Bond supply, issuance on the upswing in 2026

The Bond Buyer's 2026 Predictions Report

What could municipal bond volume look like in 2026?

Key takeaway: A majority of respondents feel total muni bond volume will exceed $500 billion.

Last year was a record year for bond volume, as LSEG data showed supply jumped 12.9% from 2024 to $579.936 billion in 2025. Industry experts are predicting 2026 will be another strong year for municipal bond issuance.

More than half of all municipal finance respondents (53%) expect total municipal bond volume, both tax-exempt and taxable, to exceed $500 billion in 2026. Roughly 36% are forecasting volume to be around $500 billion, 8% say around $400 billion and 3% say less than $400 billion.

The legislative fears over the possible elimination of the tax exemption created a surge in volume at the start of last year, which caused many firms to revise their 2025 estimates before midyear. While estimates see 2026 as another banner year for volume, interest rates and macroeconomic policy could play into the cadence of new deals.

Speaking at The Bond Buyer's California Public Finance conference last year, Oscar Padilla, an S&P Global Ratings director, said states are on track to issue "larger, but fewer deals."

"There is a lot in the pipeline, at least here in California that we've heard of; big picture, we'll see some upside next year," Padilla said.

What is the bottom line for infrastructure funding over the next decade?

Key takeaway: The majority of professionals (78%) say annual muni bond volume should reach $750 billion or more to meet infrastructure funding needs.

Following 2025 predictions that current legislative efforts aren't enough to meet infrastructure funding needs, municipal finance professionals offered insight on just how much volume will be needed in the next decade.

The greatest share of respondents (47%) said annual municipal bond volume needs to be at least $1 trillion or more to fund infrastructure projects across the U.S. over the next decade.

Close to a third of municipal finance professionals (31%) said annual volume needs to be around $750 billion for adequate infrastructure funding, 18% said roughly $500 billion and 4% said roughly $400 billion.

Issuers hamstrung by federal funding cuts, elevated construction costs and policy changes are under increased pressure to meet municipal funding needs. This has led many to turn to new borrowing avenues.

There's an increasing private-sector presence in infrastructure funding, and municipal finance professionals say this is due in part to the growth of infrastructure as an asset class. "That in turn is helping governments close the funding gaps between what they can afford and what their citizens need," Jon Phillips, chief executive of the Global Infrastructure Investor Association, told The Bond Buyer.

Will 2026 bond supply outpace 2025 levels?

Key takeaway: Overall supply, tax-exempt bonds and revenue bonds all show strong predictions for growth in 2026.

Bond supply looks to be strong for this year, save for some market segments.

More than half of respondents predict that in 2026, overall supply (53%), tax-exempt bonds (53%), revenue bonds (53%) and short-term notes (52%) will be higher to some degree than in 2025.

General obligation bonds saw 48% of respondents expecting increases in supply, 45% expecting no change and 8% expecting decreases. Taxable bonds saw similar results with 43% predicting increases, 45% expecting no change and 12% expecting a decrease.

Green or ESG-labeled bonds was the only category that had a greater share of predictions for lowered supply as opposed to higher supply. Only 12% predicted supply would increase in 2026, while 36% said it would remain the same and 51% said it would decrease.

Experts are predicting that with the tapering of COVID-era financial stimulus programs and the rise in construction and labor costs, supply will remain lively.

Bryan Derdenger, managing director at Baird, told The Bond Buyer that while the market has started slow in years past, supply generally goes on to grow exponentially in the following months.

"Our market is very seasonal in the sense that starting in January, it has a slow build [up] of supply and then kind of hits its peak supply in the summer months, and then starts to wane in November and December … because of the holiday season," Derdenger said.

Issuance levels to rise across the board in 2026

Key takeaway: Utilities, transportation and general government sectors drew strong expectations for issuance growth in the year ahead.

Most sectors are predicted to see issuance levels rise in 2026.

More than two-thirds of respondents (69%) expect issuance levels for utility bonds to trend higher this year than in 2025, while 26% predict no change and 5% expect a decrease.

Other sectors that saw more than half of respondents predict increases include transportation (65%), general government (61%) and housing (55%). Healthcare (50%) also recorded a significant share of municipal finance professionals predicting increases.

Higher education was the most mixed, with 31% of respondents predicting increases, 43% predicting no change and 26% predicting decreases.

Rising costs, inflation and a growing backlog of projects have all contributed to elevated issuance levels. This has created an imbalance between supply and demand, with demand outweighing supply.

February 2026 issuance at $40.336 billion in 632 issues was roughly flat, down only 1.1% year-over-year from $40.772 billion across 731 transactions. This is the third-highest issuance figure for the month of February.

Bob Lind, co-founder of Lind Capital Markets, told The Bond Buyer the "major theme of prolific issuance in the municipal market" continued for February as "growing capital requirements for municipal infrastructure drove an influx of borrowers to the new-issue market."

The reasoning behind the higher than normal issuance, according to Jeremy Holtz, portfolio manager at Income Research + Management, is the backlog of projects and infrastructure improvements that goes as far back as the pandemic. Projects now have to contend with higher material and construction costs, which in turn puts a strain on issuers.

The increased issuance is the result of a mix of larger deals as well as more issuers, including some new ones and those that have not issued in years, coming to market, he said.

Issuance levels (mostly) rise or stay the course for 2026

Key takeaway: Healthcare was the sector most poised to see sizable growth in issuance levels in the high-yield market.

In the high-yield muni market experts expect issuance levels to rise year-over-year.

Healthcare (47%) was the sector in the high-yield muni market that had the largest share of respondents predicting increases. Roughly 41% say issuance levels will say the same and 12% predict decreases.

Transportation (42%), housing (42%), utilities (36%), higher education (32%) and general government (27%) all saw at least a quarter of respondents predict increases. 

Demand in the high-yield municipal bond market is performing strongly for the first two months of the year, with deals being pulled off the shelf to re-enter the market or land with successful pricing. Limited supply and heightened demand "has driven outsized subscription levels and sharp price moves when new issues break, particularly in newer or less widely held credits," Justin Horowitz, senior portfolio manager at Birch Creek, told The Bond Buyer.

In 2025, education and healthcare were the two sectors that saw the most significant growth in volume. Education was up 33.8% to $150 billion and healthcare expanded 26.2% to $48.8 billion.

Healthcare and education issuers "were particularly concerned about talk in Washington of ending the tax-exemption for municipal bonds," said Peter DeGroot, managing director of municipal bond strategy at J.P. Morgan. "Since they were not state or local government issuers, they thought it more likely any end to the tax exemption would hit them rather than hit other muni issuers."

This kicked off "the process of approving the bonds in the first half of the year before the One Big Beautiful Bill Act was passed," he said.