Municipal Bond News 3/23/26

Long Term Investors Look For Entry Point…Bellwether Yields Climb Higher…New Muni Bonds Oversubscribed…Markets Reassess Rate Expectations…Powell Highlights Uncertainty…MTA Ridership Boosted…Judge Swain Rejects Bondholders’ Administrative Expense Claim…Judge Swain Calls For PREPA Debt Consensus…Race For Illinois Governor…

Long Term Investors Look For Entry Point…Sophisticated investors are currently debating whether the recent volatility in the bond market has been overdone and if it’s time to consider buying municipal bonds. “These are great opportunities for us to monitor, be opportunistic, and add selectively because there will be a time this year when things reverse,” an expert told Bloomberg last week. The current market conditions could lead to ‘priced-to-sell’ municipal bond offerings in the primary market. While volatile market conditions may seem overwhelming in the moment, as one strategist pointed out in The Bond Buyer, “when you look back over a two-year period, we’ve experienced similar situations multiple times before, so you just have to hang in there.” Amid volatile markets, the current bond rout presents a silver lining for investors seeking opportunities to build tax-free income.

Bellwether Yields Climb Higher…Muni bond index yield rose about 7 basis points last week, as U.S. Treasury bond yields climbed higher for the third straight week. Yields on U.S. Treasury bonds climbed 7 to 15 basis points last week. The 10-year U.S. Treasury yield rose to 4.39%, the highest since August. Meanwhile, 30-year U.S. Treasury yields approached 4.93% on Friday after oil prices surged amid the raging U.S.-Iran war. Earlier this year, muni bonds were priced higher, and inflation fell to a five-year low in January and February. However, a 70% surge in oil prices in March has renewed inflationary pressures.

New Muni Bonds Oversubscribed…Dormitory Authority of State of New York’s (‘DASNY’) $2.1 billion bonds in mid-March received over three-times oversubscription. As a result of the strong retail and institutional demand and resulting oversubscriptions, DASNY elected to upsize the transaction, which offered a top tax-free yield of 4.68%. Additionally, a California charter school, Milken Community School Project saw fifteen times oversubscription for its ‘BBB+’-rated muni bonds sold recently. This year, investors have poured over $24 billion of cash into muni bond funds, surpassing last years’ demand levels.

Markets Reassess Rate Expectations…Bond markets have rapidly lowered the odds of a rate cut this year and are debating the prospect of a rate hike. Currently, there is a small 4% chance of a rate hike in April, and 60% probability of a 15-basis point rate hike in October. Just a week ago, there was a baseline expectation of at least one rate cut in 2026. Bond markets are shifting odds on future interest rate policy, after oil prices shot up for the fifth consecutive week.

Powell Highlights Uncertainty…Fed officials voted 11-1 to hold policy rates steady last week. Central bankers expect the U.S. economy to grow 2% this year and forecast inflation to be 2.7% and unemployment to be 4.4% at the end of this year. The majority of Fed officials currently expect to cut rates once this year. However, seven Fed officials projected no rate cuts this year, while five expected two or more. Powell noted that these forecasts are subject to uncertainty. Fed Chair Powell highlighted, “The implications of developments in the Middle East on the U.S. economy are highly uncertain.”

MTA Ridership Boosted…Congestion tolls have boosted MTA ridership. In 2025, 1.28 billion commuters rode the New York subway. That’s 7.7% higher than a year earlier, after 3.7% higher ridership in 2024. Despite the uptrend, total ridership remains at about 75% of pre-pandemic levels. Weekend rides outpaced weekday commutes. Alongside, 11% fewer vehicles entered midtown Manhattan. Farebox revenue which secures $17 billion outstanding muni bonds grew to $2.97 billion in 2025, up from $2.82 billion the year before.

Judge Swain Rejects Bondholders’ Administrative Expense Claim…Judge Swain ruled to deny bondholders’ claim to $3.7 billion administrative expenses. The bondholders argued that PREPA had utilized net revenue pledged as collateral for the bonds since filing for bankruptcy in 2017 and thus believed they were entitled to an administrative expense claim of $3.7 billion. With the Federal Court’s rejection of this administrative expense claim, approximately $8.5 billion in outstanding bonds and unpaid interest, due as of PREPA’s bankruptcy filing in July 2017, remains in dispute. At last week’s hearing, Judge Swain said she expected bondholders to appeal her ruling on the administrative expense claim.

Judge Swain Calls For PREPA Debt Consensus…At last week’s court hearing, Puerto Rico electric utility bondholders told Judge Swain that they want a consensual resolution with a decent recovery and also urged her to consider lifting a stay on the appointment of a receiver by bondholders. In turn, Swain asked bondholders to jointly propose a path and schedule to move the case forward towards a consensus. At the hearing, Judge Swain also questioned the oversight board if they had considered a ‘contingent value instrument’ as part of bondholders’ recovery. The board wants the Title III court to focus on determining the size of bondholders’ claim and seeks to continue mediation.

Race For Illinois Governor…Governor Pritzker’s bid for a third term will be challenged by Republican candidate Darren Bailey in the November elections. Bailey won last week’s Republican primary election with a 53.5% majority vote. Bailey, a former Illinois state representative, state senator and farmer, lost to billionaire incumbent Pritzker in the 2022 general election by 13 points.

Compare 30-Year taxable U.S. Treasury yield 4.93% to 30-Year tax-exempt Municipal Bond yield “AAA” 4.44%; “AA” 4.63%; “A” 4.79%. For investors in the 35% tax bracket, a 4.44% tax-exempt yield is equivalent to a 6.83% taxable yield. Top-rated long-term tax-free bonds yield 90% of comparable taxable U.S. Treasuries.