Municipal Bond News 10/6/25

New Muni Bonds Oversubscribed…Muni Bond Issuers Brace For Federal Govt Shutdown…Muni Yields Steady…Muni Bond Trading Soars…States and Cities Advocate For Bipartisan Compromise…October Redemptions…Cities’ Infrastructure Priorities…Fewer Florida Muni Bonds…The Race For New York City Mayor…

New Muni Bonds Oversubscribed…Last week, $1.8 billion Connecticut general obligation bonds won orders well over double the amount of bonds offered. The newly upgraded state achieved a low all-in interest cost of 3.76% on 20-year tax-exempt bonds, and 4.29% on the 10-year taxable bonds. “This successful bond sale was buoyed by investor confidence in Connecticut” due in large part to disciplined budgeting and our strong fiscal position relative to other states, the state Treasurer noted. Additionally, ‘AAA’-rated Texas water utility sold $1.8 billion bonds at a yield of 3.28% for 11-year bonds.

Muni Bond Issuers Brace For Federal Govt Shutdown…Many crucial federal funding programs including Medicaid, Medicare, and the federal Highway Trust Fund, will remain unaffected during the current federal government shutdown. These programs are not subject to federal annual appropriations. Non-defense discretionary federal spending accounts for roughly 3% of U.S. GDP, implying limited economic impact of a federal government shutdown. Notably, U.S. states have significant autonomy within the federal structure, as well as flexibility to address federal funding delays due to high reserves and liquidity. Local governments also have broad budget tools to bear the risk of state cutbacks amid lower federal funding. Historically, the $4.2 trillion municipal bond market has withstood federal government shutdowns without any notable impact on credit quality.

Muni Yields Steady…U.S. Treasury bond yields fell by as much as six basis points last week, marking the largest decline in a month. In contrast, municipal bond yields remained relatively stable falling about 3 basis points. A potential federal government shutdown introduces uncertainty around economic reporting. If the shutdown lasts for an extended period, it could negatively impact the economy and increase the likelihood of interest rate cuts.

Muni Bond Trading Soars… “Secondary market trading in muni bonds reached new highs, with 2024 being the third consecutive year of record trade volume. This record-breaking pace has continued into 2025, driven by sustained strong demand from investors,” MSRB outgoing chair added that the ‘municipal securities market is resilient and stronger than ever before’. Additionally, the volume of municipal bonds issued in the primary market has grown steadily, reaching new record highs. Record muni bond issuance and trade volume have made the muni bond market tremendously active in recent years.

States and Cities Advocate For Bipartisan Compromise…The National Governors Association has called upon both political parties to “to set aside political games,” reminding Congress that it “has a responsibility to ensure the government remains operational.” Meanwhile, the National League of Cities president stated, “We recognize the legitimate policy concerns outlined by both parties over the nation’s budget; however, we urge members of Congress to continue working toward consensus and bipartisan compromise for the good of the nation’s cities, towns and villages.” Fitch noted, “A brief U.S. government shutdown is unlikely to affect most U.S. public finance credits. However, a prolonged shutdown could have negative credit ramifications for muni issuers dependent on federal healthcare, housing and higher education funding.”

October Redemptions…In October, muni bondholders are set to receive $47 billion in principal and interest repayments. The largest redemptions will be from bonds issued in California and New York. States and local governments are likely to sell about $58 billion in new muni bonds this month. Chicago O’Hare and Detroit area airport bonds are currently in the new muni issue pipeline.

Cities’ Infrastructure Priorities… Water systems and roads are the top priorities for infrastructure spending in U.S. cities. Ninety percent of cities report that rising costs of project materials and labor are significant financial obstacles per the National League of Cities’ 2025 Infrastructure Report. Additionally, 84% of cities cite insufficient capital budgets as a challenge, while 65% highlight inadequate grant or loan availability as a major issue. Furthermore, the Infrastructure Investment and Jobs Act, which has provided crucial federal support for local needs, is set to expire in September 2026. To modernize aging infrastructure and reduce borrowing costs, local governments commonly use tax-exempt municipal bonds.

Fewer Florida Muni Bonds…Florida governments have issued fewer muni bonds this year. Approx. $18 billion muni bonds have been issued by issuers in the Sunshine State this year, down 18% from a year ago. This decline stands in contrast to a nationwide increase in muni bond issuance. California, Texas, and New York have seen new muni bond volume grow by 10% to 11% from a year ago. Despite this decrease, Florida ranks fourth in a state-by-state tally for muni bond issuance in 2025.

The Race For New York City Mayor…Next month, New York City will elect a new Mayor. Polls indicate that Zohran Mamdani is a leading candidate, followed by former Governor Andrew Cuomo. Incumbent Mayor Eric Adams’ departure from the race is widely viewed as a positive for Cuomo, who is generally favored by older voters. Unlike recent New York City Mayors who received well over 50% of the vote, it is unlikely that the winner this time will secure a majority of support from New Yorkers.

Compare 30-Year taxable U.S. Treasury yield 4.74% 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 90% of comparable taxable U.S. Treasuries.