Municipal Bond News 2/23/26

A Safe Haven With High Yields…Investment-Grade Ratings Dominate Muni Bond Sector…Airport Bonds Centerstage…Big Apple Top Earners Stare Down 50%+ Tax Rate…A Slower Growing Economy…Central Bankers Divided…Illinois Spending To Moderate…Garden State Tops Property Tax…

A Safe Haven With High Yields…The value of a ‘low-risk-high reward’ investment, currently offered by muni bonds is fueling investor demand. Top-rated long-term state and local government bonds offer over 7% taxable equivalent yield for top earners. That’s similar to the yield offered by riskier high yield corporates. However, these two fixed income asset classes are poles apart when it comes to credit quality. Investment-grade rated muni bonds’ default rate is a miniscule 0.09% over a ten-year horizon, sharply lower than the close to 30% default rate for speculative- grade corporate bonds per a Moody’s study spanning 54-year data. State and local government bonds are comparable in credit quality to United States Treasuries.

Investment-Grade Ratings Dominate Muni Bond Sector…Muni bond ratings are predominantly investment grade. The U.S. state sector boasts the largest volume of investment grade-rated bonds, followed by housing and local government sectors. About 10% of Moody’s-rated hospitals fall into the speculative grade category. Over half of Moody’s-rated charter school bonds are speculative-grade rated. Currently, the higher education and healthcare sectors hold the highest proportion of negative outlooks. A GMS Municipal Bond Specialist can guide investors in finding value across various sectors within the $4.3 trillion muni bond market.

Airport Bonds Centerstage…Airport bonds are front-and-center on the primary market radar. Last week, Chicago O’Hare airport sold $612 million ‘A+’-rated bonds at a 4.7% tax-free yield for 35-year bonds. In Lee County Florida, Southwest Florida International Airport is currently offering tax-free bonds. Last month, Nashville International Airport’s $1.3 billion high-grade bond issuance saw strong investor demand. Airports serve as essential, monopoly-like service providers, especially large hub airports that account for the majority of enplanements. Moreover, travel trends correlate with the economy. In 2025, U.S. airports issued $24 billion new bonds, a 12% increase from prior year.

Big Apple Top Earners Stare Down 50%+ Tax Rate…Last week, Mayor Mamdani proposed a $127 billion budget for Fiscal 27, New York City’s highest spending plan. The plan contains two alternate proposals for tax hikes. The first option seeks to raise tax on the Big Apple’s wealthiest and large corporations. The second option, termed a ‘last resort’ by the Mayor, includes a 9.5% property tax hike and dipping into reserves. As a result, the combined state-and-city marginal individual tax rate for those earning more than $1 million could rise to 15.5%, or more than 50% income tax rate including the top federal income tax rate.

A Slower Growing Economy…The U.S. economy grew at a 2.2% rate in 2025, slowing from the 2.8% growth rate logged in 2024. Particularly, economic growth in the fourth quarter stalled to 1.4% from 4.4% in the prior quarter. The 43-day government shutdown in October-November took away 1% from GDP growth per the Bureau of Economic Analysis. In 2025, the U.S. economy was on a bumpy road, as GDP shrank in the first quarter, only to bounce back later in the year. Most economists expect a 2.6% economic growth rate in 2026.

Central Bankers Divided…Several Fed officials remained open to more rate cuts if inflation declined, while others put rate hikes on the table, minutes of the January 30 Fed reveal. Yet another group argued that rates should be held steady until disinflation becomes consistent again. The vast majority of Fed officials judged that the risk of more persistent inflation remains, although the labor market got stronger in January.

Illinois Spending To Moderate…Governor Pritzker has proposed a $56 billion Illinois budget. In Fiscal 27, Illinois spending is slated to grow 1.4%, marking the smallest increase in recent years. New revenue, $589 million, includes a new tax on large social media companies, while largely avoiding broad-based tax hikes. Illinois current year revenue is expected to be about $70 million lower than expected, and the budget anticipates stable economic conditions for the upcoming fiscal year. The budget maintains state aid to K-12 public schools. About 19% of spending will be on pensions and another 6% is for debt service. Illinois rainy day funds are likely to grow $176 million to $2.5 billion.

Garden State Tops Property Tax…The average American pays $3,119 in property taxes. New Jersey ranks as the most expensive when it comes to property taxes, with an effective rate of 2.11 percent translating into $9,590 in annual payments on a Garden State median home value of $454,400. New Jersey is followed by Illinois at 2.01 percent, with Connecticut (1.81), rounding out the top three highest property tax rate states. On a brighter note, the state with the lowest effective property tax rate is Hawaii.

Compare 30-Year taxable U.S. Treasury yield 4.69% to 30-Year tax-exempt Municipal Bond yield “AAA” 4.14%; “AA” 4.39%; “A” 4.69%. For investors in the 35% tax bracket, a 4.14% tax-exempt yield is equivalent to a 6.37% taxable yield. Top-rated long-term tax-free bonds yield 88% of comparable taxable U.S. Treasuries.