Municipal Bond News 12/22/25

Top Muni Bond Picks…Current Primary Muni Market…Rate Cut Odds…Hospital Sector Outlook…Brightline Bond Update…Chicago Approves Rival Budget Plan…Public Pension Funding Improves…Race For Fed Chief

Top Muni Bond Picks…A diverse selection of municipal housing bonds across the credit spectrum continues to be a popular choice for tax-free investments. High-grade muni bonds issued by state or local housing agencies are in strong demand. Such tax-free bonds tend to finance home loans for first-time buyers and are frequently guaranteed by federal entities such as Freddie Mac. Municipal Utility Districts in high-growth states like Texas remain attractive tax-free investments. In addition, affordable housing muni bonds offer higher yields. Beyond states and cities, a wide array of over 50,000 issuers, including housing development agencies, infrastructure providers, and essential utilities, issue tax-free muni bonds. Infrastructure-related muni bonds, which finance airports and toll roads, are highly sought in a robust economy. Utility bonds, backed by monopolistic providers with rate-setting authority, serve as core holdings for tax-free portfolios. Puerto Rico’s triple-tax-exempt COFINA bonds are a top holding for many large institutions. Partner with a GMS Municipal Bond Specialist to create a customized, tax-free portfolio of individual muni bonds designed to meet your long-term objectives and deliver dependable, tax-free income.

Current Primary Market…Over $6 billion in new muni bonds were issued last week. The largest bond offering, $2 billion New York City Transitional Finance Authority bond issue was oversubscribed two times. Strong demand led to lower than anticipated yield. Additionally, Ohio State University refunded taxable Build America bonds with tax-free bonds maturing in ten years, and Chicago O’Hare airport sold $560 million tax- free bonds.

Rate Cut Odds…Bond markets assign fewer than one-in-four odds of a January rate cut. Wall Street broadly expects two quarter point rate cuts in 2026, one more than the Fed has projected. Current inflation is the lowest since 2021. Policy-sensitive short-term U.S. Treasury yields fell to the lowest since October.

Hospital Sector Outlook…Higher patient volumes, and a shift towards outpatient and high-revenue specialties are expected to support hospital revenue in 2026. Hospitals have experienced a slow and steady margin improvement since hitting lows in 2022. The sector is expected to mostly absorb the rise in the number of uninsured individuals as Affordable Care Act premium tax subsidies are set to largely expire on December 31, unless Congress intervenes. In 2026, hospitals face reduced Medicaid reimbursements. Bond-financed capital spending will likely increase in 2026. S&P’s outlook on the Hospital sector is ‘resilient for now, with increased credit risks on the horizon.’ Fitch has assigned a ‘neutral’ outlook to the Hospital sector, while Moody’s has a ‘stable’ outlook.

Brightline Bond Update…Assured Guaranty insured Brightline Florida bonds are currently trading between 98 cents and par, while uninsured bond prices have dropped to about 72 cents. The nation’s first private railroad faces litigation, operational losses, and lower-than-expected ridership. It is seeking potential equity and debt financing to help pay for operations and potential legal claims. Any new debt would require bondholder consent. Brightline said it could engage in talks with bondholders regarding tender and exchange offers, open market purchases and privately negotiated transactions, subject to factors such as prevailing market conditions, liquidity requirements and contractual requirements. Last week, S&P downgraded the underlying and unenhanced credit rating of $2.2 billion senior secured bonds to ‘CCC’. About $1.1 billion of those bonds are insured with an ‘AA’ rating, based on Assured Guaranty’s credit rating.

Chicago Approves Rival Budget Plan…City Council approved a $16.6 billion budget yesterday with a 30-18 vote. This budget is a counterproposal to Mayor Johnson’s spending plan. The budget bridges Chicago’s $1.2 billion budget gap without hiking taxes on large corporations is headed for a final City Council vote. It raises taxes on cloud computing, liquor, rideshares, plastic bags, video games instead of a corporate ‘head-tax’ on large corporations. The budget also calls for a higher supplemental pension payment than the mayor’s proposal. Mayor Johnson has questioned if the budget will muster adequate revenue for a balanced city budget. Now, the Mayor has five days to veto the budget. Lawmakers must approve a city budget by December 31 to avoid a city government shutdown.

Public Pension Funding Improves…Public pension plans funded stated has improved. Majority of governments have saved about 78% of every dollar needed to cover pension benefits, a 3% increase from prior year. Public pensions’ unfunded liabilities amount to $1.4 trillion. State pension plans carry the majority of the unfunded pension burden, holding $1.29 trillion in unfunded liabilities, while local governments carry a much lower $187 billion unfunded liability burden. While strong investment returns led to an improved funded status, pension plans remain vulnerable to recessions and market downturns.

Race For Fed Chief…Kevin Hassett, Kevin Warsh and Christopher Waller have emerged as candidates for the Fed Chair appointment. While some betting markets predict near even odds for Hassett’s appointment, others wager that this decision will not be made this year. Currently, Warsh, a former Fed governor, and Waller, a current Fed governor both have fewer odds of scoring the top Fed job.

Compare 30-Year taxable U.S. Treasury yield 4.83% to 30-Year tax-exempt Municipal Bond yield “AAA” 4.18%; “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 87% of comparable taxable U.S. Treasuries.