Municipal Bond News 8/10/26

A Bond Buyer’s Market…Muni Bonds Rally…Robust Primary Market…San Juan, Puerto Rico Bonds Oversubscribed…Insurance Shield Proves Its Worth…New Law Opens Door For Housing Investments…Local Governments Face Budget Pressures…Rate Policy Expectations…

A Bond Buyer’s Market…Bargain hunting in the $4.5 trillion tax-free bond market became all the more interesting, after several marquee issuers accelerated new bond issuances amid last week’s bond rally. The deluge led to competitive yields for quality bonds. An opportunity for long-term investors to lock in generationally attractive tax-free income and upgrade tax-free portfolio credit quality is currently at hand. High grade munis currently offer one of the market’s best combinations of attractive yield and solid credit quality.

Muni Bonds Rally…Muni bonds are rallying this month, following dismal July returns. Top-rated tax-free bond yields dropped up to six basis points last week, echoing a similar drop in U.S. Treasury yields. In June unemployment fell to the lowest in a year, and the numbers of Americans actively looking for jobs is the lowest since 2021. Anticipation of a deal to reopen the Strait of Hormuz, and higher oil tanker traffic through the Strait of Hormuz eased oil prices. Oil prices have fallen 20% since late July, but are still $10 per barrel higher than last year. Amid uncertainty, the latest backdrop generally supports bond prices.

Robust Primary Market…Over $20 billion in new muni bonds were sold last week, with nine transactions exceeding the $500 million mark. Austin Convention Center, Colorado’s Intermountain Health and New York City general obligation bonds are among notable high grade muni bond issuances. Michigan’s Henry Ford Hospital issued ‘A2’/A+’ tax- free bonds are a 5% top yield, that traded up to a 4.86% yield in a bond rally.

San Juan, Puerto Rico Bonds Oversubscribed…San Juan, capital city of Puerto Rico received eighteen-fold demand for its $121 million rated bond sale. Puerto Rico’s fiscal agency noted, “We believe the successful sale of the San Juan bonds indicates market recognition of the progress achieved on fiscal and financial matters by the municipality and overall market confidence on Puerto Rico’s economy, financial situation and credits like PR general obligations, COFINA and Puerto Rico Aqueduct and Sewer Authority.” The ‘Baa3’/BBB+’ new bonds fetched a top tax-free yield of 4.9%.

Insurance Shield Proves Its Worth…Brightline will ‘work itself out,’ bond insurer Assured Guaranty said last week. Assured Guaranty has insured about half of Brightline’s $2.2 billion senior bonds, which are paid first before junior bonds. Last week, Brightline secured another week-long extension to repay interest due February 15. Brightline has secured several extensions while talks with Assured Guaranty and other creditors to restructure its $5.5 billion debt pile are ongoing. Meanwhile, holders of Assured Guaranty insured Brightline bonds have already received full and timely debt service payments, Assured Guaranty insured Brightline bond prices have remained strong around 99.4 cents on the dollar last week.

New Law Opens Door For Housing Investments…The 21st Century ROAD to Housing Act, enacted earlier this month, could attract private capital, boost bond financings and expand affordable housing. The new law raises the cap on public welfare investments, boosts transit- oriented development, and reforms zoning laws. The new law is touted to be the first major bipartisan housing law in three decades, and is broadly viewed positively by real estate developers, housing advocates, and bond issuers. It is credit positive for the tax-free housing bond sector and could result in a larger pipeline of affordable housing muni bonds.

Local Governments Face Budget Pressures…Investing in the highly fragmented local government sector requires credit selection, an expertise provided by GMS Municipal Bond Specialists. Rising spending on infrastructure, labor, and other essential services is expected to strain budgets for U.S. cities and school districts. Home affordability concerns have backlashed on property taxes, a key local government revenue. At least 17 U.S. states have enacted or are considering property tax relief this year, and a Florida ballot proposal could curb a source of local revenue. At the same time, a significant build out of AI-related data center infrastructure could boost local economies.

Rate Policy Expectations…Bond markets anticipate 44% odds of a September rate hike, down sharply from 80% in July. There are three-in-five odds that the Fed will hold rates steady next month. The Fed has kept rates on hold for seven consecutive meetings. The last Fed move was a rate cut in December. Since the Fed’s July 29 meeting, central bankers have struck a cautious note, as they deliberate on the Fed’s next move.

Compare 30-Year taxable U.S. Treasury yield 5.21% to 30-Year tax-exempt Municipal Bond yield “AAA” 4.47%; “AA” 4.69%; “A” 4.94%. For investors in the 35% federal tax bracket, a 4.47% tax-exempt yield is equivalent to a 6.88% taxable yield. Top-rated long-term tax-free bonds yield 86% of comparable taxable U.S. Treasuries.