Municipals were regular throughout many of the curve outside of small bumps on the short end while municipal bond mutual funds flipped back to inflows for the primary week of the yr. U.S. Treasury yields fell barely and equities were mixed.
Investors added $842.4 million to municipal bond mutual funds in the primary full reporting week of 2025, breaking a four-week outflow streak, per LSEG Lipper data. It follows $342.2 million of outflows the prior week.
High-yield funds saw inflows of $527.1 million in comparison with the previous week’s inflows $26.3 million within the week ending Jan. 1.
Even with the muni market seeing outflows to finish last yr, they weren’t detrimental to the market, said James Welch, a municipal portfolio manager at Principal Asset Management, as there may be great support from individually managed accounts and exchange-traded funds.
“The muni story this yr is pretty strong,” Welch said. “It’s the perfect entry point in quite a while.”
Yields are at their highest levels in a yr, and the taxable equivalent yields are “pushing anywhere from 7% to eight%, depending on where you might be on the credit and yield curve,” he said.
Ratios are on the richer side. The 2-year municipal to UST ratio Thursday was at 65%, the five-year at 65%, the 10-year at 66% and the 30-year at 81%, in line with Municipal Market Data’s 1 p.m. EST read. ICE Data Services had the two-year at 65%, the five-year at 64%, the 10-year at 66% and the 30-year at 80% at 2 p.m.
Much like 2024, he said, issuance will probably be a theme of 2025.
Issuance began slowly through the first full week of the yr, as market participants were slow to hit the bottom running following the Christmas and Recent Yr holidays.
Volume was further hindered by the early market close Thursday because of the national day of mourning for former President Jimmy Carter.
The last sizable deal of week priced ahead of the early market close. Goldman Sachs priced for the Central Valley Energy Authority (A3///) $981.685 million of commodity supply revenue bonds, with 5s of 12/2055 with a compulsory tender date of 8/1/2035 at 4.28%, make whole call.
The true test of what issuance will appear like for the remaining of the month will come next week, Welch said. Bond Buyer 30-day visible supply sits at $16.81 billion.
Sizable deals on tap for next week include $1.3 billion of real estate transfer tax revenue bonds from the Triborough Bridge and Tunnel Authority and $996.335 million of second series revenue bonds from the San Francisco International Airport.
And with more mega deals on tap for the remaining of the month — similar to as much as $2.5 billion of general revenue bonds from the University of California and $1.3 billion of turnpike system second senior revenue bonds from the Oklahoma Turnpike Authority within the negotiated market and $1.05 billion of GOs from the state of Washington in three series within the competitive market — Welch said billion-plus deals will probably be prevalent again this yr.
“The market has transitioned to larger, greater deals,” he said. “The financing needs are increasing, and the infrastructure needs are growing.”
The massive unknown is what happens when President-elect Donald Trump assumes office, with November’s election-related uncertainty shifting to “an entire set of others,” he said.
The potential elimination of the tax exemption — of which market participants have various probabilities of it happening — has caused “great anxiety” out there and could lead on to volatility and a backup in yields, Welch said.
Other sectors like higher education might also be within the “crosshairs,” he noted.
“Trump will say numerous various things on Day 1, but absolutely the implementation of those things goes to be time-lagged,” Welch said. “So there’s logistical hurdles, whether it’s legislative, whether it’s legal, that’ll take some time for whatever he desires to play itself out.”
As a result of this, he expects the muni market to be “pretty healthy” for the primary a part of the yr.
Money market fund flows
Tax-exempt municipal money market funds saw inflows of $4.085 billion for the week ending Jan.7, bringing the overall assets to $139.335 billion, in line with the Money Fund Report, a weekly publication of EPFR.
The typical seven-day easy yield for all tax-free and municipal money-market funds fell to 2.04%.
Taxable money-fund assets saw $93.54 billion added.
The typical seven-day easy yield was at 4.09%.
The SIFMA Swap Index fell to 1.83% Wednesday in comparison with the previous week’s 2.72%.
AAA scales
MMD’s scale was little modified: The one-year was at 2.73% (-2) and a couple of.77% (-2) in two years. The five-year was at 2.89% (unch), the 10-year at 3.10% (unch) and the 30-year at 3.99% (unch) at 1 p.m.
The ICE AAA yield curve was little modified: 2.77% (unch) in 2026 and a couple of.79% (unch) in 2027. The five-year was at 2.84% (unch), the 10-year was at 3.06% (unch) and the 30-year was at 3.91% (unch) at 2 p.m.
Bloomberg BVAL was unchanged 4 years and out: 2.75% (-2) in 2025 and a couple of.78% (-2) in 2026. The five-year at 2.90% (unch), the 10-year at 3.16% (unch) and the 30-year at 3.96% (unch) at 2 p.m.
The S&P Global Market Intelligence municipal curve was little modified: The one-year was at 2.80% (-2) in 2025 and a couple of.82% (-1) in 2026. The five-year was at 2.86% (unch), the 10-year was at 3.06% (unch) and the 30-year yield was at 3.91% (unch) at 3 p.m.
Treasuries were a touch firmer.
The 2-year UST was yielding 4.265% (-2), the three-year was at 4.338% (-1), the five-year at 4.455% (-1), the 10-year at 4.688% (flat), the 20-year at 4.985% (-1) and the 30-year at 4.930% (flat) at 2 p.m.
FOMC minute redux
The minutes from the December Federal Open Market Committee meeting showed the “decision to chop rates was an in depth one and arrange for a pause of no less than one meeting in January,” noted FHN Financial Chief Economist Chris Low.
Officials remain concerned about “a recent lack of progress against inflation,” while some imagine “the inflationary effects of tariffs” is troubling, he said.
“Fed funds futures show 6.9% odds of a cut in January and 37% in March,” Low noted. “A full rate cut shouldn’t be fully priced into futures until June.”
“Inflation concerns weren’t universal, nevertheless,” in line with Morgan Stanley Research Managing Director and Chief U.S. Economist Michael Gapen. “Many participants see market-based components near 2.0% as a signal about where overall inflation is headed.”
Still, members’ personal assumptions about policy changes in the brand new administration “could have confused the messaging on the December meeting,” Gapen said.
Morgan Stanley expects quarter-point rate cuts in March and June. “We expect inflation is prone to trend lower in the primary half of the yr, keeping gradual cuts in place, before restrictive trade policies halt disinflation — and further Fed cuts — within the second half of the yr.”
Still, the minutes “provided no recent bombshells in light of what we already learned last month,” said FHN Financial Macro Strategist Will Compernolle. “There have been some interesting details regarding FOMC participants’ different approaches to federal policy assumptions this yr, but nothing that caused markets to re-price.”
Gary Siegel contributed to this report.