Municipal Bond Snapshot August 2025

Key Takeaways:

• The municipal curve bull steepened in August, piggy-backing a similar move in the Treasury market.
• New issuance continued at an elevated pace, while demand remained solid but tilted toward shorter maturities.
• Munis enter the fall on solid footing with high nominal yields, a historically steep curve and cheaper valuations versus Treasuries.

MUNICIPAL BOND MARKET UPDATE

• The Treasury curve steepened in August, as a weak July employment report drove short-term yields lower while concerns over inflation and Fed independence kept long yields elevated.
• Municipals followed the direction of Treasuries with yields declining 6-20bps over the month.
• Issuance topped $50 billion for a fifth straight month pushing year-to-date supply approximately 15% above last year’s record pace.
• Demand favored shorter maturities despite the routine availability of yields over 4.0% in the 10-15 year area of the curve.
• Muni curve steepness now at decade highs: 5s10s +86bps, 5s15s +153bps, 10s20s +116bps, all at least double their 10-year averages.
• Relative value ratios finished August mixed, with short ratios at two-year tights, intermediates near fair value and the long end historically cheap.
• Credit spreads were largely unchanged in August, with little performance difference among the rating categories.
• Two significant upgrades during the month included New Jersey GO, attributed to continued balance sheet repair and pension discipline, and New York MTA, on improved budget stability and new revenue from congestion pricing.
• Munis enter September with absolute yields 125-150bps above their 10-year average, the curve as steep as its been in more than a decade and credit fundamentals strong due to elevated reserves.