.13 million of lease revenue bonds, Series 2025J, with 5s of 12/2025 at 2.06%, 5s of 2030 at 2.19%, 5s of 2035 at 3.20%, 5s of 2040 at 4.12%, 5s of 2045 at 4.66%, 5.25s of 2050 at 4.83%, 5.25s of 2054 at 4.86% and 5.5s of 2054 at 4.81%, callable 12/2035.

PNC Capital Markets priced for the Philadelphia Housing Authority (/AA-/AA/) $311.095 million of guaranteed revenue bonds (PHADC Acquisition Program), Series 2025A, with 5s of 3/2027 at 2.71%, 5s of 2030 at 2.96%, 5s of 2035 at 3.87%, 5.25s of 2040 at 4.65%, 5s of 2045 at 5.19% and 5.25s of 2045 at 5.14%, callable 3/2035.

SAMCO Capital Markets priced for the Port Arthur Independent School District, Texas, (Aaa///) $148.13 million of PSF-insured unlimited tax school building bonds, with 5s of 2/2026 at 2.40%, 5s of 2030 at 2.63%, 5s of 2035 at 3.53%, 5s of 2040 at 4.36%, 5s of 2045 at 4.79%, 5s of 2048 at 4.93% and 5s of 2055 at par, callable 2/2035.

J.P. Morgan priced for the Public Finance Authority (Aa3///) $134.19 million of municipal certificates (Cuyahoga River Capital Portfolio), Series 2025-1, Class A, with 4s of 1/2055 with a put date of 7/2028 at 4.05%, noncall.

In the competitive market, Minneapolis, Minnesota (Aaa//AAA/) sold $140.465 million of GOs to J.P. Morgan, with 5s of 12/2025 at 2.55%, 5s of 2030 at 2.45%, 5s of 2035 at 3.36%, 5s of 2040 at 4.10% and 4.50s of 2044 at 4.61%, callable 12/2034. 

AAA scales
MMD’s scale was unchanged: The one-year was at 2.20% and 2.22% in two years. The five-year was at 2.39%, the 10-year at 3.25% and the 30-year at 4.63% at 3 p.m.

The ICE AAA yield curve was little changed: 2.24% (unch) in 2026 and 2.22% (-1) in 2027. The five-year was at 2.42% (unch), the 10-year was at 3.18% (unch) and the 30-year was at 4.61% (unch) at 4 p.m.

The S&P Global Market Intelligence municipal curve was little changed: The one-year was at 2.20% (unch) in 2025 and 2.22% (unch) in 2026. The five-year was at 2.38% (unch), the 10-year was at 3.25% (+1) and the 30-year yield was at 4.62% (unch) at 4 p.m.

Bloomberg BVAL was unchanged: 2.20% in 2025 and 2.22% in 2026. The five-year at 2.38%, the 10-year at 3.21% and the 30-year at 4.60% at 4 p.m.

Treasuries were little changed.

The two-year UST was yielding 3.74% (-1), the three-year was at 3.693% (-2), the five-year at 3.802% (-2), the 10-year at 4.284% (-2), the 20-year at 4.866% (-2) and the 30-year at 4.89% (-2) near the close.

Primary to come
The Montana Facility Finance Authority (//A+/) is set to price Thursday $113.4 million of revenue bonds (Benefis Health System Obligated Group), consisting of $63.4 million of Series 2025A and $50 million of Series 2025B. Barclays Capital.

Competitive:
The Louisville/Jefferson County Metro Government Board of Water Works (Aaa/AAA//) is set to sell $231.05 million of water system revenue bonds at 11 a.m. Eastern Thursday.