Municipal Bond News 11/2/26

Munis Roar Ahead…Investors Flock To Bonds…Puerto Rico Bonds Outperform…Fed Stands Pat…Ballot Bond Measures Top Record…Fewer Insured Muni Bonds…MTA Keeps An Eye on Costs…Muni Issuance Poised For 2026 Record…

Munis Roar Ahead…Muni bonds are enjoying a powerful rally, logging the highest October returns in over four decades, and the strongest monthly return since November 2023. October’s 3.6% index gain stands in stark contrast to September’s 4.36% index losses. October demonstrated how quickly bond markets can turn, transforming a period of sharp losses into one of the most powerful rallies in decades. Such volatile markets underscore both the challenges and opportunities that investors face. A GMS Municipal Bond Specialist’s expertise can guide investors in navigating market dislocations, executing timely tax-loss harvesting strategies, and making informed tax-free investments.

Investors Flock To Bonds…Drawn to attractive tax-free yields, investors have continued to buy muni bonds at near-record pace. Overall, government bonds, considered a safe haven for investors, have gained favor with investors amid equity market turmoil. Current U.S. Treasury yields are the lowest in a month. Bellwether 10-year U.S. Treasury yields have fallen 40 basis points since peaking at a multi-year high of 5.4% on October 7. Treasury return indices have gained 2% this month, the biggest monthly gain since February 2025. Meanwhile, muni bond yields have dropped 50 basis points in October.

Puerto Rico Bonds Outperform…Puerto Rico bonds have posted 2.4% index returns this year, outperforming a 0.8% loss for the broader muni market bond index. Puerto Rico is outperforming its financial projections, and PREPA debt is the last pending restructuring. “We’ve been able to resize the balance sheet of Puerto Rico,” secretary of Puerto Rico’s State Department added “We have implemented a set of guardrails, such as adding new constitutional limits to incremental debt issuance, attesting to our political and legal stability.” At last week’s 52nd public board meeting, the oversight board stressed the importance of preserving fiscal progress.

Fed Stands Pat…The Fed held rates steady last week, with a 10-2 vote. Fed Chair Kevin Warsh reiterated the Fed’s commitment to fighting inflation, and wants to evaluate upcoming ‘information- rich’ economic reports before its next rate action. The Fed upgraded its assessment of U.S. economic activity to a ‘strong’ pace from ‘solid’ earlier, citing resilient customer spending, robust capital investment and stable employment. Meanwhile, the U.S. economy grew at a 3.4 % annual pace in the third quarter of 2026, up from 2.2% in the second quarter.

Ballot Bond Measures Top Record…Voters will decide upon the issuance of $84 billion state and local government bonds this week. The volume of bond measures on this year’s ballot has quadrupled from last year. California and Texas alone account for over $70 billion worth of bond measures. An $11 billion general obligation bond measure for California affordable housing bonds is arguably the largest. Additionally, many school districts are counting on bond plans.

Fewer Insured Muni Bonds…The volume of insured munis issued this year in the primary market dropped 13%, from a year ago. This decline in newly insured municipal bonds occurs even though there has been strong issuance in the primary market. Moreover, retail investors are increasingly looking for bond insurance on municipal bonds that were originally issued without any financial guarantees. Referring to such secondary market purchases of bond insurance, Build America Mutual reported that it has “executed more than a thousand individual trades already this year for both large institutional investors on smaller blocks of bonds that broker-dealers are re-offering to individual investors.”

MTA Keeps An Eye on Costs…MTA’s near-term financial outlook remains stable, however, rising expenses in future years could lead to budget gaps. MTA’s recent $22 billion operating budget is balanced, but it projects gaps in out years, ranging from $295 million in 2027 to nearly $900 million in 2030. Revenue growth, 2.1% annually, is not expected to keep pace with more than 5% expense growth. MTA plans to monitor revenues and save on costs while negotiations on a labor settlement, two anticipated casinos, and federal actions on transit funding will help provide further clarity.

Muni Issuance Poised For 2026 Record…Nearly $64 billion in new muni bonds were issued in October, almost unchanged from September, bringing year-to-date issuance to $566 billion. Mega muni bonds continue to be significant in the primary market with 50 billion-dollar-plus transactions aggregating to about $73 billion so far this year. About 40% of new muni issues range between $500 million to $1 billion. Muni bond issuance is poised to trend higher for the third straight year.

Compare 30-Year taxable U.S. Treasury yield 5.28% to 30-Year tax-exempt Municipal Bond yield “AAA” 4.88%; “AA” 5.13%; “A” 5.46%. For investors in the 35% federal tax bracket, a 4.88% tax-exempt yield is equivalent to a 7.5% taxable yield. Top-rated long-term tax-free bonds yield 92% of comparable taxable U.S. Treasuries.