Uncertainty has emerged as the dominant descriptor of forecasts about economic conditions, but municipal market participants are looking to a bright future for issuance levels.
"We are generally very optimistic about the year ahead," said Matt Fabian, president of Municipal Market Analytics.
"We think there's going to be another record year ahead of us in 2026 as far as dollars of bonds sold. We think that the market will internally remain well lubricated with nice flows of investor cash into the sector."
The comments came during a panel discussion produced by The Volcker Alliance on Tuesday.
Bond issuance for 2025 is still
The Federal Reserve has continued to ease interest rates down despite efforts to bring inflation to heel, which is fattening tax revenues.
"Inflation has grown state and local tax revenues," said Fabian. "If things are more expensive, then taxes on those things grow. So, 2025 is still in the running to have the lowest number of municipal bond defaults since 2009, when the data became available."
The Senate is currently struggling to address concerns about the end of health care subsidies and the shifting of Medicaid and Supplemental Assistance Program costs from the federal government to the states.
The transfers don't kick in until 2028 and S&P Global Ratings currently
The clampdown on immigration is a concern "in labor-sensitive sectors where immigrants account for a large share of the workforce, such as construction, hospitality, and agriculture," said S&P.
"This will drive up capital and, potentially, operating costs for issuers."
Fitch Ratings is reading the delayed job numbers from the Bureau of Labor Statistics and having similar thoughts.
"We just got the October and November jobs data today, and frankly, it's not pretty," said Eric Kim, senior director at Fitch. "The average monthly gain in jobs so far this year is the worst we've seen since the depths of the covid 19 pandemic."
Fitch's report on what's coming for state and municipalities in 2026 includes four rating upgrades, the usual concerns about the coming effects of the One Big Beautiful Bill Act and a stable rating outlook.
"The stability reflects the fundamental strengths of most state and local governments, including broad and diverse revenue bases, control over revenues and spending, moderate long-term liabilities and sound financial cushions," said Kim.
OBBBA spared the tax exemption on municipal bonds, loosened restrictions on Low-Income Housing Tax Credits which rely on private activity bonds and raised the cap on the state and local tax deductions.
Those provisions were mostly seen as positive moves for munis. Some economists are also touting that OBBBA-related growth will draw in more investors. The second quarter of 2025 clocked 3.8% growth in GDP with estimates for the third quarter hovering at 3.6%.
"Our view is that Gross Domestic Product growth will begin to accelerate over the coming quarters," said Torsten Slok, a partner and chief economist at Apollo Global Management.
"Perhaps most importantly, for municipal bonds, the level of yields is likely going to stay higher for longer, simply because we still have an inflation level that's around 3%."
The Tax Foundation has also
"Increased economic growth reduces the cost of the bill to about $3 trillion over the next decade," writes William McBride, chief economist at the Tax Foundation.
"Added to the cost is about $700 billion in interest payments on debt issued to finance the deficits, resulting in a total deficit increase of nearly $3.8 trillion over the next decade."
The Tax Foundation calculates that tariffs will pay for about half the cost of lost tax revenue resulting from OBBBA.
