Municipals were little changed Friday ahead of another hefty week of supply and analysts see the asset class well positioned into the second half.
After trailing most other U.S. fixed income markets in the first half, the municipal bond market may be poised for a rally in the second half but is missing one key ingredient to get started, BofA Securities analysts said.
As we enter the second half, the BofA's Global Research team led by Yingchen Li and Ian Rogow sees "a subtle shift in market sentiment. First, the newly signed One Big Beautiful Bill Act (OBBBA) removes any overhanging concern about the tax-exempt status of munis, which may have been partially responsible for the flattish long-term muni yields over the past two months, along with a sideways Treasury market and large June muni issuance volumes."
Second, the minutes of the Federal Reserve's June meeting, released Wednesday, "showed that, while still in a neutral waiting mode, the Fed now appears to have optimism regarding inflation as more members expressed a desire to cut rates later this year. Third, munis' supply/demand technicals are the strongest in July while muni/Treasury ratios are neutral or slightly cheap."
"The only thing missing," they said, "is a directionally bullish Treasury market, which may take more time to arrive. Over the past few years, every such pivot coincided with a clear change signal in the Fed's forward posture. In 2022 and 2023, this was in October. In both cases, the 10-year muni AAA yield fell approximately 140 basis points during the following months. For 2024, this pivot was in May, and the 10-yr muni AAA yield fell a total of 60 bps. For 2025, such a pivot is still in the making."
In the meantime, the BofA analysts advise muni investors "to remain patient and wait for the Fed's clear signal of a posture change and stay invested for coupon clipping. We have been advising adding durations for several weeks. Currently, we do not see any credible bearish element developing on the horizon. Mutual fund flows appear to support this. Despite a flattish yield market for long-term munis, inflows to munis have been persistently positive and large."
Regarding new-issue volume, which is on a record pace so far this year, the BofA analysts believe "any hope for subsiding issuance volumes in the second half should be set aside. Some market participants seem to think that large issuance volumes in the first half had something to do with the tax-exempt status concern (and thus some pull-forward issuance in June)."
In fact, "June is always one of the largest issuance months of any given year. The fundamental reasons for the larger issuance trend are: the strengthened financial status of state and local governments since 2021, good U.S. GDP growth and large unfulfilled infrastructure needs."
Kim Olsan, senior fixed income portfolio manager at NewSquare Capital, agrees. Issuance recently passed $300 billion, the earliest ever, as "monthly volume has grown consecutively larger each month in 2025 (from $36 billion in January to $56 billion in June), and it's realistic to expect that trend to continue while redemption credits remain high," she said.
New issue calendar
Issuance for the week of July 14 is estimated to be $8.966 billion, with $7.773 billion of negotiated deals and $1.193 billion of competitive transactions.
The New York State Transportation Development Corp. leads the negotiated calendar with $1.367 billion of special facilities revenue bonds.
The competitive calendar is led by Rochester, New York, with $171 million bond anticipation notes.
Primary to come
The New York State Transportation Development Corp. (Baa3/NR/BBB-/BBB-) is set to price Wednesday $1.367 billion special facilities revenue bonds (Kennedy Airport New Terminal One Project). Serials, terms. BofA.
The city and County of Honolulu (/AA+//) is set to price Wednesday $695 million GOs. Serials. BofA.
Salt Lake City (A1/A+/NR/AA) is set to price Thursday $608.6 million airport revenue bonds. Serials, terms. JPMorgan.
The Utah Transit Authority (Aa2/AA+/AA/) is set to price Wednesday $450 million sales tax revenue and refunding bonds. Serials, terms. JPMorgan.
The New York State Environmental Facilities Corp. (Aaa/AAA/AAA/) is set to price Tuesday $369.97 million clean water revolving fund revenue refunding bonds. Serials, terms. BofA.
Dripping Springs Independent School District, Texas, (Aaa/AAA//) is set to price Tuesday $328 million PSF-backed unlimited tax school building bonds. Serials. Raymond James.
Carrollton-Farmers Branch ISD, Texas, (Aaa/AAA//), is set to price Wednesday $307.9 million PSF-backed unlimited tax school building bonds. Serials. BOK Financial.
The New Hampshire Municipal Bond Bank (Aa2/AA+//) is set to price Tuesday $232 million GOs. Serials, terms. Raymond James.
The San Jose USD (Aaa/AAA//) is set to price Wednesday $219 million GOs. Serials. Stifel, Nicolaus.
Irving ISD, Texas, (Aaa/AAA//) is set to price Tuesday $214.98 million PSF-backed unlimited tax school building bonds. Serials. BOK Financial.
The Wisconsin Public Finance Authority (NR/A/A+/NR) is set to price Wednesday $194.38 million hospital revenue bonds (Renown Regional Medical Center Project). Serials, terms. Barclays.
The Wisconsin Public Finance Authority (NR/NR/NR/NR) is set to price $175 million tax-exempt pooled securities. JPMorgan.
Red Oak ISD, Texas, (Aaa///) is set to price Tuesday $172.44 million PSF-backed unlimited tax school building bonds. Serials, terms. Baird.
The California Statewide Communities Development Authority is set to price Wednesday $151.98 million Cal-Mortgage Loan insured revenue and refunding bonds (Sequoia Living Project). Ziegler.
The Wisconsin Public Finance Authority is set to price Thursday $150 million municipal certificates (Cuyahoga River Capital Portfolio). HilltopSecurities.
Capital Impact Partners, D.C., (/A+/A+/) is set to price Tuesday $150 million taxable bonds. Mesirow.
Charlotte, North Carolina, (Aaa/AAA//) is set to price Thursday $145.86 million water and sewer system refunding revenue bonds. Serials. BofA.
The Rhode Island Housing and Mortgage Finance Corp. (Aa1/AA+/NR/NR) is set to price Thursday $133.7 million homeownership opportunity bonds. JPMorgan.
The Grapevine-Colleyvill ISD, Texas, is set to price Tuesday $126 million unlimited tax refunding bonds. Piper Sandler.
The Ohio Housing Finance Agency (Aa1///) is set to price Thursday $125 million residential mortgage revenue bonds (social bonds). Serials, terms. BofA.
Clarkston Community Schools, Michigan, (Aa1///) is set to price Tuesday $122.725 million School Bond Qualification and Loan Program-backed GOs. Serials. Huntington Securities.
Anne Arundel County, Maryland, (Aaa/AAA/AAA/NR) is set to price Tuesday $107.49 million GOs. Serials. BofA.
King County Housing Authority, Washington, is set to price Wednesday $102 million pooled housing refunding revenue bonds. Serials, terms. KeyBanc.
Competitive
Rochester, New York, is set to sell $171 million bond anticipation notes Wednesday at 11 a.m., Eastern.
Glendale, California, is set to sell $166.98 million electric revenue bonds Tuesday at 11 a.m., Eastern.
Rutherford County, Tennessee, is set to sell $108 million GO school bonds Tuesday at 10:30 a.m., Eastern.
The North Syracuse Central School District, New York, is set to sell $106.637 million bond anticipation notes Thursday at 11 a.m., Eastern.
Wakefield, Massachusetts, is set to sell $106 million GOs Thursday at 11 a.m., Eastern.
The Longview Independent School District, Texas, is set to sell $101 million PSF-backed unlimited tax school building bonds Tuesday at 11 a.m., Eastern.
