Although the Federal Reserve’s rate decision was the primary economic event last week, the President’s announcement of his Fed chair nominee was arguably more impactful. Markets had a mixed response to the selection of Kevin Warsh as the next Fed chair. While his qualifications, particularly his experience as Fed governor from 2006 to 2011, were welcome news; there remains significant uncertainty about how he will balance the attentions of the Federal Reserve. Fed policymakers have recently been divided on whether to prioritize labor market concerns or stubbornly high inflation that remains above target levels.
In addition, the partial shutdown of the government took effect on Saturday, as lawmakers struggle to find common ground on the funding of immigration agencies. However, since Congress already passed half of this year’s funding bills last year, several federal agencies and programs continue to operate through September. Nevertheless, the government shutdown still affects the departments of Defense, Homeland Security, Labor, Health and Human Services, Education, Treasury and Housing and Urban Development, in addition to agencies like the Securities and Exchange Commission. Also, should the shutdown persists through the week, Friday’s Labor Department’s jobs report could potentially be delayed.
Over the past week, municipal bond yields have shifted slightly lower. The front-end of the curve has dropped roughly two bps out to about 10-years, approximately three bps from 10 to 15 years and less than one bps out to 30-years. However, Treasuries sold off seven to eight bps on the long-end as the Treasury curve steepened amid Fed leadership uncertainty. Furthermore, both curves have steepened over the past month with yields falling on the short-end and rising slightly on the long-end as investors focus on shorter maturities amid uncertainty.
Insights and Strategy
Recently, slopes along the municipal yield curve have become consistently steep from 10 to 20-years, with 134 bps of overall slope compared to 45 bps from 1 to 10-years and 32 bps from 20 to 30-years. By positioning in the longer intermediate portion of the curve, investors benefit from a steep roll-down over time. Furthermore, due to flat long-term rates, municipal bond investors can currently buy maturities under 20-years that yield approximately 90% of the 30-year curve. With muni/Treasury ratios for 10-year and shorter maturities quite rich at around 60%, extending maturities further out the curve has the added benefit of more appealing relative yields. Ratios from 20-years and longer remain attractive relative to Treasuries due to weaker demand and wider spreads. However, the yield curve remains very flat over these longer tenors. For investors seeking to maximize curve positioning with relative value, the 19-year part of the municipal yield curve has become very tempting with a combination of appealing relative yields and a steep slope that rewards extension.
U.S. State and local governments sold $34.9 billion of munis in January versus $36.7 billion a year ago, a decline of 5.1%, according to data compiled by Bloomberg League Tables. However, with over $8.29 billion in new deals on the calendar, issuance is expected to accelerate this week. Significant deals include: RiverSpring Health Senior Living Inc Obligated Group, which plans to sell $634.2 million of bonds, co-managed by HJ Sims; Washington Suburban Sanitary Commission, scheduled to sell $366.6 million; and, San Diego County Regional Transportation Commission, which plans to offer $343.3 million. In addition, investors will likely be receptive after adding $2.062 billion to municipal bond mutual funds last week following $993.6 million the prior week, according to LSEG Lipper data.
Herbert J. Sims & Co. Inc. is a SEC registered broker-dealer, a member of FINRA, SIPC. The information contained herein has been prepared based upon publicly available sources believed to be reliable; however, HJ Sims does not warrant its completeness or accuracy and no independent verification has been made as to its accuracy or completeness. The information contained has been prepared and is distributed solely for informational purposes and is not a solicitation or an offer to buy or sell any security or instrument or to participate in any trading or investment strategy, and is subject to change without notice. All investments include risks. Nothing in this message or report constitutes or should be construed to be accounting, tax, investment or legal advice.
February 2, 2026 | Timothy Iltz
Overview
Although the Federal Reserve’s rate decision was the primary economic event last week, the President’s announcement of his Fed chair nominee was arguably more impactful. Markets had a mixed response to the selection of Kevin Warsh as the next Fed chair. While his qualifications, particularly his experience as Fed governor from 2006 to 2011, were welcome news; there remains significant uncertainty about how he will balance the attentions of the Federal Reserve. Fed policymakers have recently been divided on whether to prioritize labor market concerns or stubbornly high inflation that remains above target levels.
In addition, the partial shutdown of the government took effect on Saturday, as lawmakers struggle to find common ground on the funding of immigration agencies. However, since Congress already passed half of this year’s funding bills last year, several federal agencies and programs continue to operate through September. Nevertheless, the government shutdown still affects the departments of Defense, Homeland Security, Labor, Health and Human Services, Education, Treasury and Housing and Urban Development, in addition to agencies like the Securities and Exchange Commission. Also, should the shutdown persists through the week, Friday’s Labor Department’s jobs report could potentially be delayed.
Over the past week, municipal bond yields have shifted slightly lower. The front-end of the curve has dropped roughly two bps out to about 10-years, approximately three bps from 10 to 15 years and less than one bps out to 30-years. However, Treasuries sold off seven to eight bps on the long-end as the Treasury curve steepened amid Fed leadership uncertainty. Furthermore, both curves have steepened over the past month with yields falling on the short-end and rising slightly on the long-end as investors focus on shorter maturities amid uncertainty.
Insights and Strategy
Recently, slopes along the municipal yield curve have become consistently steep from 10 to 20-years, with 134 bps of overall slope compared to 45 bps from 1 to 10-years and 32 bps from 20 to 30-years. By positioning in the longer intermediate portion of the curve, investors benefit from a steep roll-down over time. Furthermore, due to flat long-term rates, municipal bond investors can currently buy maturities under 20-years that yield approximately 90% of the 30-year curve. With muni/Treasury ratios for 10-year and shorter maturities quite rich at around 60%, extending maturities further out the curve has the added benefit of more appealing relative yields. Ratios from 20-years and longer remain attractive relative to Treasuries due to weaker demand and wider spreads. However, the yield curve remains very flat over these longer tenors. For investors seeking to maximize curve positioning with relative value, the 19-year part of the municipal yield curve has become very tempting with a combination of appealing relative yields and a steep slope that rewards extension.
U.S. State and local governments sold $34.9 billion of munis in January versus $36.7 billion a year ago, a decline of 5.1%, according to data compiled by Bloomberg League Tables. However, with over $8.29 billion in new deals on the calendar, issuance is expected to accelerate this week. Significant deals include: RiverSpring Health Senior Living Inc Obligated Group, which plans to sell $634.2 million of bonds, co-managed by HJ Sims; Washington Suburban Sanitary Commission, scheduled to sell $366.6 million; and, San Diego County Regional Transportation Commission, which plans to offer $343.3 million. In addition, investors will likely be receptive after adding $2.062 billion to municipal bond mutual funds last week following $993.6 million the prior week, according to LSEG Lipper data.
Herbert J. Sims & Co. Inc. is a SEC registered broker-dealer, a member of FINRA, SIPC. The information contained herein has been prepared based upon publicly available sources believed to be reliable; however, HJ Sims does not warrant its completeness or accuracy and no independent verification has been made as to its accuracy or completeness. The information contained has been prepared and is distributed solely for informational purposes and is not a solicitation or an offer to buy or sell any security or instrument or to participate in any trading or investment strategy, and is subject to change without notice. All investments include risks. Nothing in this message or report constitutes or should be construed to be accounting, tax, investment or legal advice.