Municipal Monthly Update June 2025

Key Takeaways:

• Municipals posted positive returns in June, as robust investor demand offset record primary issuance.
• The municipal curve is at its steepest level in recent memory, boosting prospects for expected return going forward.
• Strong technicals should support performance in the summer months, with rollover demand set to accelerate and net supply projected to ease from the first half’s record pace.

MUNICIPAL BOND MARKET UPDATE

• Treasury yields declined in June amid softening economic data and subdued inflation, giving the Fed the room to start cutting rates later this year.
• Municipals mirrored Treasuries in the front part of the curve but lagged significantly at the long end.
• New issue volume topped $57 billion, a record for June, bringing year-to-date issuance to approximately $280 billion.
• Demand remained robust, with investors absorbing nearly $20 billion of supply in the first week of June alone.
• For the month, short and intermediate yields declined 10-20bps while long rates were flat to slightly higher.
• The curve continued to steepen in June, with most segments hitting multi-year highs — 5s to15s ended at +118 basis points, its steepest level since 2017.
• The relative underperformance of municipals at the long end led to a cheapening of the 10-year m/T ratio which ended the month at 77%, up from 68% at the start of the year.
• Municipal credit spreads were broadly unchanged, continuing a trend observed throughout 2025. The extra carry of lower-quality names has accounted for most of the difference among the rating categories over the first half of the year.
• Credit fundamentals remain solid; however, we continue to closely monitor the potential implications of federal policy decisions.
• The market enters July from a position of strength: yields remain elevated, the curve is steep, and the uncertainty around the tax exemption has disappeared.