In a year defined by market swings, headline risk and
political uncertainty, municipal bonds have remained a steady haven. While news
cycles buzzed with tales of sharp rises and falls, the MuniBond market in 2025
has been more like a calm carousel than a wild rollercoaster.
Go Long to secure Attractive Yields:
Ten-year Treasury yields dropped roughly 30 basis points
from January to June, while 10-year, AAA-rated MuniBond yields crept up by
about 10 basis points at the midpoint. What stands out for MuniBond investors
is the long end of the yield curve, where yields have risen over 50 basis
points in the past six months. This shift has created a compelling opportunity
to lock-in attractive yields. (See the Display 1 above dated June 9th 2025 by
AB)
Demand has been stronger for bonds with maturities of 10
years or less compared to longer maturities, with 89% of inflows into mutual
funds and exchange-traded funds targeting the intermediate and short segments
of the yield curve.
As Raymond James recently noted, higher yields further out on the curve offer a “great
opportunity to ‘extend duration,’ and purchase longer dated bonds – with calls
inside 10 years – and lock in an extra 30 to 70 basis points or more depending
on the bonds selected.”
Notable
June 2025 Purchases in the “Priced to Sell” New Issue Market
- June
25th: Purchased Wyalusing School District Pennsylvania Limited GO
- 5%
Coupon, bought at a discount
- Aa3
rating with 10 years of call protection
- Yield
to call: 5.05%
- TEY:
8.65% for a Pennsylvania resident
- June
27th: Purchased North Texas Water System Revenue Bond
- 5%
Coupon
- Aa1/AAA
rating with 10 years of call protection
- Yield
to call: 4.86%
- TEY:
7.89% for an investor in one of the 9 states without state income tax.
Tax
Exemption Preserved and Supply Surges
It’s been a dynamic first half of 2025. Despite concerns that Congress and the
administration might eliminate the tax-exempt status of municipal bond
interest, the major tax and spending legislation signed into law left this
benefit untouched.
A flood of new issuance has been a key factor behind today’s
yields.
After a slowdown in 2022 and 2023, new MuniBond supply
reached nearly $500 billion last year. Issuance in the first six months of
2025 has already outpaced that, driven by uncertainty around federal fiscal
policy and the tax exemption’s fate.
17
Quarters of Credit Strength:
According to Schwab, Moody’s has reported more municipal issuer upgrades than
downgrades for 17 consecutive quarters — the longest such run since 2008. Schwab
noted, “As a result of the streak of upgrades relative to downgrades, the
percentage of munis that are either AAA/Aaa or AA/Aa, the top two rungs of
credit quality, is near the highest in nearly two decades.”
We continue to advise investors with available capital to
prioritize quality, then yield, in their MuniBond selections. With today’s
favorable environment, investors can choose from a broad array of high-quality,
investment grade MuniBonds, enjoy peace of mind, and secure a steady stream of
tax-exempt income with 9-10 years of call-protection
email jeff@watkinsoncap or call 484-540-9218 if you cash,
CDs, money markets or bonds funds needing peace of mind and predictable
tax-exempt income.
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