Municipal Bond News 10/13/25

Why Longer-Dated Muni Bonds Make Sense Now…Long-Term Muni Bonds’ Equity-Like Return Lures Investors…Demand For Muni Bonds Soars…Steady Muni Yields Bring Yield Advantage…Federal Government Shutdown Odds…Economic Impact of Shutdown…More Convention Centers…Court Blocks Oversight Board Terminations…Illinois Boosts Infrastructure Spending…

Why Longer-Dated Muni Bonds Make Sense Now…Longer-dated state and local government bonds are just beginning to rebound after underperforming the overall muni bond market for most of this year. A long-term muni bond index has posted 0.85% returns this year, lower than the overall muni markets’ 3% year-to-date return. Marking a robust turnaround, longer-dated muni bonds gained over 4% since September. Additionally, the yield gap between muni bonds maturing in two years and 30 years is close to 200 basis points, the steepest in a decade.

Long-Term Muni Bonds’ Equity-Like Return Lures Investors…Municipal bonds are “one of the best single opportunities available in the market today” for fixed-income investors, an expert told WSJ Market Talk last week, adding that long-duration bonds with very low default risk can still be found returning as much as 7.5%, accounting for the tax advantage. Typically, investors who purchased muni bonds at the beginning of the Fed’s easing cycle have seen strong returns over the next few years. “Performance will accelerate,” an expert told Bloomberg last week. In high-tax states like California and New York, top earners can find tax-equivalent yields on long-term munis that rival stock market returns, yet with far less volatility. Fortune magazine wrote last week, “If you’re already in munis, this is the time to hold your ground. If you’re not, it’s not too late to get in.”

Demand For Muni Bonds Soars…New muni bonds issuances are attracting solid investor interest and are vastly oversubscribed. As a result, some issuers are increasing the size of their bond offerings. For example, Los Angeles power utility bonds issued last week saw oversubscriptions across all maturities, with demand reaching 1.5 to 4 times the offering size. This led to an increase in the total offering by more than 20%, bringing it to $1.01 billion. Demand for municipal bonds has accelerated in the third quarter.

Steady Muni Yields Bring Yield Advantage…Muni yields have remained steady in October. However, U.S. Treasury bond yields have dropped about 16 basis points this month. 30-year U.S. Treasury yields are the lowest since August-end. Amid heightened tariff prospects, fears that the current federal government shutdown could curtail economic activity have led Treasuries to rally. Long- term tax-free bond yields offer 92% of comparable U.S. Treasury bond yields, reflecting state and local government bonds’ significant yield advantage.

Federal Government Shutdown Odds… Betting markets indicate a growing likelihood that the current U.S. government shutdown will last more than two weeks. On Polymarket, the odds of a shutdown lasting between 10 to 29 days increased to 68% last week. Meanwhile, Kalshi estimates a 56% chance of a 28-day shutdown. The longest shutdown in U.S. history lasted 35 days, beginning in December 2018, and is estimated to have cost approximately $11 billion in lost output, according to the Committee for a Responsible Budget.

Economic Impact of Shutdown…U.S. GDP could shrink by as much as $15 billion a week during a government shutdown per the White House Council of Economic Advisors. Experts reckon that shutdowns reduce annualized quarterly economic growth by 0.1% to 0.15% for each week the shutdown lasts. The shutdown has paused key economic data that the Fed relies on for rate policy decisions. Fed Governor Michele Barr mentioned last week that it’s ‘hard to judge’ the impact of the current government shutdown, but past episodes suggest that a shutdown would likely trim GDP in the current quarter and then add it back when shutdown ends.

More Convention Centers…From Los Angeles to Austin, major U.S. cities are racing to expand convention centers. Texas is at the forefront in the development of convention centers. Austin, Dallas, Houston, and Fort Worth seek not just the largest, but the most technologically advanced convention centers. Texas governments have committed as much as $7.8 billion for the modernization of convention centers. Los Angeles has recently received final approval for a $2 billion convention center to be opened in time for the 2028 Olympics. Salt Lake City, Cincinnati, Minneapolis, Las Vegas and Orlando are among cities planning to expand their convention centers.

Court Blocks Oversight Board Terminations…A Puerto Rico district court judge has ruled that three oversight board members were illegally fired by the White House and can resume their roles immediately. Experts reckon that the White House will ask for a stay on its removal of board members. Reinstating three members could enable the oversight board to function. However, if prolonged litigation arises on the composition of the oversight board, it may introduce more uncertainty in the resolution of Puerto Rico electric utility debt.

Illinois Boosts Infrastructure Spending…A new $50 billion six-year infrastructure development plan was unveiled last week. The initiative, part of the Rebuild Illinois capital funding program started in 2019, funds Illinois’ highways, transit and bridges. The state unveils a new multi-year plan each year. This year’s is the largest ever. Boosted infrastructure funding comes as federal funding faces roadblocks.

Compare 30-Year taxable U.S. Treasury yield 4.65% to 30-Year tax-exempt Municipal Bond yield “AAA” 4.26%; “AA” 4.47%; “A” 4.70%. For investors in the 35% tax bracket, a 4.3% tax-exempt yield is equivalent to a 6.6% taxable yield. Top-rated long-term tax-free bonds yield 92% of comparable taxable U.S. Treasuries.