Munis little changed after long-delayed jobs report released

Municipals were little changed Thursday as U.S. Treasuries saw gains and equities ended lower after the delayed and mixed September nonfarm payroll report suggested a Federal Reserve rate cut is still in play for next month.

Markets reacted to the employment report despite it being “very backward looking,” said Seema Shah, chief global strategist at Principal Asset Management. “Equities and bonds seem to be picking the parts of the jobs release they like.”

The growth in the unemployment rate and slower wage growth have the bond market believing a December rate cut remains possible, she said, but she doesn’t agree.

“In the face of so much Federal Open Market Committee hawkishness and without any further jobs reports ahead of the December FOMC meeting, today’s jobs release is unlikely to tip the balance to a December cut,” Shah said.

The two-year muni-UST ratio Thursday was at 69%, the five-year at 66%, the 10-year at 67% and the 30-year at 88%, according to Municipal Market Data’s 3 p.m. EDT read. ICE Data Services had the two-year at 69%, the five-year at 65%, the 10-year at 67% and the 30-year at 87% at a 4 p.m. read.

A combination of factors has contributed to the recent stall in the yield curve, said Kim Olsan, senior fixed income portfolio manager at NewSquare Capital.

“The recent volatility in UST rates, driven by apprehension around delayed economic data, has largely been absent from munis,” she said.

It seems that November’s redemptions, between principal credits and interest payments, mainly were aligned with issuance, Olsan said.

After multiple weeks of elevated volume, the market will get a “reprieve” during the last week of November, with issuance expected to top $40 billion for the month, she said.

Reduced secondary selling has contributed a good portion to November’s gains, according to Olsan.

The year’s daily average posted for sale on Bloomberg’s platform is $1.21 billion, compared to this month’s average figure of $1.09 billion, she said.

“On a sector basis, the most active secondary buying has been in utilities (68% of all trades are dealer sales),” while by rating, “customers have been active buyers in nonrated and below-BBB credits (70% and higher net buying),” Olsan said.

Dealers may sense that issuance will slow and have “ratcheted up inventory carry,” she said.

In sessions month-to-date, weekly figures are $17 billion, or up 13% from the year’s average level, Olsan said.

“The number of unique CUSIPs traded is holding steady, registering at just over 27,000 each day,” she said.

Outside of the front end, yields have undergone a “major shift,” Olsan said.

The one-year AAA MMD yield’s 2025 average is 2.57%, near the current level of 2.52%, as of Thursday, she said.

An inversion between 2026 and 2032 has presented issues outside of separately managed account-program allocations, Olsan said.

“A recent sale of Massachusetts GO 5s due in 2030 at 2.43% carried a tight 66% ratio to the five-year UST,” she said.

More movement has happened out long: the 10-year MMD yield is 2.75%, nearly 40 basis points below the year’s average, while the 30-year yield sits at 4.16%, nearly 20 basis points below 2025’s average.

New-issue market
In the primary market Thursday, BofA Securities priced for the Los Angeles Community College District (Aaa/AA+//) $300 million of 2016 Election GO refunding bonds, Series F, with 5s of 8/2026 at 2.20%, 5s of 2030 at 2.06% and 5s of 2031 at 2.14%, noncall.

BofA Securities priced for the Medical University Hospital Authority (Aa2/AA+//) $254.855 million of FHA-insured hospital mortgage revenue bonds (Indian Land project), with 5s of 11/2028 at 2.96%, 5s of 5/2030 at 2.92%, 5s of 11/2030 at 2.93%, 5s of 5/2035 at 3.37%, 5s of 11/2035 at 3.43%, 5s of 5/2040 at 3.90%, 5s of 11/2040 at 3.96%, 5.25s of 5/2045 at 4.49%, 5.25s of 11/2045 at 4.58%, 5.25s of 11/2050 at 4.74% and 5.25s of 11/2054 at 4.80%, callable 11/15/2032.

BofA Securities priced for the Massachusetts Development Finance Agency (//BBB-/) $184.385 million of Tufts Medicine issue revenue bonds. The first tranche, $30.245 million of tax-exempt Series F bonds, saw 5.5s of 10/2031 at 3.67%, 5.5s of 2035 at 3.97%, 5.5s of 2040 at 4.53% and 5.5s of 2045 at 5.06%, callable 10/1/2035.

The second tranche, $154.14 million of taxable Series G bonds, saw all bonds price at par: 6.375s of 10/2028 and 6.625s of 2030.

BofA Securities priced for the Genesee County Funding Corp. (/BBB+//) $150 million of revenue bonds (Rochester Regional Health Energy Projects). The first tranche, $143.805 million of Series A bonds, saw 5s of 12/2039 at 4.03%, 5s of 2040 at 4.15%, 5s of 2045 at 4.72%, 5.25s of 2050 at 4.92% and 5.5s of 2055 at 4.97%, callable 12/1/2035.

The second tranche, $6.195 million of taxable Series B bonds, saw 5.865s of 12/2038 price at par.

In the competitive market, the Davis School District Board of Education, Utah, (Aaa///) sold $100 million of GOs, to BofA Securities, with 5s of 6/2026 at 2.61%, 5s of 2030 at 2.48%, 5s of 2035 at 2.80%, 5s of 2040 at 3.41%, and 4.125s of 2045 at par, callable 12/1/2035.

