Municipal Bond News 11/17/25

Individuals Trade More Muni Bonds…High Demand Boosts Muni Bonds…Rate Cut Odds…COFINA’s Pledged Sales Tax Outperforms…Federal Government Reopening Lowers Uncertainty…Transit Wins Voter Approval…New York Lawmakers Eye Higher Taxes…New Oversight Board Members Sought…2026 Muni Bond Supply Forecasts…

Individuals Trade More Muni Bonds…It is exciting to see individual investors, often referred to as mom-and-pop investors, actively engaging in the muni bond market at an unprecedented rate. This year, trades under $200,000 account for 26% of secondary market activity, a significant jump from 18% just five years ago. The rise in new bond issuances has fueled this vibrant trading environment. Many investors are keen on refining their portfolios by swapping older bonds for new ones to maximize their tax-free income. The number of trades has already surpassed 15.4 million, exceeding last year’s levels, and marking the highest-ever trading volume. A GMS Municipal Bond Specialist can guide investors make the most of the current municipal bond market.

High Demand Boosts Muni Bonds…Muni bond yields have remained steady for the last month amid strong demand from individuals, boosted by reinvestments and relatively lower bond issuance by states and local governments. November ranks as the sixth-heaviest month for municipal reinvestment demand, with an estimated $42 billion in principal and interest redemptions returning to investors. For four consecutive weeks, inflows to muni bond funds, a gauge of investor demand, has exceeded $1 billion. Last week, Chicago O’Hare airport sold $1.1 billion Build America Mutual insured muni bonds at a top yield of approx. 5%.

Rate Cut Odds…Bond markets currently assign about 47% odds of a 25- basis point rate cut at the Fed’s last 2025 meeting in early December. The absence of recent official economic activity reports may leave central bankers feeling like they are “driving in the fog.” Many central bankers are questioning the need for a third rate cut in 2025. Voting Fed officials including Boston Fed president Susan Collins, Cleveland Fed president Beth Hammack, St Louis Fed president Alberto Musalem, Chicago Fed president Austan Goolsbee and Kansas City Fed president Jeffrey Schmid are urging a cautious approach for a December rate cut.

COFINA’s Pledged Sales Tax Outperforms…Puerto Rico’s 5.5% sales tax collections pledged to COFINA Bonds are consistently outperforming expectations. Pledged sales tax collections have grown almost 4% from a year ago, as of November 7, 2025, and shown month-over-month increases in three of the five months since July 1. On October 21, 2025, pledged sales tax collections reached 100% of their statutory revenue target of $553 million which is adequate for COFINA bond annual debt service, $546 million. It has taken approximately 109 days of pledged sales tax collections to fully meet the annual debt service requirement for the COFINA bonds.

Federal Government Reopening Lowers Uncertainty… The second-longest federal government shutdown lasted 42 days and ended last week, reducing uncertainty about federal funding for airports, hospitals, and state and local governments. The current government funding measure will remain in effect until January 30, 2026. It safeguards federal subsidies for issuers of direct-pay Build America Bonds by waiving a provision of the Pay-As-You-Go Act (Paygo) that could have reduced these subsidies. In December, lawmakers will vote on federal subsidies for health insurance premiums under the Affordable Care Act. During the government shutdown, municipal bond returns remained positive, reflecting a historical trend of favorable returns during previous shutdowns.

Transit Wins Voter Approval…Transit measures passed in 13 out of 16 election races this year. New bond programs and sales tax hikes to fund public transit were approved by voters in seven states. American Public Transportation Association’s president stated, “Voters have sent a powerful message: public transportation is essential infrastructure that America needs and deserves.” Public transit is at the center of political debates nationwide.

New York Lawmakers Eye Higher Taxes…While New York is ‘in a good spot financially’, New York State Governor Kathy Hochul is open to raising corporate taxes, a shift from earlier aversion to tax hikes. Lower federal funding and expectations for higher New York City spending have led to the change. The Empire State’s tax collections from Wall Street and personal income taxes have outperformed, lowering Fiscal 2027 projected budget gap down to $4.2 billion from $7.5 billion.

New Oversight Board Members Sought…Puerto Rico electric utility bondholder representatives are pushing for new federal oversight board members. In this regard, bondholder representatives met with White House officials recently. Last month, a U.S. District Court of Puerto Rico ruled that three board members, who had been fired in August, be reinstated. It is unknown whether the White House will appeal the October ruling. With enough board members present to establish a quorum, the Title III court has resumed litigation on certain aspects of the debt restructuring of Puerto Rico’s electric utility. Notably, the oversight board has incurred over $1.5 billion in professional fees during the island’s debt restructuring process.

2026 Muni Bond Supply Forecasts…Wall Street estimates on 2026 state and local government bond issuance vary widely. Bank of America forecasts $640 billion in municipal bond issuance next year. In contrast, Barclay’s estimates primary market muni bond supply will likely reach $530 billion, which is slightly lower than 2025 muni bond volume. Municipal Market Analytics expects at least $600 billion in new bonds. Lower interest rates, likely next year, supports higher bond refinancing activity.

Compare 30-Year taxable U.S. Treasury yield 4.74% to 30-Year tax-exempt Municipal Bond yield “AAA” 4.09%; “AA” 4.36%; “A” 4.57%. For investors in the 35% tax bracket, a 4.09% tax-exempt yield is equivalent to a 6.32% taxable yield. Top-rated long-term tax-free bonds yield 86% of comparable taxable U.S. Treasuries.