Municipal Bond News 3/16/26

A Bond Buyer’s Market…Biggest Yield Jump In A Year…Bond Rout Sends Yield Opportunity…Rate Cut Odds…March Reinvestments…New Jersey Budget Plan…New York City Rating Affirmed; Outlook Lower…Top Muni Bond Issuers…

A Bond Buyer’s Market…Amid a financial market selloff, new muni bond offerings are being priced to attract investors. For example, California sold $2.5 billion general obligation bonds at a 4.47% yield for 30-year bonds, or ten basis points higher than top-rated muni indices. Typically, California bonds price at yields sharply lower than top-rated muni indices due to high demand for tax shelter by wealthy Californians. Additionally, Chicago’s $512 million taxable general obligation bond sale attracted four times as many orders from investors. The taxable ‘BBB’/‘BBB+’-rated bonds offered a 6.3% yield for taxable bonds maturing in six years. Chicago CFO noted, “The strong investor interest ultimately enabled the city to lower bond yields.” Amid volatile market conditions, investors are finding lucrative yield pickings.

Biggest Yield Jump In A Year…Market yields have surged for two consecutive weeks. In March, muni bond yields have jumped 22 basis points, lower than a 30-basis point yield jump in comparable U.S. Treasury bonds. This is the biggest two-week increase in yields since last April. Earlier this year, bond yields reached their lowest levels of the year, and inflation expectations were ebbing. However, surging oil prices, a fallout of the war in Iran, have led to higher inflation expectations and volatile market conditions.

Bond Rout Sends Yield Opportunity…While the war in Iran has contributed to volatile market conditions, long term investors are building up muni bond portfolios at a time when tax-free yields are attractive. “It’s time for investors to start rebuilding their bond allocations, a JP Morgan strategist told CNBC Pro last week. We’ve been buying the bond market. We view it as a great diversifier and counterbalance to the equity market.” Another expert told Bond Buyer last week that investors should remain ‘poised’ to capture any opportunities that come. A GMS Municipal Bond Specialist can help investors navigate tax-free bond investments in the current market environment.

Rate Cut Odds… Bond markets assign 40% odds of a quarter point rate cut in December, the most likely outcome. Wall Street is pushing its rate cut calls to later in 2026. Goldman Sachs and TD Bank expect two rate cuts in 2026 beginning in September instead of June projected earlier. U.S. economic growth stalled in 2025, and inflation-adjusted consumer spending barely rose in January. The Fed is likely to hold rates steady when it meets this week.

March Reinvestments…In March, bondholders are poised to receive $27 billion in principal and interest repayments from state and local government bonds. New York issuers have the largest volume of bonds due for repayment this month. March redemptions are about 34% lower than prior month. Relatively fewer bond redemptions lead to seasonally lower reinvestment demand in the Spring months. However, a record $7.8 trillion of aggregate cash sitting in low-yielding money market accounts, ready to be invested.

New Jersey Budget Plan…Governor Mikie Sherill’s inaugural budget proposal controls spending, dips into reserves, contributes fully to pensions, and aims to lower property taxes. New Jersey aims to spend $60.7 billion in Fiscal 27, 1.6% higher than the current year, but the slowest pace of spending growth in nearly a decade. New revenues come from $750 million in new fees, scaling back tax deductions for corporations and improved compliance. Key spending highlights are $7.3 billion for the pension fund, $12.4 billion for K-12 education, $1.4 billion for preschool aid and $7.2 billion in state spending for Medicaid. The budget plans to fund $7.3 billion for the State’s pension system, marking the sixth consecutive full pension payment. NJ Transit is poised to receive $1 billion from the State, a 25% increase from prior year. New Jersey plans to dip into the state’s surplus, which will decrease from $7.3 billion in the current fiscal year to a projected $5.4 billion in Fiscal 2027.

New York City Rating Affirmed; Outlook Lower…Last week, Moody’s affirmed its ‘Aa2’ rating on New York City and lowered rating outlook to negative from stable. “The outlook change to negative reflects New York City’s updated spending projections, which give rise to larger multi-year budget gaps than previously forecast.” Although stronger-than-expected revenue and state support are positives, Moody’s will continue to monitor the city’s budget gap closing strategies. Separately, S&P stated, “From a credit perspective, we believe that the preliminary budget represents the beginning of a months-long budget-development process, and that proposals and budgetary changes will likely evolve as city-state budget negotiations continue through the completion of the New York State budget process.” NYC Comptroller said, “I am relieved to see that the city’s credit rating remains strong, and I have every confidence that our bonds remain safe and secure. With an economy — and tax revenues — that continue to grow, the City’s present financial position is still solid.”

Top Muni Bond Issuers…California issuers claim the top spot year-to-date primary market muni bond issuance. Issuers in the Golden State accounted for over $10 billion new muni bonds in February, followed by Texas at $9.3 billion. New York was third with nearly $7 billion primary market issuance. California, Texas and Florida issued fewer bonds in Feb relative to last year. However, New York issuers’ borrowing has increased.

Compare 30-Year taxable U.S. Treasury yield 4.86% to 30-Year tax-exempt Municipal Bond yield “AAA” 4.36%; “AA” 4.56%; “A” 4.79%. For investors in the 35% tax bracket, a 4.36% tax-exempt yield is equivalent to a 6.71% taxable yield. Top-rated long-term tax-free bonds yield 90% of comparable taxable U.S. Treasuries.