Municipal Bond News 4/27/26

April Rally Highlights Muni Resilience…New Muni Bonds…Markets Bet on Rate Hold; Fed Reform…Brightline Seeks Equity; Debt Talks…School Bonds Dominate Primary Market…Credit Matters in Charter School Bonds…Race For California Governor…Public Pensions Contend With Return Volatility…

April Rally Highlights Muni Resilience…April’s muni bond rally is powered by strong retail demand, bolstered by geopolitical uncertainty that has enhanced the appeal of muni bonds as a high-quality, safe-haven investment. A steady defensive interest, alongside a wave of state-level tax hikes on high earners has strengthened demand for tax-free income. Muni yields fell 25 basis points in April, while Treasurys’ were largely unchanged, underscoring clear outperformance of state and local government bonds. This strength is notable, given lighter reinvestments in April. New tax-free investments have outstripped primary market supply, and new issuances have been absorbed at lower-than-anticipated yields, reflecting solid momentum and a stable tone across the muni market.

New Muni Bonds…RJW Barnabas Health in New Jersey led last week’s primary market with $1.2 billon tax-free bonds. State of Hawaii sold $2.2 billion taxable muni bonds recently. Additionally, Nebraska public power utility and prepaid energy contract muni bonds were sold last week. California issuers have issued the most muni bonds this year, followed by Texas, New York and Florida.

Markets Bet on Rate Hold; Fed Reform…The Fed is likely to hold rates steady at Fed Chair Powell’s last Fed meeting this week. Currently, there are roughly three-in-four odds that rates will stay on hold in 2026. Kevin Warsh, nominee for the Fed’s top job, seeks ‘robust reform’ of the Federal Reserve. If confirmed by the Senate, Warsh advocates for fewer press meetings, and does not favor offering too much guidance on rate policy. Betting markets place over 85% odds that Warsh will be at the Fed’s helm next month.

Brightline Seeks Equity; Debt Talks…In March, Brightline Trains Florida’s ridership grew 21% from a year ago, and revenues are 14% higher. Under a recently appointed new CEO, Brightline is pursuing a “substantial amount of equity”— which would be used to pay off its most expensive debt — and is in talks with bondholders to allow for the issuance of additional debt. The nation’s first private train has deferred interest payments on several of its bonds and received downgrades from ratings agencies. While uninsured bonds issued by Brightline are currently trading at deep discounts, Assured Guaranty- insured Brightline bonds are currently bid at around 98 cents on the dollar.

School Bonds Dominate Primary Market…School districts are the largest issuers in the current primary market. Nearly two out of every three new muni bonds issued in March was for a school district. Last year, school districts issued $82 billion new muni bonds, the highest among muni bond sectors. State budget pressures, fewer federal funds and increased costs have led school districts to ramp up borrowing. Fast-growing suburbs in Texas, Arizona and Florida, and large urban school districts are prominent in the primary market. However, the school sector is highly fragmented and offers an array of tax-free investments across the credit spectrum.

Credit Matters in Charter School Bonds…Credit quality diverges sharply across the charter school sector. Over half of charter school enrollment comes from five states, Texas, Florida, California, New York and Pennsylvania. Charter schools in Texas and Florida have seen an uptick in enrollment, driven by population growth and favorable regulatory environment. However, credit pressures have surfaced in some California, New York and Pennsylvania charter schools. A GMS Municipal Bond Specialist can advise on credit selection, essential for investing in this high-yield tax-free sector.

Race For California Governor…A crowded race for the Golden State’s top job has fragmented voters. Four Democrats and two Republicans will be on the ballot for California’s June 2 primary voting for the next Governor. Frontrunners include political strategist Steve Hilton (R), Riverside County Sheriff Chad Bianco (R), billionaire Tom Steyer (D), former Health and Human Services Secretary Xavier Becerra (D) and four other Democrats. Governor Newsom is not running due to term limits. The top two winners of the primary will contest the election for Governor in November, even if they belong to the same party.

Public Pensions Contend With Return Volatility…Outperforming returns have boosted public pension assets in recent years. Governments have also raised contributions to pensions. However, volatile investment returns could pose a challenge for public pension plans. Currently aggregate public pension assets, $6.7 trillion, are historically high relative to state and local government revenue. While the surge in pension assets is a strength, any underperformance relative to return targets (usually 6% to 7%) could be meaningful in dollar terms. Such investment volatility could be a potential challenge for governments, particularly at a time when states and local governments are in a challenging revenue environment.

Compare 30-Year taxable U.S. Treasury yield 4.92% to 30-Year tax-exempt Municipal Bond yield “AAA” 4.29%; “AA” 4.45%; “A” 4.63%. For investors in the 35% tax bracket, a 4.34% tax- exempt yield is equivalent to a 6.60% taxable yield. Top-rated long-term tax-free bonds yield 87% of comparable taxable U.S. Treasuries.