Jobs, Yields, and MUNI Issuance: A Look at Key Market Drivers

• We saw that Jobless claims picked up today and are still near pre-COVID levels. Applications for US unemployment benefits increased by 11K to 219K, which was reported today, 2/6/2025. Continuing claims rose to 1.89MM in the week ended 1/25/25, and the average of new applicants for four weeks rose to 216,750.  US-based employers announced almost 50000 cuts in January, the lowest count for the first month of the year since 2022, but significant job cut announcements are expected to increase this month. Bottom line = yields are steady this morning post reporting, even after the considerable run-up from yesterday.
• MUNI bonds in the State of Florida will become much scarcer, as the Governor indicated they plan to pay down 1.7B of tax-supported debt as part of his budget proposal for the fiscal year that begins in July. If you own FL paper with coupons greater than 3.875% that are tax-backed by the state, we suggest monitoring those securities regarding a call or tender.
• On 2/5, yields nudged to session lows both on T bills and MUNIs based on the ADP data and the Treasury keeping debt sales steady at 125B and confirmed it planned to keep nominal coupon auction sizes stable at least for the next several quarters. Overall, as of 2/5, yields are down ~8bps on the 10T, and MUNIs seem to be down ~5bps across the curve.  As reported above, 2/6 yields are steady after this large move. 
• Issuance of MUNI paper has been steady over the past few weeks. This should continue (or go lower), creating a slight squeeze on paper regarding pricing. Should yields continue to fall, however, issuers could reverse course and bring paper to market to lock in lower borrowing costs. 
• ADP added 183K jobs in January, which is above the estimates, which indicates the labor market is still expanding at a healthy pace, with employers hiring and layoffs remaining subdued. The report published on 2/5 showed stable wage growth, which affirms the labor market is still expanding at a healthy pace. As we know, the FED will closely track these developments in the labor market as they assess how much to lower rates this year. During Powell’s last presentation, he indicated the labor market is “pretty stable.” 
• NY City Mayor Eric Adams wants to create a new tax credit to convince companies to lease space in vacant office buildings. The goal is to attract 15 large businesses to the city by the end of the year. This should be a net positive for MUNIs in NY, as property assessments would rise in various zones within the city.
• FED Reserve Bank of Atlanta president Raphael Bostic indicated he wanted to wait “a while” before cutting rates again following last year’s reductions. He indicated he wanted to see how the 100bps reduction last year impacted the economy in all aspects, including borrowing costs. It will depend on what the data shows. Some expect a cut in March, but I suspect it might be too early.
• FED Reserve Vice Chair Philip Jefferson indicated it is appropriate for policymakers to be cautious in adjusting rates as long as the economy remains strong. This is in line with Bostic’s comments above as well. I suspect they will be moving more towards a more neutral stance over the next few months. I do not think the FED will be in a “hurry” to push rates down. However, these discussions will be ongoing and data-driven.
• Private Activity borrowers (relating to AMT paper) and non-MUNI borrowers could be more at risk of losing their ability to sell tax-exempt paper as Congress looks to offset the costs of extending tax cuts. This could impact the issuance of AMT paper; however, many expect the status quo to be maintained for state and local government tax exemption. The bottom line is that the street is not expecting much change on this issue.
• Goolsbee said persistent, outsized tariffs could renew supply chain disruptions and increase inflation. Goolsbee has been telegraphing this message for a couple of months, and many, including us, would agree to this to a point. In a meeting this week, Goolsbee laid out several lessons from the pandemic, including supply-side disruptions, inducing supply chains to be the most important drivers of inflation, and leading to an overheating economy during COVID.

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David Loesch
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