Municipal Bond News 2/17/26

Demand For Muni Bonds Seems Insatiable…Muni Bonds Rally…Transit Bonds Oversubscribed…New Muni Bonds…Rate Cut Odds… ‘Millionaire Tax’ Gains Traction…Uneven Hospital Margins…Super Bowl LX Sets Record…

Demand For Muni Bonds Seems Insatiable…Demand for muni bonds is the highest in three years. “For all the news about state budgets and immigration enforcement, people are just hoovering up all the municipal bonds they can find,” an expert told WSJ last week. WSJ further noted, “Fifteen years of anemic supply following the 2008-09 financial crisis had left bondholders starved for new muni debt, a favorite of wealthy American households because it pays out interest exempt from federal income taxes.” Individuals are snapping up muni bonds at double the pace of last years’ tax-free investments.

Muni Bonds Rally…In the busiest week in the primary market so far this year, state and local government bond yields declined by 2 basis points. 30-year U.S. Treasury bond yields dropped 19 basis points to 4.67%. Bellwether 10-year U.S. Treasury bonds fell 11 basis points to 4.04%, the lowest this year. The bond rally follows easing price pressures. Additionally, the state and local government bond rally echoes strong demand for tax-free bonds.

Transit Bonds Oversubscribed…Chicago Transit Authority’s new bond issue was nearly three-fold oversubscribed. The $450 million tax-free bond offering drew $1.2 billion in investor orders, highlighting strong demand for muni bonds. These sales tax secured bonds were upgraded in December to ‘Aa3’ from ‘A1’ by Moody’s after Illinois legislation boosted transit funding. Post-pandemic boosted state and local government support for the transit sector, an engine for regional economies, has made investors and rating agencies upbeat on this muni bond sector.

New Muni Bonds…Over $13 billion in new muni bonds were sold last week. The largest muni bond transactions included state general obligation and hospital bonds. State of Washington ‘Aaa’-rated bonds offered a top tax-free yield of 4.36% and attracted solid demand. District of Columbia sold $900 million tax-free bonds with a top yield of 3.34% for 15-year bonds. Houston Methodist Hospital sold $1.25 billion high-grade ten-year bonds yielding 3.09%. Additionally, Tufts Medicine sold ‘BBB-‘rated 6% tax-free coupon bonds with a 5.3% yield and nine-year taxable bonds with a 7.3% yield.

Rate Cut Odds…. Bond markets anticipate 63 basis points of rate cuts this year. Odds of three rate cuts have risen to 50%, although the Fed has penciled two quarter-point rate cuts this year. Inflation fell to 2.4% in January. However, the job market is stronger than expected as January payrolls sharply outpaced consensus forecasts. Currently, bond markets are weighing the possibility of June rate cut.

‘Millionaire Tax’ Gains Traction…Five U.S. states, CA, CT, ME, NJ and NY, levy a ‘millionaire tax’, and several are looking to join. In California, high earners pay a base tax rate of 9.3%, plus a 1% surcharge on incomes exceeding $1 million. Lawmakers want a one-time 5% wealth tax on Golden State billionaires to offset the cost of federal healthcare cuts. State of Washington is weighing a 9.9% surtax on top earners. New York State taxes million-dollar-plus incomes at 8.82% rate, and the new NYC Mayor is advocating for a 2% city tax hike. Demand for muni bonds has grown as High Net Worths want to shield income from higher taxes.

Uneven Hospital Margins…Profitability in the essential-service hospital sector varies significantly. Some hospital systems post double digit margins while others break-even or generate losses. About 4.2 million Americans are likely to lose health insurance because Affordable Care Act tax credit subsidies expired on December 31, 2025. Additionally, many hospitals serving low-income populations will no longer receive drug discounts at point of purchase, and will need to apply for rebates instead, leading to administrative and cash flow challenges. An index of Hospital bonds has gained 4% over the last year.

Super Bowl LX Sets Record…Super Bowl LX brought record betting volumes. Americans placed 1.7 billion in sports wagers across state-regulated sportsbooks. New Jersey’s take from Super Bowl LX wagers is estimated to be $150 million, while New York State is expected to rake in $128 million in state tax revenue. Interestingly, the value of super bowl bets places in Nevada was the lowest in a decade. New York taxes online sports bets at 51%, the highest rate among U.S. states.

Compare 30-Year taxable U.S. Treasury yield 4.67% to 30-Year tax-exempt Municipal Bond yield “AAA” 4.19%; “AA” 4.45%; “A” 4.69%. For investors in the 35% tax bracket, a 4.22% tax-exempt yield is equivalent to a 6.5% taxable yield. Top-rated long-term tax-free bonds yield 90% of comparable taxable U.S. Treasuries.