Jessica Lerner

"Investors were not disappointed," said John Kerschner, global head of securitized products and portfolio manager at Janus Henderson. "Inflation came in softer than expected, leading to a tepid bond market rally" and ensuring a rate cut at the upcoming Federal Open Market Committee meeting.

"If I wanted to target municipal finance, this would be a really good place for me to start," said Omid Rahmani, public finance cybersecurity lead at Fitch Ratings.

The average weekly issuance is at least $10 billion, said John Flahive, head of investment solutions and co-head of municipal bonds at Insight Investment.

The muni market may be shaken by a government shutdown, driving short-term volatility and wider spreads, said James Pruskowski, a public finance strategist.

Muni yields rose up to eight basis points, depending on the scale, with the largest losses again on the front-end of the curve.

Munis have outperformed USTs and corporates by more than 1.0% month-to-date on the heels of this rally so far, BofA strategists said.

The market strength is a carryover from Friday, when munis rallied upo 12 basis points after a weaker-than-expected jobs report solidified expectations for a September rate cut. This was the largest single-day rally since April.

ETFs take over as market movers from mutual funds

"Another set of eyes helps improve the deal for everybody, including the borrower, because the borrower is going to want a successful venture too," said John Miller, head and chief investment officer of First Eagle's municipal credit team.

"We expect subdued activity again [this] week heading into the Labor Day holiday," Birch Creek strategists said.

The rock-bottom prices show the risks of a high-yield market where liquidity is famously limited.

In the first quarter of this year, 18.6% of new-issue volume in the market was traded electronically, up from 17.3% last year, according to data from Coalition Greenwich.

Muni yields were bumped up to eight basis points, depending on the curve, on Tuesday, but for most of last week, U.S. rates sold off on the heels of passed legislation, said Barclays strategists Mikhail Foux and Grace Cen.

Municipal bond insurers wrapped $7.316 billion in the first quarter of 2025, a 2.6% increase from the $7.132 billion insured in the first quarter of 2024, according to LSEG data.

The "risk to the tax exemption appears to have dropped sharply as of last week ... taking with it the hypothetical risk of a supply surge ahead of any end-date for borrowers' exemption access," said Matt Fabian, a partner at Municipal Market Analytics.

Municipals were cut up four basis points, depending on the curve, through noon.

Issuance for the week of May 19 is estimated at $11.667 billion.

For most investors, partnership matters, said Jamie Doffermyre, head of public finance syndicate and origination at Truist Securities.

The muni market is recovering from tariff turmoil, and is more resilient than the day-to-day volatility suggests, Jamie Doffermyre of Truist Securities said.

Even with Monday's U.S.-China tariff truce and Tuesday's inflation print, the market has felt better over the past several weeks, said Jamie Iselin, managing director and head of municipal fixed income at Neuberger Berman.