Municipal Bond News 6/01/26

Reinvestment Season Kicks Off…Muni Bonds Gain Ground…Retail Investors Fuel Muni Demand…New Muni Bonds Oversubscribed…Motor City Scores Double Rating Upgrades…Tighter Financial Conditions…Big Money Floods 2026 Elections…Federal Infrastructure Funding…

Reinvestment Season Kicks Off…Investors are turning their attention to reinvesting tax-free interest income. In June, about $44 billion in interest and principal repayments will flow back to bondholders, beginning the strongest reinvestment season of the year. High Net Worths looking to deploy cash will find that not only are tax-free yields higher than they were six months ago, but also that states and local government bonds offer a significant yield advantage over Treasury and corporate bonds. Amid a historically heavy pace of bond issuance by states and local governments, a GMS Municipal Bond Specialist could advise on finding bargains in the tax-free bond market.

Muni Bonds Gain Ground…Municipal bonds are proving remarkably resilient amid geopolitical uncertainty. Last week, top-rated muni bond yields fell 16 basis points, while comparable U.S. Treasury yields fell 9 basis points. The decline in yields was spurred by a ceasefire extension in the U.S.-Iran conflict. Investors have increasingly gravitated towards state and local government bonds, drawn by attractive tax-free yields and strong underlying credit quality. Demand for muni bonds has strengthened notably, with weekly retail purchases accelerating to $2.3 billion last week. Amid ongoing volatile market conditions, many investors view currently high muni bond yields as an opportunity for tax-free income while benefiting from the sector’s relative stability.

Retail Investors Fuel Muni Demand…In 2026, demand for muni bonds is on pace to exceed last year’s levels. Retail investors have added $38 billion to purchase muni bond funds so far this year. This is the second strongest year-to-date inflows on record. Cash deployed to buy muni bonds has topped $1 billion for the past four weeks, and last weeks’ $2.3 billion inflows is the largest weekly demand since February. Faced with geopolitical uncertainty, state and local government bonds’ safety, solid credit conditions and attractive tax-free income have boosted demand for muni bonds.

New Muni Bonds Oversubscribed…Four times worth of orders flooded to buy New York City Transitional Finance Authority $2 billion tax-free high-grade bonds at a top yield of 4.6%. Additionally, Triborough Bridge and Tunnel Authority issued high grade MTA bonds. Northeastern University issued Moody’s ‘A1’ rated bonds at top yield of 4.6%. Over $9 billion in new muni bonds were issued last week.

Motor City Scores Double Rating Upgrades…Moody’s raised its rating on Detroit general obligation bonds to ‘A3’ from ‘Baa1’, and S&P raised its rating to ‘BBB+’ from ‘BBB’. Consistently solid operating performance, strong reserves, low leverage and good governance led to the upgrades. Both rating agencies expect Detroit to maintain stable finances. During the city’s 2013 bankruptcy, Detroit’s credit rating had fallen to junk bond status, but the City has steadily rebuilt its financial standing. Detroit has earned rating upgrades for 12 consecutive years, and the latest upgrade brings Detroit back to the ‘A’ rating credit territory for the first time since 1999.

Tighter Financial Conditions…Although the Fed is likely to hold rates steady at its June meeting, the surge in bellwether yields since the U.S.-Iran war started has tightened financial conditions. The U.S. economy grew by 1.6% in the first quarter of 2026, a downward revision from 2% growth estimated earlier. The Fed’s preferred inflation rose at a 3.8% annual pace in April, in line with forecasts. Higher oil prices have driven consumer prices to the highest in three years, and consumer confidence is at an all-time low.

Big Money Floods 2026 Elections…California’s governor election is shaping up to a big money race. Leading Democratic candidate, billionaire Tom Steyer has self-funded almost $200 million for his campaign. However, tech leaders are putting their financial might behind Matt Mahan, who is opposed to a billionaire’s tax. Across the nation, 18 open seats for governors and 36 Senate seats, are garnering the most campaign funds from billionaire donors, tech leaders, unions, and national PACs.

Federal Infrastructure Funding…Lawmakers have proposed a $580 billion bipartisan infrastructure spending plan aimed at extending federal investment in infrastructure. The BUILD America 250 Act would shore up funding for highways, airports, public transit, trains and bridges. The Infrastructure Investment and Jobs Act of 2021, which brought $550 billion in new federal infrastructure funds, ends in September. Supporters argue that the measure would preserve momentum on infrastructure projects.

Compare 30-Year taxable U.S. Treasury yield 4.97% to 30-Year tax-exempt Municipal Bond yield “AAA” 4.38%; “AA” 4.55%; “A” 4.77%. 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 88% of comparable taxable U.S. Treasuries.