Municipal Bond News 5/12/25

Fleeting Opportunities To Buy Muni Bonds…New Muni Bonds…High Yield Muni Bonds Sell-Off…Fed Stands Pat… Rate Cut Odds…Transit Sector Prepares For World Cup…‘Millionaire’ States…Lawmakers Mull Millionaire’s Tax…Top Ten Muni Bond Issuers…

Fleeting Opportunity To Buy Muni Bonds…This could be a fleeting moment in time to snag excellent income in municipal bonds, according to several strategists. Not only are yields attractive, but municipal bonds look cheap compared to Treasury bonds. “They’ll be here until it’s not,” an expert told CNBC Pro last week, adding “This will disappear without any warning, because the absolute and relative levels of municipal bond yields are so attractive, they will disappear as soon as the supply congestion clears itself up.” So far in 2025, municipal bonds have lost 0.77%, underperforming US Treasury debt and corporate securities. During the summer months, over $150 billions of principal repayments and coupon income are expected to boost muni bond performance, particularly if Treasury market stability and slower issuance occur. “Outperformance of munis vs Treasuries should continue during the May-August time frame,” Bank of America strategists see a “constructive environment for purchasing muni bonds.”

New Muni Bonds…Higher education muni bonds stood tall in last week’s primary bond market. A variety of tax-exempt, taxable, lower-rated and insured bond offerings from colleges nationwide were issued last week. ‘AAA’-rated MIT and Yale bonds saw demand from a global investor pool. Further down the rating scale, Boston-based Suffolk University sold $158 million of bonds rated Moody’s ‘Baa3’ Fitch ‘BBB-‘at a top yield of 5.4%. New Jersey Institute of Technology is currently selling Build America Mutual insured new muni bonds at a top yield of 4.7%. Additionally, New Hampshire’s Dartmouth Health sold ‘A’-rated hospital bonds at a top yield of 5%.

High Yield Muni Bonds Sell-Off…High yield muni bonds offer about 200 basis points of additional yield relative to top-rated benchmarks. “For investors in high tax brackets, it’s hard to find yields in any other fixed- income market that approach what you can find in high yield munis right now,” an expert noted. Returns on riskier tax-free bonds have dwindled. A high yield muni bond index showed a 1.8% loss in April, the worst since September 2023. A broader market sell-off in mid-April hit high yields muni bond returns. Since then, demand for high-yield muni bonds has risen, reflected in two straight weeks of cash inflows to high yield muni bonds. A Municipal Bond Specialist can help investors find higher risk-reward tax- free investments.

Fed Stands Pat…“It’s not a situation where we can be preemptive, because we actually don’t know what the right responses to the data will be until we see more data,” Fed Chair Powell added that U.S. negotiations with key trade partners could have a material impact on the economic outlook. The Fed has kept interest rates on hold since December. At last week’s Fed meeting, central bankers noted that “the risks of higher unemployment and higher inflation have risen.

Rate Cut Odds…Bond markets are betting that the Federal Reserve will cut interest rates less than three quarter points this year, with the earliest rate cuts starting only by July. However, some economists think there may be even fewer rate cuts this year. “We continue to believe, as we have since December, that rates will stay unchanged through year-end,” Barclay’s economists noted. Absent a major downturn in economic activity that causes the unemployment rate to surge meaningfully higher, the Fed is likely to continue to ‘wait-and-see’ how tariff talks evolve.

Transit Sector Prepares For World Cup… The U.S. would need to make more than $10 billion in transit infrastructure improvements to shuttle visitors during the World Cup Games per the US Travel Association. A bipartisan group of members of Congress is seeking an additional $400 million from the federal government to help fund transportation improvements in eleven US cities hosting the 2026 FIFA World Cup. However, mass transit operators face a collective $6 billion shortfall in the coming years and are looking to hike fares and/or cut services. The World Cup is estimated to have an economic impact of over $17 billion.

‘Millionaire’ States…California is home to the largest number millionaires in the United States. Over 16% of U.S. millionaires reside in the Golden State. Florida takes second place, boasting nearly 10% of U.S. millionaires as its residents. Texas ranks third, with 9.2%. The Empire State appears to have fallen out of favor with U.S. millionaires. Meanwhile, New York has seen a decline in its share of U.S. millionaires, dropping from 12.7% in 2010 to 8.7% in 2022. In contrast, only 2% of U.S. millionaires live in Connecticut.

Lawmakers Mull Millionaire’s Tax…A top federal income tax rate of 39.6%, up from 37% currently, for individual filers earning more than $2.5 million is sought by the White House. “This will help pay for massive middle and working-class tax cuts, and protect Medicaid,” a source told news media. Republicans are aiming to complete President Trump’s “one big, beautiful bill” by late next week and pass it in the House ahead of the May 26 U.S. Memorial Day holiday.

Top Ten Muni Bond Issuers…The Golden State claimed the top spot for year-to-date muni bond issuance. California bond issuance is 26% higher than a year ago. New York’s new muni bond volume was second with $20 billion, up 8% from last year. Texas was third with $15 billion, followed by Florida in fourth with $6.3 billion. Texas and Florida have issued significantly fewer bonds relative to a year ago. Also, a top ten muni bond issuer, Illinois’ governments issued $4.8 billion new bonds this year, up 91% from a year ago.

Compare 30-Year taxable U.S. Treasury yield 4.88% to 30-Year tax-exempt Municipal Bond yield “AAA” 4.42%; “AA” 4.73%; “A” 5.09%. For investors in the 35% tax bracket, a 4.5% tax-exempt yield is equivalent to a 6.9% taxable yield. Top-rated long-term tax-free bonds yield 91% of comparable taxable U.S. Treasuries.