Municipal Bond Snapshot July 2025

Key Takeaways:

• The muni curve steepened sharply in July, reaching decade highs in several segments, as short yields fell and long yields rose in line with Treasuries.
• New issuance set another monthly record, but pockets of value emerged as concessions increased, and crossover buyers stepped in at the long end.
• Going forward, intermediate and long maturities offer compelling value despite limited near-term technical support.

MUNICIPAL BOND MARKET UPDATE

• Treasury yields rose in July, led by the front end, as sticky inflation and economic strength reduced expectations for near-term Fed cuts.
• The FOMC held rates steady at its July meeting as Fed Chair Jerome Powell leaned hawkish on the risks from tariffs.
• Municipal yields declined up to 19bps inside five years but rose 6–13bps beyond 10 years, driving some segments of the curve to their steepest levels in a decade or more.
• At +228bps, the muni 2s30s spread ended the month more than double that of Treasuries (+94bps).
• Credit spreads were mostly unchanged, though high yield came under pressure following Brightline’s decision to defer an interest payment on junior debt.
• Despite another month of record supply, buyer demand remained strong in the front end, where retail interest stayed concentrated.
• At the long end, growing concessions and yields approaching 5% began to attract crossover investors, helping to stabilize the market.
• States continue to navigate the current environment from a position of strength, with solid reserves, manageable cost structures, and a stable revenue environment.
• Intermediate and longer-term bonds enter August offering attractive value from many angles – absolute yields, steep curve structure, and fair value ratios versus Treasuries.