Municipal Bond News 6/9/25

Airport Muni Bonds’ Higher Yield…Record High Weekly Muni Bond Sales…Reinvestment Demand Soars…Rate Cut Odds… Teachers Balk At CPS Budget…Transit Ridership Nears Pre- COVID Peak…Connecticut Continues Pension, Reserve Funding… Senate Weighs SALT Cap Hike…Higher Muni Bond Sales…

Airport Muni Bonds’ Higher Tax-Free Yield… Airports from San Francisco to Austin are looking to issue muni bonds this year. So far, airports have issued over $9 billion new muni bonds this year, after borrowing more than $20 billion last year. Last week, Washington D.C. airports’ bond sale fetched about 5.05% tax-free yield. Meanwhile, Chicago O’Hare’s long-term tax-free bonds traded recently at 5.15% tax-free yield, the highest since early April. Los Angeles airport high-grade bonds currently yield close to 5%, offering some of the highest yields for investment grade municipal bonds in almost two decades. Travel demand hit a record high at the end of 2024. However, air travel has dropped about 4.5% this year due to lower business travel. Recently, Moody’s placed a negative outlook on airport sector, which tends to be sensitive to economic activity. Chicago O’Hare airport is seeking to issue as much as $4.3 billion in new muni bonds this year.

Record High New Muni Bond Offerings…Over $21 billion of new muni bonds were sold last week, marking the highest level of sales since 2017. Several new municipal bond issues saw double-digit oversubscriptions, and yields repriced about 10 to 20 basis points lower. Chicago sold $698 million general obligation tax-free bonds at a top yield of 5.5%. The Windy City upsized its bonds offering by 38%. A Los Angeles wastewater utility sold $500 million high grade bonds at a top yield of 4.47%. Washington D.C. airports’ $714 million tax free bond sale was the largest bond sale last week.

Reinvestment Demand Soars...Holders of state and local government bonds are expected to receive about $73 billion in principal and interest payments in June. High reinvestment demand drives positive returns for the $4 trillion muni bond sector. Historically, June has been a month of positive returns in the muni bond sector over the last decade. Volatile market conditions have persisted this year. In May, muni bond indices had a slim 0.06% gain, following two straight months of losses.

Rate Cut Odds…Wall Street’s most common forecast anticipates just one rate cut this year, likely in either September or December. However, Goldman Sachs and Bank of America expect sharper cuts in 2026 rather than this year. “There is a great deal of uncertainty out there, making it quite difficult to forecast with confidence,” Atlanta Fed president noted, adding that he expects one interest rate cut this year. Bond markets are wagering on September for the first rate cut of this year. Rates are likely to remain unchanged in June, with slim chances for a July rate cut.

Teachers Balk At Chicago Public School Budget…Chicago Teachers Union is threatening to sue Chicago Board of Education over the recently proposed Fiscal 26 school budget. Chicago Public Schools (‘CPS’) claims there is enough money to cover the first year of the schools’ contract with teachers, but has not detailed plans for the remaining three years. In April, CPS signed a new four-year contract with teachers worth $1.5 billion. To address a budget deficit of $529 million for Fiscal Year 2026, CPS has suggested delaying proposals related to class size and staffing that are outlined in the new union contract, in order to balance next year’s budget. Although salary increases are included in the budget, the school district may need to review new proposals under various labor agreements for long-term sustainability.

Transit Ridership Nears Pre-COVID Peak…Public transit ridership is at its highest level since the pandemic. Nationwide, ridership has climbed to 85% of pre-pandemic levels this year, up from 79% last year. Transit ridership plunged to 40% during COVID lockdowns. However, recovery has been steady in recent years. “Ridership continues to rebound despite limited office attendance, proving public transportation serves far more than traditional commuters,” said American Public Transportation Association president. Notably, transit ridership exceeds office occupancy, which stands at 54%.

Connecticut Continues Pension, Reserve Funding…Lawmakers approved a $55 billion biennial budget for fiscal years 2026 and 2027 for the State of Connecticut. The budget continues to “make historic and long-overdue payments into the pension system, preserve the strength of our fiscal guardrails, and make fiscally responsible investments into the rainy-day fund that will protect our state against any potential economic headwinds we may face in the future”, Governor Ned Lamont added that while other states are increasing taxes and cutting services, Connecticut is seen as an example of fiscal stability.

Senate Weighs SALT Cap Hike…The Senate is currently weighing the $40,000 state and local tax deduction (‘SALT’) cap that was approved recently by the House. Some senators are critical of the $350 billion cost associated with the higher SALT cost proposal. The Senate Majority leader said “So we will work with our House counterparts, and with the White House, to try to get that issue in a place where we can deliver the votes and get the bill across the finish line.”

Higher Muni Bond Sales…Over $50 billion of new muni bonds were sold in May. California governments sold the most tax-free bonds last month, followed by New York and Texas. Golden State muni bond issuance rose 16%, while Texas has sold 16.5% fewer muni bonds compared to last year. Overall, states and local governments have sold $243 billion new bonds this year, up 17% from last year.

Compare 30-Year taxable U.S. Treasury yield 4.97% to 30-Year tax-exempt Municipal Bond yield “AAA” 4.57%; “AA” 4.95%; “A” 5.10%. For investors in the 35% tax bracket, a 4.6% tax-exempt yield is equivalent to a 7.08% taxable yield. Top-rated long-term tax- free bonds yield 92% of comparable taxable U.S. Treasuries.