Municipal Bond News 9/15/25

Fewer Lower-Rated Bonds…Chicago Public School Bond Sale…Bellwether Bond Yields Drop…Muni Bonds’ Higher Yield and Safety…Mega Muni Bonds On Sale…Connecticut Earns Rating Upgrade… New York State Budget Deficit…PREPA Debt Update…Property Tax Hikes Ahead…

Fewer Lower-Rated Bonds…This year, 92% of new municipal bond issuances have received an investment-grade rating Moody’s ‘Baa3’ or S&P’s ‘BBB-‘ or higher. About $30 billion in unrated and high-yield municipal bonds have been issued this year. Compared to recent historical averages, this years’ non-rated and below-investment-grade muni bond volume is relatively low. In contrast, there has been a substantial increase in investment-grade municipal bond issuance. The variation in primary market volume across the credit spectrum is beneficial for investors. It encourages borrowers to strengthen credit covenants or increase yields, ultimately enhancing the overall credit quality of the $4.2 trillion municipal bond market.

Chicago Public School Bond Sale…Amid a muni bond rally, the nation’s largest junk bond issuer, Chicago Board of Education, sold $650 million tax- free bonds. Long-term tax-free coupon bonds offered a 5.8% top yield. Investors demand about 165 basis points above top-rated muni benchmarks to own bonds issued by the nation’s fourth largest school district. The yield penalty was about 140 basis points earlier this year. This is the school’s first bond sale since 2023.

Bellwether Bond Yields Drop…Long-term top-rated muni bond benchmark yields fell 24 basis points last week, the largest weekly decline in yields since April. Meanwhile, comparable U.S. Treasury bond yields dropped to 4.65%, the lowest in twelve months. Bellwether 10-year U.S. Treasury bonds hit 4.05% last week, down from 4.8% in January. Muni bond yields have trended lower since mid-July. A 25 basis point rated cut is broadly expected this week. Prospects of lower policy rates have fueled bond price gains.

Muni Bonds’ Higher Yield and Safety…Wall Street Journals’ September Investing Monthly showcased muni bonds as a corner of the fixed income market that investors should consider for higher yield and safety. Bond yields are much higher now than they were a few years ago. Muni bond prices have lagged behind the broader bond market this year. Experts like muni bonds’ higher tax-adjusted income that comes with minimal risk. Additionally, overall credit quality for munis remains strong. Longer-duration muni bonds are an attractive tax-free investment.

Mega Muni Bonds On Sale…Mega muni bond sales from airports are front and center. Dallas Fort Worth airport sold $2 billion high grade bonds at a top yield of 4.69%. Atlanta airport sold $1 billion high grade tax-free bonds at a top yield of 4.59%. Savannah Georgia Convention center bonds rated ‘BBB-’ offer 5.39% yield. In contrast, unrated high yield muni bonds for an upstate New York casino recently offered a 7% yield. Over $10 billion in muni bonds were sold in the primary market last week.

Connecticut Earns Dual Rating Upgrade…Last week, Moody’s upgraded Connecticut from ‘Aa3’ to ‘Aa2’, and Fitch upgraded the state from ‘AA-’ to ‘AA’. These upgrades mark the seventh and eighth credit rating increases over the last six years. Governor Lamont said, “By the end of 2025, the state will have made an additional $10 billion in pension payments since I took office. “Ratings agencies continue to validate Connecticut’s creditworthiness, disciplined budgeting, and the progress we’ve made to reduce liabilities and fixed costs,” State Treasurer added that “these ratings upgrades will result in even greater demand for our bonds.

New York State Budget Deficit…New York state’s cumulative three-year budget gap has swelled to $34 billion, an increase of 25% from the administration’s January estimate. The projected deficit as a share of total spending would be the biggest since the financial crisis in 2009. The shortfall is driven by spending growth in Medicaid and education, as U.S. states grapple with federal funding cuts to safety- net programs. State of New York reported 10% tax revenue growth in Fiscal 2025. The new budget deficit estimate could amplify calls from some lawmakers for new tax hikes.

PREPA Debt Update…Although bondholders opposing the board’s proposal do not favor delaying the restructuring of Puerto Rico’s electric utility debt, they are requesting a stay on litigation. They argue that this stay should remain in effect until there is a statutory quorum of at least four members on the board, as the current single-member board has limited powers and lacks the authority to resolve the case or certify a fiscal plan. Judge Swain has indicated that discovery on certain aspects of the litigation should continue until the Title III court’s hearing in October.

Property Tax Hikes Ahead…At least 20 of the largest 25 U.S. cities are facing budget difficulties. “As these challenges build, city leaders are beginning to turn to state officials for funding and financial flexibility, but how much help will be forthcoming is an open question,” Pew Research noted. Many states are struggling with their own budget deficits. The Center on Budget and Policy Priorities warned that lower support from state and federal governments could lead local governments towards higher property taxes.

Compare 30-Year taxable U.S. Treasury yield 4.69% to 30-Year tax-exempt Municipal Bond yield “AAA” 4.26%; “AA” 4.50%; “A” 4.83%. For investors in the 35% tax bracket, a 4.2% tax- exempt yield is equivalent to a 6.4% taxable yield. Top-rated long-term tax-free bonds yield 91% of comparable taxable U.S. Treasuries.