Municipal Bond News 4/20/26

Best Tax-Free Income Set-Up in Years…Why Long Munis Have An Edge…Muni Bonds Outperform…New Muni Bonds Oversubscribed…Rate Policy Expectations…Wall Street Sees Muni Pullback As Time To Buy…PREPA Court Hearing Update…Hospitals Brace For Insurance Woes…New York State Revenue Outperforms…

Best Tax-Free Income Set-Up in Years…Municipal bonds have quickly shifted from experiencing their worst month in two years to offering one of the strongest attractive entry points for tax-free income. After a sharp March selloff that rattled financial markets, state and local government bonds are rallying in April, while still offering favorable bond valuations and elevated tax-free yields. Although near term market volatility may persist, the current market backdrop encourages investors to secure elevated tax-free income at improved entry prices.

Why Long Munis Have An Edge…The real edge is in longer-dated munis for three key reasons. First, yields surged for five consecutive weeks before stabilizing last week; creating a more attractive point. Second, longer maturities offer about 200 basis points of additional yield than short-term bonds. Third, municipal bond yields now sit near 88% of comparable taxable Treasury bond yields, up from about 85% in January, signaling that the compensation for buying tax-free bonds has improved.

Muni Bonds Outperform…Tax-free bonds rallied last week, logging a faster pace of price gains compared to Treasury bonds. Muni bond yields dropped over twenty basis points in April, the sharpest drop in yields this year. Meanwhile, long term Treasury yields dropped seven to ten basis points across various maturities. Lower oil prices and progress in Middle East talks led bonds to rally, after five-straight weeks of losses. Additionally, April’s muni bond rally coincides with robust issuance in the primary market.

New Muni Bonds Oversubscribed…Last week, mega municipal bonds experienced strong demand from investors, leading to oversubscriptions and lower-than-expected yields. New York City sold $2.3 billion taxable bonds at a top yield of 5.7%, and two-fold oversubscription led to yield cuts of as much as 13 basis points. Also, oversubscribed, Austin International Airport’s $1.2 billion tax-free bonds rated Moody’s ‘A1’ S&P ‘A+’ maturing in ten years at a 3.6% yield.

Rate Policy Expectations...Bond markets anticipate roughly even odds of a rate cut this year. J.P. Morgan, Deutsche Bank and HSBC are among Wall Street banks that expect policy rates to stay unchanged in 2026. However, Goldman Sachs, Morgan Stanley and Bank of America still expect the Fed to cut rates, beginning in September. Heightened uncertainty on the conflict in the Middle East is limiting how clearly the Fed can signal its next move on interest rate policy.

Wall Street Sees Muni Pullback As Time To Buy…A growing market consensus suggests that the recent selloff has created a timely opportunity to add to muni bond portfolios. A bevy of money managers are increasingly stepping in to take advantage of higher yields and favorable bond prices, with the move seen as the early stages of broader investments into the tax-free asset class. With fundamentals holding steady, municipals are viewed as well-positioned at current levels.

PREPA Court Hearing Update…Bondholders have noted that the reporting from Puerto Rico’s electric utility suggests that it has substantial net revenues. Judge Swain indicated that the parties should concentrate on limited discovery to determine the net revenues of the bondholders, as well as the types of income and expenses incurred by PREPA. Additionally, Judge Swain mentioned that she would consider the bondholders’ request to lift the stay on their right to appoint a receiver for the electric utility.

Hospitals Brace For Insurance Woes…Fewer Americans are likely to have health insurance coverage in 2026 and the coming years. At the same time, Medicaid eligibility is becoming more restrictive at a time when demand for Medicaid is higher. Further, the One Big Beautiful Bill Act cut federal Medicaid funding to U.S. states. As a result, patient volumes could decline, and reimbursement rates from a lower payor mix could stress hospital revenue outlook. These effects will likely be gradual and varied, having a greater effect on hospitals located in certain states or with higher exposure to uninsured populations.

New York State Revenue Outperforms…New York State’s tax collections for Fiscal 2026 are $2.3 billion more than anticipated and nearly $10 billion higher than the previous year. This outperformance is driven by strong Wall Street profits and the vast economy of the Empire State. Currently, New York is negotiating a budget for Fiscal 2027, which began on April 1. This increase in revenue provides a boost for New York City, which is facing a $5.4 billion budget gap.

Compare 30-Year taxable U.S. Treasury yield 4.88% to 30-Year tax-exempt Municipal Bond yield “AAA” 4.34%; “AA” 4.44%; “A” 4.70%. For investors in the 35% tax bracket, a 4.34% tax-exempt yield is equivalent to a 6.68% taxable yield. Top-rated long-term tax-free bonds yield 89% of comparable taxable U.S. Treasuries.