Jessica Lerner

The growth of the muni market comes as issuance surges, with the first half of the year seeing $280.64 billion of supply, up 14.3% year-over-year, according to LSEG.

MFS Investment Management predicts "compelling opportunities for muni investors" in the second half of the year.

Issuance this year has been "relentless" since the start of the year, while historically the "new-issue machine" takes a while to get rolling, said Scott Diamond, co-head of AM Municipal Fixed Income at Goldman Sachs.

This week has the July 4th holiday, with only $2.5 billion on tap in the primary bond market, though investors have tens of billions in reinvestment cash.

Issuance for the week of June 30 is estimated at $2.495 billion, with $2.039 billion of negotiated deals and $456.3 million of competitive deals on tap, according to LSEG.

Investors added $79.6 million to municipal bond mutual funds in the week ended Wednesday, following $110 million of inflows the prior week, according to LSEG Lipper data.

"The trend of heavy issuance that began last year has continued in the first half of 2025, surpassing even our rather optimistic expectations," said Barclays strategists Mikhail Foux, Grace Cen and Francisco San Emeterio.

The selloff highlights the lack of accurate pricing and credit information across the speculative-grade muni market.

So far, the financial market reaction has been limited, said Paul Christopher, head of global investment strategy at Wells Fargo Investment Institute.

With one full week of June left and the end of the second quarter approaching, the week was "a sort of Groundhog Day for municipal yields," said Kim Olsan, senior fixed income portfolio manager at NewSquare Capital.

The FOMC's decision to "hold rates steady while signaling only two cuts this year was a subtle but powerful shift," said James Pruskowski, CIO at 16Rock Asset Management.

The rock-bottom prices show the risks of a high-yield market where liquidity is famously limited.

"We expect no change to rates but [for the Federal Open Market Committee] to continue to signal that rate cuts should still be expected," said Cooper Howard, a fixed income strategist at Charles Schwab.

In the first quarter of this year, 18.6% of new-issue volume in the market was traded electronically, up from 17.3% last year, according to data from Coalition Greenwich.

After two weeks of a deluge of issuance, supply drops off "given the FOMC meeting and Juneteenth holiday, so we expect investors will refocus on the secondary market and look to scoop up any value left behind in the wake of the issuance onslaught," said Birch Creek strategists.

Issuance takes a bit of a breather due to the Juneteenth holiday and the Federal Open Market Committee meeting, Barclays strategists said.

BlackRock strategists are "constructive" on munis for multiple reasons and think the current market environment presents itself as a buying opportunity, especially as issuance continues to be elevated and provides "ample ability" to source bonds in the primary market.

A "lighter-than-anticipated CPI report" led to UST firmness, as it "quelled fears about tariff-related inflation and boosted enthusiasm that the Fed will cut rates in the next two or three meetings," said José Torres, senior economist at Interactive Brokers.

The elevated new-issue market comes on the heels of one of the largest weeks of issuance.

"The broader themes from the demand perspective are that it's choppy and people are not necessarily jumping into high-yield munis with both feet," said First Eagle's John Miller.