Municipal Bond News 8/11/25

Muni Bonds May Not Remain This Cheap For Long…Puerto Rico Oversight Board Overhaul…Assured Guaranty Optimistic on PREPA Board Shuffle…Federal Reserve Appointment Spurs Rate Cut Odds…Bond Insurance Grows…Chicago Pension Costs Surge…Board Changes Upend PREPA Debt Stalemate…New York Muni Bonds’ Attractive Valuation…

Muni Bonds May Not Remain This Cheap For Long…“There’s a lot of reasons to be excited about munis,” an expert told Wall Street Journal this weekend, adding, “A window of opportunity is open, valuations are cheap.” Prices have come down, due mainly to historically high issuance, and that pushes up the interest the securities pay. High-quality munis paid as much as a 4.74% yield in April, per the ICE U.S. Muni AAA 30-year gauge. They are now at 4.56%, still high by historical levels. The 200-day moving average is 4.14%. The higher-than-average yield means bond prices are lower than usual. “As long as you’re willing to not stay short and go out a little bit longer maturity-wise, now is the time to lock in these higher rates,” another expert told WSJ. There is an opportunity for investors to add some of the safest fixed-income securities to their portfolios while expecting unusually high, tax-free returns. What is unclear is how long this will last.

Puerto Rico Oversight Board Overhaul…Five of seven members of Puerto Rico’s oversight board were dismissed by President Trump last week. A White House official said the board has been “run inefficiently and ineffectively by its governing members for far too long, and it’s time to restore common sense leadership.” The Island’s Republican governor, Jenniffer González-Colón, previously said that the financial oversight board needs to leave “immediately”, stating that she “will work alongside whoever will be part of the new board, once President Trump makes the announcement.”

Federal Reserve Appointment Spurs Rate Cut Odds…Stephen Miran was appointed as a Federal Reserve Governor last week by the White House, subject to Senate confirmation, to replace outgoing Governor Adriana Kugler. “Miran has consistently argued that the Trump administration’s trade, immigration and deregulation policies are all disinflationary,” J.P. Morgan stated as it now expects a 25 basis point rate cut in September, followed by three more quarter point cuts before the Fed pauses. Within the Fed, dissent could grow.

Assured Guaranty Optimistic on PREPA Board Shuffle…Assured Guaranty’s CEO is optimistic about changes to Puerto Rico’s Oversight Board. “Nothing could delay a restructuring or a consensual deal [more] than the existing board was doing in terms of their execution,” he said, adding that the insurer had previously agreed to three deals that “they had reneged on every time.” “It couldn’t go any slower, so any change on that has got to be an improvement,” he said. “At the end of the day, I’m optimistic that this sort of turns out to be a positive, not a negative.” Assured Guaranty’s CEO added that it remains to be seen how the board is reconstituted or if the dismissals are contested. “But as I said, to me, it can only improve. It can’t go in an adverse way. So, I think there’s potential.”

Bond Insurance Grows…The volume of insured muni bonds has grown 12% in the first half of 2025, from a year ago. “Assured Guaranty has continued to insure a significant number of large transactions launched in the municipal market,” Assured Guaranty added “This demonstrates the continued value and confidence institutional investors place on our guaranty, which includes the price stability and increased market liquidity our insurance can potentially provide.” Assured Guaranty has a 63.7% market share. Build America Mutual said “Institutional investors have become increasingly significant consumers of bond insurance, using it to mitigate risks tied to large single-name exposures and to improve price stability in their portfolios.” Higher volumes of insured bonds bode well for bond insurers’ financial strength.

Chicago Pension Costs Surge…A new law, which raises pension benefits for police and firefighters, will increase Chicago’s pension liabilities by nearly a third, or $11.6 billion. As a result, Chicago will face higher pension contributions and lower pension plan funded ratios. Elevated fixed costs for pensions are a major contributor to the city’s structural gap. “Chicago will now face a steepening outyear pension cost curve even as it currently faces a fiscal 2026 budget gap that we already expected would probably be the largest in the city’s history,” S&P added that substantial, structural budget-balancing measures will be necessary for maintaining credit quality. The city faces a $1.1 billion 2026 budget gap, and pensions currently consume a quarter of city resources. Moreover, pension benefits are protected by Illinois Constitution.

Board Changes Upend PREPA Debt Stalemate…The “sudden purge” of the board, “simply creates an opening to stack the board with even more extreme, pro-bondholder appointees who will continue to put the needs of hedge funds over the Puerto Rican people,” said U.S. Rep. Nydia Velázquez, D-New York. This marks the first time oversight board members have been fired, as prior departures were voluntary. These dismissals could disrupt the board’s work, in the near term, due to legal complexities around how new members are appointed. Until new members are appointed, the current board will likely fall short of quorum requirements set by territory debt restructuring law PROMESA. “Now the question is who will be the new appointees and how soon will they be appointed?,” a Puerto Rico expert added “Likely there will be a better deal for PREPA bondholders.”

New York Muni Bonds’ Attractive Valuation…Tax-free bonds issued by New York State and its local governments are the cheapest in three years. An index of New York municipal bonds is yielding 4.10%, which is eight basis points more than the broader market, the largest gap since November 2022. High- quality muni bonds issued by New York bond issuers are currently trading at attractive yields, and carry high credit quality. Historically, New York bonds have traded at yields lower than benchmarks due to high demand for tax shelter. This year, New York governments have sold over $36 billion muni bonds, the most since 2014.

Compare 30-Year taxable U.S. Treasury yield 4.83% to 30-Year tax-exempt Municipal Bond yield “AAA” 4.59%; “AA” 4.89%; “A” 5.11%. For investors in the 35% tax bracket, a 4.9% tax-exempt yield is equivalent to a 7.5% taxable yield. Top-rated long-term tax-free bonds yield 95% of comparable taxable U.S. Treasuries.