Municipal Bond News 7/20/26

Constructive Outlook For Muni Bonds…Record Muni Order Book…Bellwether Yields Near 19-Year High…PREPA Offer Dead-on-Arrival…MTA Congestion Tolls Upheld…Chicago Posts Fiscal 25 Surplus…Brightline Extension Amid Bondholder Talks…Fed Speakers Signal Rate Hold…

Constructive Outlook For Muni Bonds…Munis are entering the second half of 2026 with a constructive outlook, supported by generationally attractive tax-free yields and robust demand. “Munis are having a solid 2026,” CNBC Pro wrote last week, citing the muni market’s resilience despite geopolitical volatility, high interest rates and record high supply. Longer-dated muni bonds continue to offer the strongest relative value, higher absolute yields, and potential for price appreciation should policy rates decline. While state and local governments’ overall credit quality remains strong, investors must focus on credit selection. A GMS Municipal Bond Specialist can advise investors on finding value in the $4.5 trillion tax-free bond sector.

Record Muni Order Book…The largest order book in muni bond history was recorded last week, with over $70 billion worth of orders chasing $2.4 billion tax-free bonds issued by Connecticut’s Aquarion Water Authority. Long term bonds saw the strongest demand and priced at yields as much as 38 basis points lower than planned. Over $7 billion in new muni bonds were sold last week.

Bellwether Yields Near 19-Year High…Current muni bond yields are the highest in two months. Top-rated long-term muni index yields rose eight basis points last week. In July, yields on comparable U.S. Treasury bonds moved higher following an escalation in oil prices. Long term U.S. Treasury yields are about 5.07% currently, their highest level since 2007. In June, inflation cooled to a 3.5% annual pace, down from 4.2% previously. Fed officials appear inclined to keep rates steady, instead of pushing for rate hikes.

PREPA Offer Dead-on-Arrival…The largest holders of Puerto Rico electric utility debt have rejected the board’s latest proposal, which offers a roughly 35 percent recovery. Bondholders complained that this offer was one-sided, and the board is not engaging constructively to resolve PREPA’s debt dispute. Although the latest offer is higher than last years’ offer, bondholders argue that it bears no relationship to the utility’s income generating capacity, recent financial performance, or their legal rights as previously determined by the United States Court of Appeals for the First Circuit. Bondholders have also offered $2.5 billion to help repay other creditors and fund overdue capital expenditure, while reiterating their willingness to resolve PREPA’s bankruptcy on a consensual basis.

MTA Congestion Tolls Upheld…The U.S. Court of Appeals for the Second Circuit upheld MTA’s congestion toll last week. Two suburban counties challenged the constitutionality of congestion tolls in two separate suits against the Metropolitan Transportation Authority and Triborough Bridge and Tunnel Authority in 2024. However, these cases were dismissed in July 2025 by a lower court. In March, the counties argued before the US Court of Appeals for the Second Circuit to revive their cases. The Appeals court ruling opined that imposing a fixed toll at the central business district’s point of entry “is a sensible way to advance the Program’s goals of encouraging mass transit use and reducing pollution.”

Chicago Posts Fiscal 25 Surplus…City of Chicago reported a $219 million surplus at the end of Fiscal 2025, a $381 million improvement from prior year. Outperforming tax revenues and expense controls led to the improved surplus. Higher investment income has boosted the funded ratio of Chicago’s four city pension funds to an aggregate funded ratio of 28%, up from 25.6% earlier. However, the city’s reserve funds are down from $1.1 billion pre-pandemic to $700 million. Chicago CFO noted, “It also represents the largest budgetary surplus that the city has had over the last decade with the exception of 2021 and 2022 because those were pandemic-inflated years” with a $1.9 billion avalanche of federal relief funds.

Brightline Extension Amid Bondholder Talks…Brightline Florida has secured a one-week interest payment extension, the -sixth extension to repay interest originally due on February 17. The extension allows Brightline until July 24, 2026 to negotiate a bankruptcy loan with creditor groups. Brightline also failed to make required sinking fund payments into two bond funds. Meanwhile, June ridership grow 15% from a year ago, driven partly by FIFA World Cup. Additionally, last week Fitch lowered its uninsured rating on Brightline bonds to ‘CC’ from ‘CCC’. However, the insured rating on the Brightline bonds remains unchanged at S&P ‘AA’ stable outlook. Holders of Assured Guaranty insured Brightline bonds have received full and timely debt service, and the insured bonds traded between 100.26 cents and 99.75 cents on the dollar during last week.

Fed Speakers Signal Rate Hold…Most of the eight voting Fed members who spoke last week indicated they weren’t rushing to raise rates to combat persistent inflation, which has remained above the Fed’s 2% target for 63 months. At the same time, policymakers didn’t take much comfort in this past week’s cooler print from the consumer price index. “There might be some that look at this morning’s data and say, ‘Oh, mission accomplished. Everything is swell.’ That is not my view,” Fed Chair Kevin Warsh told lawmakers on Tuesday that he is committed to bringing down inflation.

Compare 30-Year taxable U.S. Treasury yield 5.08% to 30-Year tax-exempt Municipal Bond yield “AAA” 4.32%; “AA” 4.55%; “A” 4.77%. For investors in the 35% tax bracket, a 4.32% tax-exempt yield is equivalent to a 6.65% taxable yield. Top-rated long-term tax-free bonds yield 85% of comparable taxable U.S. Treasuries.