Municipal Bond News 3/9/26

Treasury Rout Sends Muni Yields to 2026 High…Strong Orders For High Yield Muni Bonds…New Muni Bonds…Upbeat Puerto Rico Economy Credit Positive…Rate Cut Odds…Central Bankers Weigh Stagflation…Bond Insurance Shields Investors; Uninsured Brightline Bonds Downgraded…Court Favors MTA Congestion Toll…

Treasury Rout Sends Muni Yields to 2026 High…Municipal bond yields rose by 12 basis points last week, reaching their highest level since October 2025. Meanwhile, U.S. Treasury yields increased by approximately 20 basis points, marking the largest weekly surge since April. The 10-year Treasury yield climbed to around 4.13%, the highest since February 12. Mounting costs related to the war in Iran and elevated oil prices have contributed to the worst four-day performance of Treasury bonds since last summer. This decline in Treasury prices has also led to a decrease in municipal bond prices. The sell-off has prompted long-term investors to seek opportunities in the municipal bond market.

Strong Orders For High Yield Muni Bonds…Demand for high yield munis has increased this year, while issuance is relatively low. About $2.5 billion high yield tax-free bonds have been issued this year, about 3% of this year’s aggregate primary market muni bond issuance. For example, a New York City charter school high yield bond issue received ten-fold orders, highlighting demand for this niche of the muni bond market. Investing in tax-free high-yield bonds requires thorough credit selection and research. A GMS Municipal Bond Specialist is well-equipped to provide the in-depth credit analysis necessary for successful investments in this area.

New Muni Bonds…Houston Convention Center sold $1 billion bonds insured by Assured Guaranty at top yield of 4.64%. MTA sold $— high grade payroll tax secured bonds at a top yield of around 4.6%. BJC Health system in Missouri sold 10-year high grade bonds and Naples Comprehensive Health sold Assured Guaranty insured bonds. About $10 billion muni bonds sold last week.

Upbeat Puerto Rico Economy Credit Positive…Puerto Rico’s economy is upbeat, credit positive for the Island’s COFINA bonds, Contingent Value Instruments, and general obligation bonds. Construction, tourism and retail sectors have grown steadily in recent years. Employment levels are at a 15-year high. Tourism has trended higher with five consecutive years of record airport arrivals, and cruise ship passengers increased 13% in 2025 from a year ago. Last year, Amgen and Eli Lilly announced an aggregate $1.8 billion for expansions of pharma manufacturing facilities. Notably, the government has added 1,200 megawatts of new electric generation capacity last year, to prevent power outages, and the U.S. Dept of Energy has announced $365 million funding support for the electric grid. Additionally, close to $44 billion of federal funding from FEMA and HUD allocated to the Island and is pending distribution, a tailwind for the Island’s economy.

Central Bankers Weigh Stagflation…The Fed’s response to the US-Israel war with Iran will depend on how long the impact on the US economy lasts. Richmond Fed president Tom Barkin said he expects “a couple months of relatively high inflation,” which “certainly puts pause to any conclusion that we’re done fighting this. Meanwhile, Chicago Fed president Austan Goolsbee and San Francisco Fed president Mary Daly shared concerns about weaker-than-anticipated labor market conditions. Goolsbee noted “If the job market is getting worse and inflation is getting worse at the same time, it’s not obvious to me what the immediate response should be.”

Rate Cut Odds…Bond markets lowered expectations for two rate cuts in 2026. Currently, bond markets anticipate about 35 basis points of rate cuts by year-end, sharply lower than 60 basis points at the end of last week. There are roughly even odds of one rate cut in July. A war-fueled spike in oil prices could aggravate inflation making it harder for policymakers to reduce borrowing costs this year. Most sensitive to rate policy expectations, yields on the 2-year U.S. Treasury bond rose last week to the highest this year.

Bond Insurance Shields Investors: Uninsured Brightline Bonds Downgraded…Brightline Florida’s Assured Guaranty insured bonds continue to carry a ‘AA’ insured rating and stable outlook. Last week, S&P downgraded the unenhanced, or underlying rate on the bonds to ‘CCC-’ from ‘CCC’ with a negative outlook. Liquidity pressures due to weaker-than-expected operations in December and January led to the downgrade. S&P believes that the borrower is likely to undertake a debt restructuring or distressed exchange in the next six months. Trading prices of insured Brightline bonds are significantly higher than those of uninsured Brightline bonds. The Assured Guaranty insured Brightline bonds last traded between 99.125 and 101.5.

Court Favors MTA Congestion Toll…A federal judge ruled last week to approve MTA congestion tolls in Manhattan. The nation’s one-and-only congestion toll came under litigation as soon as it was implemented in January 2025. The U.S. Department of Transportation attempted to halt the $9 toll last year. However, NYS and MTA arguments supporting the nation’s first-of-its-kind toll prevailed upon the court. The new toll has exceeded expectations in its first year and raised $568 million, that will secure muni bonds for the MTA’s capital program. MTA CEO stated, “Congestion pricing is legal. It’s here to stay.”

Compare 30-Year taxable U.S. Treasury yield 4.78% to 30-Year tax-exempt Municipal Bond yield “AAA” 4.24%; “AA” 4.51%; “A” 4.73%. For investors in the 35% tax bracket, a 4.24% tax-exempt yield is equivalent to a 6.52% taxable yield. Top-rated long-term tax-free bonds yield 89% of comparable taxable U.S. Treasuries. If you have any questions or desire updated information, contact your GMS Account Executive