Municipal Bond News 6/08/26

Reinvestment Season Kicks Off…Retail Investors Fuel Muni Demand…Muni Bonds Gain Ground…Rate Policy Odds…New Muni Bonds Oversubscribed…Motor City Scores Double Rating Upgrades…Tighter Financial Conditions…Race For California Governor…

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.

Retail Investors Fuel Muni Demand…In 2026, demand for muni bonds is on pace to exceed last year’s levels. Retail investors have directed nearly $40 billion in cash to purchase muni bonds so far this year, marking the second strongest year-to-date cash inflows on record. Investor purchases of muni bonds have topped $1 billion for the past five weeks, and a $2.3 billion weekly inflow recorded at the end of May is the largest weekly demand since February per a gauge of investor activity. As geopolitical uncertainty persists, investors have increasingly gravitated towards state and local government bonds, drawn to safety, solid credit conditions and attractive tax-free income.

Muni Bonds Gain Ground…Municipal bonds are proving remarkably resilient amid geopolitical uncertainty. Top-rated muni bond yields have fallen 27 basis points over the last two weeks, while comparable U.S. Treasury yields have declined 12 basis points. Volatile market conditions have persisted amid fragile ceasefire talks between U.S. and Iran. Meanwhile, the U.S. economy has added more jobs than expected in May, posting strong payroll gains for the third month in a row. Many investors view current muni bond yields as an opportunity for tax-free income while benefiting from the sector’s relative stability.

Rate Policy Odds…Bond markets assign three-in-four odds that the Federal Reserve will hike policy rates by the end of 2026. Fed officials are likely to drop an easing bias, and possibly signal inclination towards a rate hike. Major Wall Street banks no longer expect the Fed to cut rates this year, wagering that the Fed is likely to keep rates unchanged in 2026 until the effects of tariffs and war-related pressures fade away.

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%. Harris County Hospital District, a public safety-net hospital in Harris County, Texas sold high-grade bonds at a top yield of 4.7%.

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. Yields on two and five-year Treasuries have risen more than 80 basis points since this year’s lows in March, and the benchmark 10-year Treasury yield has risen more than 60 basis points to 4.55%. 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.

Race For Golden State Governor…With billions of uncounted votes, former U.S. Health and Human Services Secretary and former California Attorney General Xavier Becerra (D) has secured a spot in the November election for California governor. The battle for second spot remains close between Steve Hilton (R), and billionaire Tom Steyer (D). In California, the two highest vote- getters in the primary, regardless of party, advance to the final November ballot.

Compare 30-Year taxable U.S. Treasury yield 5.01% to 30-Year tax-exempt Municipal Bond yield “AAA” 4.25%; “AA” 4.51%; “A” 4.66%. For investors in the 35% tax bracket, a 4.25% tax-exempt yield is equivalent to a 6.5% taxable yield. Top-rated long-term tax-free bonds yield 85% of comparable taxable U.S. Treasuries.