Munis outperform USTs after jobs report

Municipals are little changed Friday, outperforming U.S. Treasury weakness following a stronger-than-expected jobs report. Equities ended up.

Muni yields were cut up to three basis points, depending on the scale, while UST yields rose six to 13 basis points, with the largest gains on the short end.

The past week was “rather uneventful” with MMD-UST outperforming despite another week of robust issuance, said Barclays strategists Mikhail Foux and Grace Cen.

“Investors are finally starting to show signs of life, and it feels like we are about to turn a corner: despite heavy issuance, most deals have been well-received, and even fund flows have moved back into positive territory,” they said.

A stronger-than-expected employment report will be a boon for bonds but will keep the Federal Reserve from cutting rates before June at the earliest, analysts said.

April non-farm payrolls were up 177,000, surpassing the expected 135,000 gain.

“Meanwhile, upward revisions to March and February job numbers may help moderate the recent bond selloff,” said Kevin O’Neil, associate portfolio manager and senior research analyst at Brandywine Global.

“Although markets had braced for a slowdown in job growth — due to factors like DOGE job cuts, increased immigration reform and soft economic indicators — private sector hiring has remained resilient,” he noted.

The numbers offer President Donald Trump “more breathing room” on trade negotiations, O’Neil added. “The Federal Reserve is unlikely to shift its current policy stance in the near term.”

“For munis, a strong jobs report should reverse recent credit spread widening, while a weak jobs report should keep credit spreads around current levels,” said BofA strategists.

“Muni credit spreads from AA to high-yield widened a little more than 10 basis points during the second half of April as the market rallied,” compared to the first two weeks of the month when spreads approached their lowest levels as the market sold off, they said.

Ten- and 30-year AAA benchmarks topped previous peaks from October 2023 while all credit index yields remain below those previous peaks, BofA strategists said.

“Fundamentally, the approximately 10bp spread widening in munis can be viewed as an acknowledgment of the credit spread widening in corporates, which were earlier and much larger,” they said. “Now that corporate credit spreads are narrowing in connection with the equity market’s recovery and falling macro volatilities, muni credit spreads should be flat or move slightly narrower in the months ahead.”

Foux and Cen expect tax-exempts to “perform relatively well over the summer, barring negative policy developments, which to us seem to be a long shot at this point.”

For example, the five- and 10-year MMD-UST ratios are about the same at 76%, something that has not happened in a while, they said.

The two-year ratio Friday was at 75%, the five-year at 76%, the 10-year at 76% and the 30-year at 91%, according to Municipal Market Data’s 3 p.m. ET read. ICE Data Services had the two-year at 78%, the five-year at 78%, the 10-year at 78% and the 30-year at 93% at 4 p.m.

“We think the ratio curve, and the actual yield curves, might start to steepen,” the Barclays strategists said. “Moreover, the front end is more defensive if rate volatility continues.”

Market participants usually expect munis to perform well in summer, especially when they begin at cheaper levels, like they are currently, they said.

“However, a closer look shows that, at times, the market starts performing in May (at least the long end), with June also good to municipal investors, but mostly for shorter and medium-dated munis,” the Barclays strategists said. “Meanwhile, the market frequently underperforms in the later part of the summer and early fall.”

History may repeat itself this year, they said, noting they expect a solid May, possibly followed by a robust June, as the backdrop could be supportive.

New-issue calendar
Issuance for the week of May 5 is estimated at $8.566 billion, with $6.891 billion of negotiated deals and $1.675 billion of competitive deals on tap.

Yale University leads the negotiated calendar with an $850 million deal in two issues, followed by the Louisiana Public Facilities Authority (A3/A//) with a $567.895 million deal,

The competitive calendar is led by Fulton County, Georgia, with $275 million of general fund tax anticipation notes.

AAA scales
MMD’s scale was unchanged: The one-year was at 2.86% and 2.89% in two years. The five-year was at 2.97%, the 10-year at 3.29% and the 30-year at 4.36% at 3 p.m.

The ICE AAA yield curve was cut two to three basis points: 2.88% (+3) in 2026 and 2.89% (+3) in 2027. The five-year was at 2.99% (+3), the 10-year was at 3.30% (+3) and the 30-year was at 4.38% (+2) at 4 p.m.

The S&P Global Market Intelligence municipal curve was unchanged: The one-year was at 2.86% in 2025 and 2.89% in 2026. The five-year was at 2.97%, the 10-year was at 3.29% and the 30-year yield was at 4.35% at 4 p.m.

Bloomberg BVAL was cut up to a basis point: 2.83% (+1) in 2025 and 2.89% (+1) in 2026. The five-year at 3.00% (+1), the 10-year at 3.32% (+1) and the 30-year at 4.37% (+1) at 4 p.m.

