Municipal Bond Snapshot December 2025

Key Takeaways:

• Municipals were relatively steady in December, consolidating gains for the second consecutive month.
• Issuance slowed from its record levels while demand was supported by seasonal reinvestment.
• Tax-equivalent yields remain compelling, especially at the longer end of the curve, where yields finished December at their highest year-end levels since 2010.

MUNICIPAL BOND MARKET UPDATE

• Treasury yields edged higher in December as economic data failed to clarify the 2026 policy outlook.
• Tax-exempt yields were little changed, though long rates rose modestly.
• New issue volume stayed elevated but decelerated from its record pace, especially as the month progressed.
• Issuance was largely absorbed without disruption amid strong seasonal demand and attractive tax-equivalent yields.
• Muni/Treasury ratios were largely unchanged, leaving valuations generally stable heading into year-end.
• The curve steepened during the month with 2-year rates down 5bps, the belly of the curve up a few basis points, while 30-year yields rose 8bps. For the year as a whole, the muni curve saw its sharpest steepening since 2013.
• The back segments of the curve remain the steepest, both in absolute terms and relative to historical averages with 10s15s at +55bps and 10s20s at +117bps.
• Credit spreads were largely unchanged with little performance difference among investment-grade rating categories.
• A multi-notch downgrade of Brightline Florida deep into junk territory late in the year drew investor attention and pressured some high-yield muni funds.
• Munis enter 2026 facing many of the same crosscurrents as 2025 — rate uncertainty, elevated supply, and supportive credit conditions — creating opportunities for active management in the year ahead.