Municipal Bond Snapshot October 2025

Key Takeaways:

• Municipals posted gains for the month, the first positive October in six years and the strongest in over two decades.
• The muni curve twist flattened, led by a decline in the intermediate and long end.
• Demand was supported by strong mutual fund and ETF interest throughout the month.
• Despite the fall rally, tax-exempt yields remain above long-term averages and expected return from roll is still compelling.

MUNICIPAL BOND MARKET UPDATE

• Treasury yields declined on renewed trade tensions and a benign CPI report.
• Tax-exempt yields rose in the front end but declined further out the curve, continuing the September rally.
• Weakness at the short end has been evident since last month, but it’s too early to tell if it’s more than just a short-term technical.
• New issue volume topped $55 billion, down 17% year-over-year, continuing to decelerate off its record pace.
• Despite October historically being a weaker seasonal period, demand was supported by strong mutual fund and ETF inflows.
• The slope of the curve between two and 10 years dropped to 27 bps, down 75 bps since the end of August.
• However, the back end remains historically steep with 10s/20s ending October at +113 bps, nearly two standard deviations above its long-term average.
• Credit spreads were largely unchanged with little performance difference among investment-grade rating categories.
• Two positive rating actions during the month: Illinois was upgraded one notch by Moody’s and Fitch moved Los Angeles DWOP to a stable outlook from negative.
• We continue to see the best relative value beyond 10 years, where yield and roll remain compelling even after the rally.