Treasuries were weaker.

The two-year UST was yielding 3.828% (+13), the three-year was at 3.81% (+12), the five-year at 3.918% (+11), the 10-year at 4.305% (+9), the 20-year at 4.801% (+6) and the 30-year at 4.784% (+6) near the close.

Employment report
Ameriprise Chief Economist Russell Price agreed the Fed will hold. Although fed fund futures offer 36% odds of a 25-basis-point cut in June, “We believe job growth would have to decelerate materially in May to justify a cut at that time.”

Overall, the report was “encouraging,” Price said. While tariffs “have roiled financial markets … over the longer term, employment, especially in manufacturing and other hourly paid sectors, should benefit from reshoring if tariffs are maintained.”

The report offered “no signs of weakness,” according to DWS U.S. Economist Christian Scherrmann. “The latest reports are sure to keep the Fed on the sidelines and central bankers are likely to continue to focus on inflation at the upcoming meeting.”

Besides keeping the Fed benched, the report eases recession fears, said Seema Shah, chief global strategist at Principal Asset Management. “Job numbers remain very strong, suggesting there was an impressive degree of resilience in the economy in play before the tariff shock. That indicates that economic weakness may not truly materialize in the numbers for several months yet, in turn pushing the next Fed cut into Q3.”

While she expects economic weakening ahead, “with this underlying momentum, the U.S. has a decent chance of averting recession if it can step back from the tariff brink in time.”

BMO Chief U.S. Economist Scott Anderson said the report won’t force the Fed “to leap off of the sidelines next week and start cutting interest rates.”

Anderson expects the Fed to cut in July.

“The resilience of the private service economy is encouraging,” said FHN Financial Chief Economist Chris Low, “suggesting economic growth in April despite the tariffs imposed at the start of the month.”

Also, the crackdown on illegal immigrants “is not yet weighing on labor availability, likely because recent immigrants who lost benefits are rushing into the labor market to survive,” he added.

“The report reinforces the picture of a delicately balanced economy, effectively buying another month for the Trump administration to negotiate trade deals.”

The Fed will remain on hold until “real weakness materializes in the labor market,” said Olu Sonola, head of U.S. economic research at Fitch Ratings.

Still, the market’s thoughts regarding rate cuts are right, said Wells Fargo Investment Institute Senior Global Market Strategist Scott Wren. “We are looking for three cuts and the street is looking for three to four cuts.”

While a June rate cut “could be on the table,” he said, hard data would need to weaken.

The report “sets the stage for a very interesting Fed meeting next week,” said Jay Woods, chief global strategist at Freedom Capital Markets. “No one expects [Federal Reserve Chairman] Jerome Powell to cut rates, but that press conference will be very interesting. What will the narrative be? He can take a more dovish tone seeing that unemployment remains at historically low rates 4.2% and inflationary numbers remain stable, albeit sticky.”

But Jeff Schulze, head of economic and market strategy at ClearBridge Investments, notes, “The data for this release was collected during the week following Liberation Day, meaning it would be too soon to expect substantial fallout to emerge just as higher tariffs were being implemented. As a result, investors are likely to look through this positive print, viewing it as a ‘calm before the storm’ with strength being downplayed given the known headwinds that the labor market will be facing in the coming months.”

Primary to come
Yale University is set to price Thursday an $850 million deal. The university will price $500 million through the Connecticut Health and Educational Facilities Authority, consisting of $250 million of Series B-1 revenue bonds and $250 million of Series B-2 revenue bonds, and $350 million of Series 2025A taxable bonds through the university itself. Barclays.

The Louisiana Public Facilities Authority (A3/A//) is set to price Thursday for the Ochsner Clinic Foundation Project $383.36 million of revenue and refunding revenue bonds, Series 2025A, and $100.15 million of refunding revenue bonds. Jefferies.

The Mississippi Hospital Equipment and Facilities Authority is set to price Thursday for the Ochsner Clinic Foundation Project $129.385 million of refunding revenue bonds, Series 2025C. Jefferies.

The New Hampshire Health and Education Facilities Authority (/A/A/) is set to price Thursday for the Dartmouth Health Obligated Group $420.285 million of revenue bonds. Jefferies.

The Palm Beach County School Board, Florida, (Aa3//AA-/) set to price Tuesday $278.82 million of certificates of participation, Series 2025A, serials 2026-2032. BofA Securities.

The Indianapolis Local Public Improvement Bond Bank (A1//A+/) is set to price Tuesday for the Indianapolis Airport Authority Project $262.23 million, with $156.985 million of non-AMT Series 2025B-1 bonds, serials 2031-2045, terms 2050, 2055, 2060, and $105.245 million of AMT Series 2025B-2 bonds, serials 2027-2045, terms 2050, 2055. Barclays.

