Municipal Bond News 11/24/25

New Hospital Muni Bonds…U.S. State Credit Ratings Improve…Rate Cut Odds…Chicago’s Budget Battle…Most U.S. State Governments’ Unified…California Deficit Worsens…Connecticut Pension Funding Improves…2026 New Issue Leaders…

New Hospital Muni Bonds…Hospital bonds dominated last week’s primary market. Ascension Health is currently selling $1.75 billion high grade bonds issued in various states. South Carolina’s Medical University Hospital (Indian Land) project also FHA-insured muni bonds at a top yield of 3.78%. In Massachusetts, Tufts Medical sold ‘BBB-’- rated bonds at a top yield of 5.06%. This year, about $52 billion hospital tax-free bonds have been issued. About 28% of this year’s new hospital bond issuances were in Wisconsin, Texas and Florida. These new hospital bonds are being issued amid relatively steady market conditions. A S&P Healthcare Bond Index has returned over 3% over the last year.

U.S. State Ratings Improve…Two lower-rated U.S. states, Illinois and New Jersey, have earned notable rating upgrades over the last month. Further, Connecticut, earned a Moody’s and Fitch upgrade this year. Another prominent bond issuer, MTA was upgraded by both Moody’s and S&P earlier this year. On the other hand, City of Chicago and Chicago Board of Education have seen unfavorable outlook changes including a S&P rating downgrade for City of Chicago at the start of the year. Overall, U.S. state credit ratings have improved this year.

Rate Cut Odds…The likelihood of a December rate cut increased last week. Recently released September employment figures were higher than expected indicating a strong economy. However, the 43-day government shutdown, which ended on November 13, is estimated to have hit the U.S. economy by $11 billion. New York Fed president John Williams said he sees “room for further adjustment in the near term.” Fed governors Christopher Waller, Stephen Miran, Michelle Bowman have also expressed for rate cuts this year. The 12-member Fed requires a seven-member majority on rate cut decisions. Bond markets assign 70% odds for a quarter-point rate cut in December.

Chicago’s Budget Battle…Mayor Brandon Johnson’s $16.7 billion spending plan was rejected by city council last week. A tax on large corporations is a major sticking point. The mayor is avoiding a hike in property taxes, grocery taxes or city garbage fees. Chicago homeowners are getting hit by a 17% property tax hike after the city’s downtown office building valuations fell. Additional revenue proposals for the city budget are expected in early December. Meanwhile, Chicago O’Hare airport sold $1.1 billion tax-free Build America insured bonds at a top tax-free yield of 4.8%.

Most U.S. State Governments’ Unified…November gubernatorial elections in New Jersey and Virginia brought unified governments to both states. At present, 38 U.S. states have a single party trifecta, where both chambers of state legislature and the governor’s office are controlled by the same political party. Of these, 23 U.S. states have a Republican trifecta, and Democrats control 15 U.S. states. 12 U.S. states have a split government. A unified state government typically facilitates the smooth implementation of policies, as well as the funding of programs and budgets.

California Deficit Worsens…California faces a $18 billion deficit in Fiscal 2026-27, up from a $13 billion deficit forecast earlier. “This is the fourth consecutive year of a budget problem, pointing to ongoing structural issues,” the state’s legislative analyst noted. New federal policies on tariffs and ongoing high borrowing costs are leading to weaker corporate and sales tax trends and sluggish job growth. However, the Golden State’s dominance in artificial intelligence is a bright spot. Federal uncertainty, market volatility, and continued growth in state spending have led to budget deficit woes.

Connecticut Pension Funding Improves…Connecticut, which was upgraded by both Moody’s and Fitch this year, is witnessing a substantial improvement in its pension funding. State budget surpluses have led to supplemental pension contributions of $10 billion since 2019, and recent investment returns have exceeded 10%. Currently, Connecticut state employees’ pension fund is 55% funded, a notable improvement from 38% in 2019. However, the affluent state is among six U.S. states that carry below 60% funded state employee pension plans.

2026 New Issue Leaders…U.S. states are the largest issuers of tax-free bonds. Among U.S. states planning to increase muni bond issuance, New York and California expect to ramp up borrowing in 2026. The Empire State intends to sell over $9 billion new state muni bonds next year, and California will likely issue over $10 billion general obligation and appropriation bonds. State and local government capital needs, construction costs, federal funding, and weather-related events drive tax-free bond issuance forecasts.

Compare 30-Year taxable U.S. Treasury yield 4.69% to 30-Year tax-exempt Municipal Bond yield “AAA” 4.11%; “AA” 4.44%; “A” 4.68%. For investors in the 35% tax bracket, a 4.11% tax-exempt yield is equivalent to a 6.32% taxable yield. Top-rated long-term tax-free bonds yield 88% of comparable taxable U.S. Treasuries.