Municipal Bond News 7/28/25

Tax-Free Yields Near 2025 High…Muni Bond Trading Soars…JFK Airport Bonds Oversubscribed…Significant Yield Advantage of Long-Term Muni Bonds…Wall Street Raises Muni Supply Forecast…HFA Bond Issuance Grows…Senior Housing Occupancy Exceeds Pre- Pandemic…Transits Eye Dynamic Pricing…Public Pensions Boosted…

Tax-Free Yields Near 2025 High…Current muni bond yields are near their highest levels of the year. Over the past two weeks, state and local government bonds yields have climbed 20 basis points. In contrast, comparable U.S. Treasury bond yields have remained about the same. The rise in state and local government borrowing has led to relatively higher yields on muni bonds. Tax-free bonds now offer approximately 96% of the yields of comparable U.S. Treasury bonds, indicating that investors are paying very little for the advantage of tax exemption. The attractive valuations of municipal bonds is driving demand from crossover buyers who do not pay federal taxes. The combination of higher tax-free yields and low relative valuations of municipal bonds has created a compelling buying opportunity for long- term investors.

Muni Bond Trading Soars…Secondary market trading in the muni bond market has soared in July. Increased supply of state and local government bonds in the primary bond market has led investors to lock in higher tax-free yields and harvest tax losses. On July 23, 2025, more than $12 billion par outstanding of muni bonds changed hands. This is the highest volume of secondary market trades since mid- April.

JFK Airport Bonds Oversubscribed…Last week, JFK Airport’s $1.3 billion green bond sale attracted demand approximately four times greater than the amount offered. Of this, around $600 million in new JFK bonds were insured by Assured Guaranty. The insured JFK bonds offered a top yield of 5.53%, while the non-insured bonds featured a top yield of 5.72%. JFK Terminal One’s CFO stated, “In a highly competitive market, the strength of investor demand allowed us to tighten pricing and optimize our cost of capital, which is a testament to both the quality of this project and the disciplined financial strategy we’ve maintained since inception.” This latest bond issue for JFK Airport is part of a broader $19 billion transformation plan.

Significant Yield Advantage of Long-Term Muni Bonds…A significant yield gap between longer dated and shorter maturities is notable. Currently, the yield on 30- year muni bonds is about 200 basis points above two-year top-rated tax-free benchmarks, the highest spread, since 2017. In contrast, the yield gap between longer dated and short-term U.S. Treasury bonds is only 100 basis points. The last time tax-free yields and spreads were simultaneously this high was in 2008. As a result, long-term municipal bonds offer a notable yield advantage.

Rate Cut Odds…The Fed is most likely to keep rates steady at its meeting this week. Strong economic data, such as fewer initial jobless claims, strengthen the case for the Fed to hold rates instead of cutting. However, at least two voting Fed officials favor cutting rates immediately, indicating some division among the officials. At this week’s Fed meeting, investors will look for cues on whether the Fed plans to cut rates twice this year. Bond markets currently place 65% odds of the first rate cut in September.

Wall Street Raises Muni Supply Forecast… Bank of America has updated its forecast for bond issuance, increasing it from $520 billion to $580 billion. Similarly, J.P. Morgan has raised its prediction from $490 billion to $560 billion. Barclays, which initially anticipated around $480 billion in issuance, now expects the 2025 supply to be between $530 billion and $540 billion. So far in 2025, approximately $318 billion in new municipal bonds have been sold.

HFA Bond Issuance Grows…Housing finance agencies (‘HFAs’) are expected to maintain strength in operating margins and balance sheets. Investment income and spread are likely to boost HFA margins, and strong home origination volumes add to balance sheet strength. In 2025, HFAs are projected to issue approximately $31 billion in home mortgage loans. Most of these loans are financed through tax-exempt and taxable mortgage revenue bonds. Tax-exempt mortgage revenue bonds issued by HFAs are subject to restrictions such as private activity volume caps and can be used for loans to qualified first-time home buyers.

Senior Housing Occupancy Exceeds Pre-Pandemic…In 2025, senior housing occupancy has rebounded above pre-pandemic levels. The average occupancy rate of senior housing facilities has grown to 88%. However, this figure is still below the peak of 90%. Despite the increased demand for senior housing, new construction in this sector has sharply declined. In the second quarter, senior housing inventory growth hit its lowest in many years. Amid high borrowing costs, new construction has dropped 65% since the pandemic. An aging demographic and a smaller inventory of senior housing units has boosted occupancy rates across the sector.

Transits Eye Dynamic Pricing…Faced with revenue challenges, several transit agencies are looking at dynamic pricing to charge more during peak travel hours. However, others are looking to simplify fares to boost ridership. Dynamic pricing options are gaining traction after congestion tolls in New York faced political controversy. Nationwide, an estimated $140 billion of transit assets, or 10%, are in need of upgrades.

Public Pensions Boosted…Public pension plans have seen their net liabilities decrease for five consecutive years. State and local government adjusted net liabilities amount to $2.1 trillion. That is $4 trillion lower than 2020 peak. An increase in market interest rates has lowered the valuation of pension liabilities. Additionally, investment returns have exceeded targets for three straight years. Public pension plans boasted 10% to 11% investment returns in Fiscal 2025 per Moody’s estimates. Reduced pension liabilities lower leverage and improve balance sheets, a positive impact on state and local government credit quality.

Compare 30-Year taxable U.S. Treasury yield 4.97% to 30-Year tax-exempt Municipal Bond yield “AAA” 4.75%; “AA” 5.07%; “A” 5.30%. For investors in the 35% tax bracket, a 5% tax-exempt yield is equivalent to a 7.7% taxable yield. Top-rated long-term tax-free bonds yield 96% of comparable taxable U.S. Treasuries.