Municipal Bond News 4/14/25

Muni Bond Yields On Roller Coaster…Muni Bond Prices A Bargain…Wall Street Eyes Higher Muni Yields…Muni Trading Soars…Bellwether Yields Hit 5-Year High…Muni Bond Sales…Lawmakers Favor Millionaire’s Tax…Higher SALT Deduction Sought…

Muni Bond Yields On Roller Coaster…The most volatile week for financial markets since the pandemic brought sharp yield movements for state and local government bonds. Muni bond yields rose 87 basis points early last week, the biggest three-day decline since March 2020. After this massive sell-off, the muni yields fell up to 54 basis points on Thursday, bringing the best daily performance since the pandemic. However, the reprieve was followed by a 29 basis point yield surge on Friday. Top-rated muni index yields ranged from 4% to 4.87% last week, hitting the highest in over a decade. Steep tax-free yield changes mirrored similar shifts in comparable U.S Treasury bonds.

Muni Bond Prices A Bargain…The 30-year Muni-Treasury ratio, a gauge of relative value, hit 102% last week, suggesting the best relative value in muni bonds since 2022. Long-term top-rated muni bonds offer near 8% taxable equivalent yield for top earners in high tax U.S. states, over 300 basis points more than U.S. Treasury bonds. Muni yield levels relative to Treasury yields haven’t been as high, except in times of crisis, including Covid-19 and the 2008 financial crisis, an institutional investor told WSJ recently that there are munis “that we still own that we purchased in those times at such great prices and yields.” Consulting a Municipal Bond Specialist can help investors make informed investment decisions during a market dislocation.

Wall Street Eye Higher Muni Yields…“Inevitably in this chaos, there will be opportunity,” stated an expert at BlackRock added that muni bonds are trading at “super” attractive levels. Barclays strategists said, “Investors should continue adding, albeit slowly.”. JPMorgan Chase strategists echoed, “It is clear that the continued market dislocation offers opportunity for investors with capital to put to work to purchase tax-exempts at adjusted levels.” Headline-driven outflows from muni bond funds added to selling pressures. A major institutional investor, Nuveen said it expects the current demand dislocations to resolve themselves as we approach the seasonal strength of summer” adding that muni bonds’ “credit quality remains strong, and the increase in yields could represent attractive value.” Amidst these volatile market conditions, experienced investors are underscoring the potential investment opportunities in tax-free bonds.

Muni Trading Soars…Banks and insurance companies have been big buyers of muni bonds over the past few days. Demand from cross-over buyers, indifferent to U.S. taxation, is poised to soar. Trading in muni bonds has surged to the highest level this year. Roughly $33 billion of muni bonds changed hands on Wednesday, the most since March 2020. Daily trading volume recorded the busiest day since 1995. Faced with uncertainty, some investors are selling, while others are taking the opportunity to lock in attractive tax-free yields. Amid a historic bond rout, investors began hunting for bargains in the $4 trillion muni bond market.

Bellwether Yields Hit 5-Year High…10-year U.S. Treasury yields hit 4.6%, up 30 basis points from a week ago. 30-year U.S. Treasury yields crossed 5% last week, before pulling back as the sell-off eased. Uncertainty on U.S. tariffs has sparked highly volatile market conditions. Last Tuesday saw the largest one-day spike in bond yields. The rout in U.S. Treasury bonds was set- off by the U.S. trade war, which has unsettled global markets. Last week’s five-day sell-off in U.S. Treasuries is the biggest jump in decades.

Muni Bond Sales…New York City sold $1.5 billion general obligation bonds at a top yield of 3.81%, 55 basis points higher than top-rated benchmarks. “Given the city’s large capital needs, we price our deals in both good markets as well as less favorable markets,” said New York City mayor’s office. “Today’s sale represented continued demand for city bonds, with yield adjustments in line with movement in the broader municipal bond market.” However, volatile market conditions led several bond issuers such as Bon Secours Mercy Health, State of Louisiana and Duval County Public Schools to postpone planned bond offerings.

Lawmakers Favor Millionaire’s Tax…House Freedom Caucus chairman, Andy Harris (R), said he is amenable to a 40% top tax rate to pay for extending the tax cuts, which he termed a “reasonable way forward.” Senator Thom Tillis (R) also said he would consider letting the top rate revert to 39.6%, the highest bracket before the 2017 Tax Cuts and Jobs Act cut the top income tax rate to 37%. “You’re only raising it a couple of points,” Harris said. Sen. Lindsey Graham, a South Carolina Republican, first promoted the idea. President Donald Trump indicated he was open to the idea but has not fully committed. Although not all Republicans are on board with hiking taxes on the wealthy, lawmakers seek ways to offset new tax cuts.

Higher SALT Deduction Sought…Lawmakers are drafting a tax bill that could raise state and local tax deduction to as high as $25,000. The plan, which is still being drafted, also includes a renewal of 2017 tax cuts. “$30,000 is fine for me,” a New Jersey Representative said last week, referring to the SALT cap for individuals. “That’s where I think it ends up, by the way.” To offset the increase in the SALT cap, lawmakers are considering reducing the deductions corporations can claim on the state and local taxes they pay. Lawmakers are aiming to pass the legislation by August. Senate Finance Chairman Mike Crap said that “until the bill is drafted, everything is on the table and nothing’s on the table.”

Compare 30-Year taxable U.S. Treasury yield 4.85% to 30-Year tax-exempt Municipal Bond yield “AAA” 4.41%; “AA” 4.94%; “A” 5.11%. For investors in the 35% tax bracket, a 4.4% tax-exempt yield is equivalent to a 6.7% taxable yield. Top-rated long-term tax-free bonds yield 91% of comparable taxable U.S. Treasuries.