The bank (/AA-//) is set to price Wednesday for the Indianapolis Public Transportation Corp. Project $125 million of local income tax revenue bonds, Series 2025 A, serials 2025-2035, terms 2036, 2037, 2038, 2039, 2040, 2041, 2042, 2043, 2045. Stifel.

The Oklahoma Capitol Improvement Authority (Aa2/AA/AA-/) is set to price Tuesday $256.155 million of state highways capital improvement revenue bonds, Series 2025A. Goldman Sachs.

The Ontario Public Financing Authority, California, (/AA-/AA-/) is set to price Tuesday $237.5 million of 2025A lease revenue bonds, serials 2026-2045, terms 2050, 2055. Ramirez.

Pennsylvania Higher Education Assistance Agency is set to price Thursday $225 million of tax-exempt AMT fixed-rate education loan revenue bonds, consisting of $177 million of senior Series 2025-1A bonds (/AA//), serials 2030-2034, 2046, and $48 million of subordinate Series 2025-1C bonds (/BBB//), serials 2052. RBC Capital Markets.

The Indiana Housing and Community Development Authority (Aaa///) is set to price Tuesday $223.435 million of social single family mortgage revenue bonds, consisting of $88.83 million of non-AMT Series B-1 bonds, $3.67 million of AMT Series B-2 bonds and $130.935 million of taxable Series B-3 bonds. J.P. Morgan.

The East Bay Municipal Utility District, California, (Aa1/AAA//) is set to price Tuesday $211.195 million of wastewater system revenue bonds, consisting of $28.44 million of green Series 2025A bonds, serials 2041-2045, terms 2050, 2055, and $182.755 million of refunding Series 2025B bonds, serials 2027-2040. Siebert Williams Shank.

The Illinois Finance Authority (/BB+//) is set to price Wednesday for the Illinois Institute of Technology $195 million of revenue bonds, consisting of $127.575 of Series 2025A bonds, serials 2040-2046, and $67.425 million of taxable Series 2025B bonds, serials 2030-2039. PNC Capital Markets.

Texas Department of Housing and Community Affairs (Aaa/AA+//) is set to price Tuesday $187.5 million of non-AMT residential mortgage revenue and refunding bonds, Series 2025B, serials 2026-2037, terms 2040, 2045, 2050, 2055, 2056. RBC Capital Markets.

The Massachusetts Development Finance Agency (Baa3//BBB-/) is set to price Thursday for Suffolk University $158.405 million of revenue bonds. Morgan Stanley.

The West Virginia Economic Development Authority (Ba2/BB+/BB+/) is set to price Tuesday $150 million of solid waste disposal facilities revenue bonds, serial 2055. Wells Fargo.

The Stockton Unified School District, California, (Aa3///) is set to price Thursday $140 million of BAM-insured 2022 Election GOs, Series A, serials 2031-2045, term 2049. Loop Capital Markets.

The MIDA Cormont Public Infrastructure District is set to price Thursday $139.737 million of non-rated bonds, consisting of $46 million of Series 1, $74.271 million of Series 2 and $19.466 million of Series 3. D.A. Davidson.

Mt. Diablo Unified School District, California, (Aa3///) is set to price Tuesday $138.385 million of GOs, consisting of $55 million of 2018 Election Series C bonds, serials 2026-2042, and $83.385 million of 2025 refunding GOs, serials 2025-2035. Stifel.

The Liberty Hill Independent School District, Texas, (Aaa///) is set to price Tuesday $128 million of PSF-insured unlimited tax school building bonds, serials 2026-2058. Piper Sandler.

Grand Rapids, Michigan, (Aa2/AA//) is set to price Wednesday $125.535 million of limited tax GOs, serials 2030-2055. Huntington Securities.

The Vail Home Partners Corp., Colorado, is set to price Tuesday $118.465 million of non-rated housing facilities revenue bonds. Piper Sandler.

Denton County, Texas, (Aaa/AAA//) is set to price Thursday $108.45 million of permanent improvement and refunding bonds, serials 2026-2045. Cabrera Capital Markets.

The Regional School Unit No. 14, Maine, (Aa2/AA//) is set to price Tuesday $105 million of GOs, serials 2026-2045. Raymond James.

Competitive
Fulton County, Georgia, is set to sell $275 million of general fund tax anticipation notes at 10 a.m. Wednesday.

Ann Arbor Public Schools is set to sell $205.27 million of 2025 school building and site and refunding bonds at 10:30 a.m. Tuesday.

The Beaufort County School District, South Carolina, is set to sell $132.2 million of GOs, Series 2025B, at 1 p.m. Thursday.