Municipal Bond Snapshot September 2025

Key Takeaways:

• Municipals posted their best monthly return since December of 2023, recapturing much of the year-to-date underperformance versus the broader market.
• The muni curve flattened sharply in September with the long end experiencing the largest declines in yield.
• Despite the rally, tax-exempt yields remain above long-term averages and expected return from roll is still compelling.

MUNICIPAL BOND MARKET UPDATE

• The Treasury curve bull flattened in September, as employment risks outweighed concerns over inflation.
• Tax-exempt yields declined, led by the long end, where rates fell more than 30bps.
• Issuance in September decelerated (-10% YoY) off of its record pace providing an additional boost to the market.
• Despite September historically being a weaker seasonal period, cyclically high yields attracted the attention of buyers.
• Most segments of the curve are still slightly steeper on the quarter and significantly steeper on the year.
• The 5s/15s slope ended September at +122bps, down 30bps on the month, but up 76bps for the year and wide to its long-term average.
• Relative value ratios richened with the 10-year m/T ending the month at 70%.
• Credit spreads were little changed. The market seems less prone to move down in credit given historically attractive yields available in higher quality.
• Two notable upgrades during the month included Connecticut GO and New Jersey GO, reflecting budget surpluses and improved pensions.
• Munis enter the fourth quarter in good shape with historically elevated yields and a curve that remains steep. Any near-term volatility could provide an attractive entry point before we move toward a more supportive technical environment at year end.