Municipal Bond News 12/15/25

Attractive Muni Bond Yields Lure Investors…Solid Demand For New Muni Bonds…Investors Warm Up to Bonds…Longer-Dated Bonds’ Yield Advantage…A Divided Fed Cuts Rates…Charter Schools Defy Trend…Online Betting Wins…Largest Muni Bond Issuers…

Attractive Muni Bond Yields Lure Investors…State and local government bonds are currently at near 15-year highs, presenting an appealing entry point for investors. Over the past month, municipal bonds have remained relatively stable, although they have underperformed compared to a rally in Treasury bonds. Many sophisticated investors see this underperformance as a buying opportunity. Top-rated long-term muni bonds now offer around 4.15% in tax-free yields, which is equivalent to over 8% taxable yield for top earners in high-tax states and cities.

Solid Demand For New Muni Bonds…A diverse range of new tax-free bond issuances in the primary market is experiencing robust investor demand. A recent $2.2 billion bond issue from the University of California was upsized and sold at lower-than-expected yields. Additionally, a general obligation bond issue from the City of Oakland, CA, received orders that were twice the amount offered. San Francisco International Airport bonds have also increased in price and are currently yielding about 30 basis points less than their early December issue date. Furthermore, bonds from John Glenn Columbus International Airport attracted over three times the amount of orders for its $1.2 billion bond issuance last month.

Investors Warm Up to Bonds…Investors are optimistic that there will be more rate cuts in 2026 than what central bankers projected last week. The Federal Reserve has begun purchasing Treasury bills, which could help lower bond yields. Despite mixed signals in the market, Fed Chair Jerome Powell noted that the jobs market faces “significant downside risks.” With a new Fed chair taking office in May and existing divisions within the Federal Reserve regarding rate policy, predicting interest rates for 2026 has become more challenging. This uncertainty could result in volatile market conditions from time to time. Currently, bond markets estimate nearly a 50% chance of another rate cut before March.

Longer-Dated Bonds’ Yield Advantage…The yield gap between longer- dated and shorter-maturity state and local government bonds is near its highest point this year. Currently, 30-year municipal bonds yield about 142 basis points more than municipal bonds maturing in ten years. At the beginning of the year, this yield gap was approximately 70 basis points. Despite three cuts to the federal funds policy rate, longer-dated bond yields have increased. When asked about the cause of the steep yield gap, Fed Chair Powell explained that while inflation is “at very comfortable levels” investor expectations of higher growth are likely reflected in the rising yields of long-term bonds.

A Divided Fed Cuts Rates…The Federal Reserve has implemented a 25-basis point cut in policy rates last week, marking the third rate cut of 2025. At this meeting, three Fed officials disagreed with the majority decision, an increase from the two dissenting votes recorded at the October meeting. This represents the highest number of dissenting votes since 2019. Additionally, the central bankers have differing outlooks on 2026 rate cuts. The Fed predicts only one rate cut in 2026; however, eight officials anticipate lower rates, while seven expect higher rates, indicating an unusually wide range of potential policy outcomes. This month, the Fed will begin ‘Quantitative Easing’ by purchasing Treasury bills, a practice last employed from 2020 to 2022 in response to the COVID-19 pandemic. Final round interviews for a new Fed Chair started last week.

Charter Schools Defy Trend…Four out of five charter schools saw enrollment grow in the current academic year despite a shrinking student population. While traditional K-12 public schools face enrollment losses, many charter schools have waitlists, indicating strong demand and growth prospects. Charter schools’ market share has gained the most in Texas and Florida, which are amid a population boom. Most charter schools rated by Moody’s have a ‘Baa3’ investment grade rating, while approximately half are categorized as speculative grade. A GMS Municipal Bond Specialist can help investors select strong bonds in this niche tax-free bond sector.

Online Betting Wins…Digital casino bets are outpacing both online sports wagers and traditional casino-based gambling. In the past year, seven states with legal online casinos collected a total of $2.1 billion through gambling apps. In contrast, online sportsbooks generated approximately $2.9 billion in tax revenue across 30 states where they are legal. With hopes of attracting tourists and boosting economic development, New York City plans to open three new casinos. However, casinos in major U.S. cities such as Chicago, Boston, and Philadelphia have not performed as well as expected. Online wagering has positioned New York, New Jersey, and Pennsylvania as leaders in the betting industry.

Largest Muni Bond Issuers…The higher education sector has issued the largest volume of municipal bonds this year, with the University of California leading the way. Among U.S. states, Texas ranks first in municipal bond issuance. Notable issuances this year include $3.5 billion in bonds from Ascension Health, which were issued last month, as well as $3.5 billion in bonds for a public-private partnership toll road project in Georgia. About $600 billion new muni bonds are likely to be issued in 2026, about 20% higher than last year.

Compare 30-Year taxable U.S. Treasury yield 4.86% to 30-Year tax-exempt Municipal Bond yield “AAA” 4.16%; “AA” 4.49%; “A” 4.65%. For investors in the 35% tax bracket, a 4.16% tax-exempt yield is equivalent to a 6.4% taxable yield. Top-rated long-term tax-free bonds yield 86% of comparable taxable U.S. Treasuries.