Fund flows
Investors pulled $965.8 million from municipal bond mutual funds in the week ended Wednesday, following $404 million of inflows the prior week, according to LSEG Lipper data. This is the largest outflow figure since the week ending April 16, when mutual funds saw $1.258 billion pulled.

High-yield funds saw outflows of $162.1 million compared to outflows of $80.6 million the previous week.

Tax-exempt municipal money market funds saw inflows of $862 million for the week ending Nov. 18, bringing total assets to $143.903 billion, according to the Money Fund Report, a weekly publication of EPFR.

The average seven-day simple yield for all tax-free and municipal money-market funds fell to 2.16%.

Taxable money-fund assets saw $12.667 billion added, bringing the total to $7.354 trillion.

The average seven-day simple yield was at 3.64%.

The SIFMA Swap Index was at 2.78% on Wednesday compared to the previous week’s 2.45%.

AAA scales
MMD’s scale was little changed: 2.52% (unch) in 2026 and 2.46% (unch) in 2027. The five-year was 2.41% (unch), the 10-year was 2.75% (unch) and the 30-year was 4.16% (+1) at 3 p.m.

The ICE AAA yield curve was little changed: 2.51% (-1) in 2026 and 2.46% (+1) in 2027. The five-year was at 2.42% (unch), the 10-year was at 2.77% (unch) and the 30-year was at 4.11% (unch) at 4 p.m.

The S&P Global Market Intelligence municipal curve was little changed: The one-year was at 2.51% (unch) in 2025 and 2.45% (unch) in 2026. The five-year was at 2.40% (unch), the 10-year was at 2.75% (+1) and the 30-year yield was at 4.13% (+1) at 3 p.m.

Bloomberg BVAL was cut up to two basis points: 2.51% (unch) in 2025 and 2.46% (unch) in 2026. The five-year at 2.39% (+2), the 10-year at 2.72% (+2) and the 30-year at 4.06% (+1) at 4 p.m.

Treasuries were firmer.

The two-year UST was yielding 3.555% (-4), the three-year was at 3.549% (-4), the five-year at 3.669% (-4), the 10-year at 4.099% (-4), the 20-year at 4.693% (-3) and the 30-year at 4.726% (-3) near the close.

Nonfarm payrolls
The long-awaited jobs report paints a mixed picture for market participants: nonfarm payrolls increased by a greater-than-expected119,000 in September, but the unemployment rate rose to 4.4%.

The report “should help assuage investor concerns that the labor market remains stuck in neutral,” said Jeff Schulze, head of economic and market strategy at ClearBridge Investments. And while it’s “dated,” the report is “an important bread crumb that will factor into the Fed’s mosaic in assessing the health of the labor market,” he said.

The job market appears to have “started to stabilize heading into the fall, which should help vindicate the hawkish contingent of Fed officials who have been arguing that it is prudent to wait for more data before proceeding with additional rate cuts,” Schulze said.

The FOMC meeting “remains a toss-up, with the hawkish case being bolstered by strong headline job creation and the dovish case supported by the rise in the unemployment rate to 4.4%,” he said.

The report’s “mixed signals can give both bulls and bears plenty of narrative fuel,” said Lara Castleton, U.S. head of portfolio construction and strategy at Janus Henderson Investors. “But how much will it matter? Markets are already trading on November data and investors should keep that lens in mind, focusing on company fundamentals rather than stale labor numbers.”

Markets prepared by previously pricing “out aggressive rate-cut optimism from one month ago, so expectations for a December cut are largely unchanged,” she said.

Talk of a sustained labor market winddown has quieted for now, noted Gary Schlossberg, global strategist at Wells Fargo Investment Institute. “The biggest increase in non-farm payrolls since last April, [increased] the odds that the fourth-quarter growth slowdown we’ve been anticipating will be a mild one.”

This lowers the odds of a December cut, he said.

“The Fed now has more justification to shift toward easing, but today’s market reaction wasn’t just about interest rates,” said Gina Bolvin, president of Bolvin Wealth Management Group. “It was about confidence in companies that are executing, even in a mixed economic backdrop.”

Although uncertainty remains for the Fed, she said, for investors “the message is clear: follow the fundamentals, not the headlines.”

Despite beating expectations, the nonfarm payrolls report “aligns with other data showing a somewhat softer labor market, but not one that is rapidly declining in strength,” said Mortgage Bankers Association SVP and Chief Economist Mike Fratantoni. He expects a rate cut in December despite “a number of dissenting views from FOMC members who will vote to hold rates.”

But policymakers are “still driving in the fog,” said Art Hogan, B. Riley Wealth chief market strategist.

“As there will not be an October jobs report and the November report will not be released until after the Fed meets in December, the odds on a rate cut have diminished significantly,” he said. “As Chair Powell said — ‘When you are driving in a fog, you slow down.'”

But the bigger-than-expected gain in payrolls “helps to quell recession fears,” noted Bankrate Senior Economic Analyst Mark Hamrick. “Even so, there are less than comforting signs in the slight rise in the jobless rate to 4.4%, the highest in nearly four years, and in the downward revisions to payrolls for both July and August.”

Olu Sonola, head of U.S. economic research at Fitch Ratings, said, “This is the quintessential ‘good news is bad news’ story. The upside surprise in this report is positive, but it likely dampens prospects for a rate cut in December.”

The data “reinforces the idea of proceeding cautiously when visibility is limited,” he said.

Gary Siegel contributed to this report.