Market Overview

Municipals moved into a “slide-into-month-end” tone as last week progressed: most supply had already cleared, volatility faded, and the FOMC was broadly expected to be uneventful. Reinvestment demand appeared to be meeting supply, leaving the market “comfortable,” even after a pullback that produced a bear steepener earlier in the period. Performance remained broadly even across major subsectors, with most categories showing roughly 0.6%–0.8% month-to-date returns, suggesting stable risk appetite and orderly technicals into month-end.

Yield and Curve Adjustments

The dominant rate narrative was front-end strength and curve steepening, paired with range-bound intermediate/long yields into the Fed event and month-end. Specifically, 1–3 year yields rallied ~20–25 bps in January, pushing the curve slope above 200 bps; the 1–30 year slope widened from 182 bps to 211 bps, with most of that steepening attributed to the 1-year AAA rally. At the same time, intermediate high-grade yields were described as trading in a ~15 bps range, while long yields were constrained to roughly a ~10 bps range, with the 10-year around ~2.65% and the 30-year AAA around ~4.20% by month-end framing. Overall, the week’s tone was consistent with steady-to-firmer levels in the secondary, especially where customer purchases were repeatedly noted through ICE marks across much of the curve.

New Issuance

January’s issuance was approximately $35B, close to last January and toward the high end of the decade range. During the month, issuance-heavy weeks in January (several $10B weeks) were absorbed well, supporting month-end stability. February is setting up to be limited in the new issue market, with projected February starting supply around ~$10B, and next week’s expected tax-exempt calendar starting at ~$7.6B.

Secondary Activity

Secondary trading conditions were characterized as orderly but somewhat lighter at times due to the small new-issue calendar and the looming FOMC, with “what is trading” showing steady yields and spreads. Bid-list supply also looked benign: the daily average posted to Bloomberg’s bid platform was ~20% lower than the annual level, consistent with reinvestment proceeds being put to work rather than recycled into BWIC. The most consistent “color” is that customer purchase yields were often 2–6 bps through ICE (with the most pronounced strength repeatedly in short calls, and intermittent firmness in 20yrs+), a sign of decent liquidity and reinvestment bid even as the market shifted into month-end posture.

Specific secondary trade color skewed toward high-grade and notable spread context — examples include Irving, TX GO 5s of 2029 at 2.26% (+5/MMD), Clear Creek ISD 5s of 2039 at 3.23% (+19/MMD), and Texas Water 5s of 2049 at 4.36% (+20/MMD); later, trading references include Salt River AZ Power Rev 5s of 2051 (call 2036) above 4.40%, and a Maricopa AZ IDA (HonorHealth) 5% of 2040 at 3.66% (~50 bps over MMD AAA 2040) — all reinforcing that buyers were active where yields/TEYs and spread context were attractive.

Unique Events

Several “non-routine” themes showed up beyond day-to-day market tone.

• First, the week carried a policy overlay: the discussion of a federal reconciliation bill raised the possibility that the muni tax exemption could return to the forefront, which could introduce rate volatility if tax revenue needs drive renewed scrutiny.
• Second, macro cross-currents included state-level unemployment data (Dec 2025) showing year-over-year unemployment rate increases in 31 states (incl. DC) and other distributional details (states ≥5.0%, states above historical averages), adding broader economic context to the rates discussion.
• Third, a demographic/issuance linkage was highlighted via U.S. Census population shifts (WSJ-reported), emphasizing continued inflows to the South/Southwest (e.g., Texas) and the downstream implications for infrastructure needs and issuance patterns.

Outlook

The tone for early February is projected to be constructive from a reinvestment perspective with ~$40B of estimated February principal and interest redemptions versus a five-year average monthly supply of ~$32B, implying supportive net technicals. The near-term calendar is expected to be manageable, with ~$7.6B tax-exempt cited for “next week” and ~$10B projected to start February, not seen as distributionally challenging given robust fund inflows and a still “well-funded” market backdrop.