Municipal Bond News 6/15/26

Muni Bonds Ride Demand Wave…Why Premium Bonds Are Attractive…Big Tech Taps Muni Bonds…Assured Guaranty Upbeat on Brightline…Illinois Budget Builds Financial Progress…PREPA Bondholders Appeal Ruling…Federal Infrastructure Funding…Munis in May…

Muni Bonds Ride Demand Wave…Municipal bonds continue to outperform, with strong demand outpacing elevated supply, and keeping yields largely stable over the week. In 2026, demand for muni bonds is at near record-levels, with investors gravitating towards investment-grade rated state and local government bonds. Top tax bracket investors in high tax states can find taxable equivalent yields of over 8% from ‘A’-rated muni bonds, without requiring additional risk. In the primary market, many prominent muni bond transactions, including high yield ones, have seen vast oversubscriptions. As market volatility and geopolitical uncertainty continue to persist, muni bonds continue to stand out as one of the most compelling fixed income opportunities, offering a rare combination of historically high tax-free yields, strong credit quality, and relative price stability.

Why Premium Bonds Are Attractive…Investors often ask “Why should I pay more than face value on a bond that will only pay par at maturity?” This question arises when considering high coupon bonds that are sold at prices above par. A premium bond is traded at a price higher than its par value because its stated coupon rate is greater than current market yields. Over the life of the bond, investors recover this premium through the higher cash flows from the above- market coupon payments. In simple terms, paying a premium for bonds provides greater tax-free future income, making for a more cost-effective investment. Additionally, premium bonds are known to retain their value better during market volatility. In today’s bond market, tax-free bonds with 5% or higher long-term coupons sold at premium prices are much in demand.

Big Tech Taps Muni Bonds…Last week, Alphabet tapped the muni bond market for funding energy for its vast datacenters and fetched over $10 billion in orders for a $1.2 billion tax-free prepaid energy bond rated Moody’s ‘Aa2’ issued by California Community Choice Financing Authority and underwritten by Goldman Sachs. Additional yield relative to top-rated benchmarks, a portfolio diversification opportunity, and California credit led to strong demand. Large technology companies’ massive demand for energy could bring more Big Tech names to the tax-free bond market.

Assured Guaranty Upbeat on Brightline…“I don’t mind owning a railroad for $2.4 billion,” Assured Guaranty CEO noted. Assured’s majority ownership gives the insurer a controlling vote for remedies if bondholders need to direct the bond trustee to take action. “At the end of the day, we believe in the structure,” Assured Guaranty CEO said. He noted that Brightline’s capital stack totals roughly $7 billion, and Assured Guaranty has insured half of the top $2.4 billion senior bonds. “You say to yourself, is the company worth at least $2.4 billion? The answer resoundingly comes back absolutely.” Brightline is currently fielding financing offers from multiple creditor groups as it seeks to raise fresh equity, restructure debt or a merger/acquisition transaction to avoid bankruptcy, WSJ recently reported. Assured Guaranty has insured about $1.13 billion or 51% of Brightline’s senior bonds rated S&P ‘AA’/stable, which recently traded between par and 98.7 cents on the dollar, and benefit from Assured’s guaranty of full and timely debt service payments.

Illinois Budget Builds Financial Progress… “Illinois now finds itself in the strongest financial position in decades. Ten consecutive credit rating upgrades. Our $8 billion overdue bill backlog has been paid; $12 billion of short-term debt has been eliminated. Our pension funded ratio is the highest it’s been in 17 years. And our rainy-day fund has grown from near zero to over $2.4 billion,” Governor Pritzker announced a $56 billion enacted Fiscal 2027 budget. This is Illinois’ largest budget in its history, and 1.6% higher than prior year. New revenue of $589 million includes a social media platform fee, a digital advertising tax, and taxes on cryptocurrency, fantasy sports and prediction markets. A S&P analyst noted that the state has “done a nice job of managing expenses,” but “what we’ve consistently stated is it just needs to put more money into the pension funds and basically accelerate the funding of its pension obligations.”

PREPA Bondholders Appeal Ruling…Puerto Rico electric utility bondholders appealed Judge Swain’s May 26 ruling that blocks their efforts to lift a stay on their right to seek dismissal of the bankruptcy or to seek the appointment of a receiver. Denying bondholder’s request, Judge Swain argued that the law gives her authority as to when to lift stays in bankruptcies. However, Judge Swain allowed the parties to litigate an accounting counterclaim that relates to determining the utility’s net revenues and scheduled a November 18 court hearing.

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.

Munis in May…Over $51 billion new muni bonds were issued in May, the highest monthly issuance this year. However, May state and local government bond issuance fell 4%, compared to a year ago. California issuers claimed the top spot for new bond volume, followed by Texas and New York. Three muni bond offerings crossed the $1 billion mark in May, the largest being Dormitory Authority of State of New York, followed by Atlanta water utility.

Compare 30-Year taxable U.S. Treasury yield 4.94% to 30-Year tax-exempt Municipal Bond yield “AAA” 4.28%; “AA” 4.52%; “A” 4.80%. 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 87% of comparable taxable U.S. Treasuries.