The municipal bond market saw another record-setting year of issuance during the first half of 2026, as elevated construction and labor costs, dwindling COVID-era aid, and a backlog of projects that issuers can no longer defer contributed to supply approaching $300 billion through the first six months of the year.
The muni market produced $294.884 billion of debt issuance in the first half of 2026, up 5.8% from the previous record of $278.694 billion in the first half of 2025, according to LSEG data.
Coming into this year, municipal bond supply projections ranged from a low of $520 billion to a high of $750-plus billion, with most firms expecting issuance this year to be at least $600 billion, easily surpassing 2025's record. Since then, some have revised their issuance forecasts, gravitating toward the expected $600 billion figure.
Supply started off the year "somewhat stronger than in 2025, before moderating slightly versus last year in the past several months, but annualizing first-half volumes points to a full-year total broadly in line with last year, perhaps slightly higher, leading to yet another record, with net issuance reaching $250–260bn and bringing the asset class a step closer to the $5 trillion mark," said Barclays strategists.
This year, issuers have largely stopped waiting for lower interest rates, said Travis McGahey, vice president at investment manager Payden & Rygel.
"After two years of hoping financing costs would come down, many have accepted that delaying critical infrastructure projects often becomes more expensive than borrowing at today's rates," he said.
Project costs have risen over the past several years, driven by the "double whammy" of interest rates and inflation, as both upfront and ongoing costs have increased, said Cameron Parks, head of public finance origination at Truist.
These increased costs have led to larger deal sizes in some cases. For instance, an issuer may have come to market with a $50 million deal, but if the issuer came now, the deal size may be $75 million to account for increased project costs, said Miguel Laranjeiro, investment director for municipal debt at Aberdeen Investments.
Dwindling pandemic-era aid has also led to increased borrowing. During 2021 through 2023, there was stimulus, but that has dried up over the past several years, Parks said.
However, post-COVID is a "new environment where you feel that stimulus is gone, and you have inflation, and you have rates that are higher, so all three of those things factor into an elevated issuance environment," he said.
One of the largest contributors to the rise in issuance is the prepay energy sector, as sizable prepay deals come to market on a regular basis,
"As electricity demand continues to grow, driven in part by AI, data centers and broader electrification, more public power agencies are partnering with a broader range of corporate counterparties through prepaid gas structures to secure long-term fuel supplies," McGahey said.
With supply on track to hit $600 billion in 2026, the muni market is in line for another year of record supply and the third consecutive year of year-over-year growth.
"Typically, you see some growth, and then you see some kind of falloff or flattening, whether it's an economic cycle, whether it's stimulus money, whether it's rates to some degree," Parks said.
This points to a "structural shift" in issuance rather than a temporary spike, McGahey said.
"Infrastructure needs haven't gone away, federal support has faded, and issuers have realized they can't indefinitely delay borrowing while waiting for a better rate environment," he said. "If rates remain around current levels, elevated issuance is likely to become a feature of the municipal market rather than a one-off event."
Tax-exempt issuance increased 8% to $269.519 billion in 4,150 issues from $249.593 billion in 4,087 issues in the first half of 2025.
Taxable issuance fell 3.3% to $17.501 billion in 444 issues from $18.096 billion in 449 issues the previous year. Alternative minimum tax issuance declined 28.5% to $7.864 billion from $11.005 billion.
New-money issuance ticked down 2% to $203.077 billion from $207.133 billion. Refundings were up 47.1% to $44.517 billion from $30.273 billion.
Issuance of revenue bonds increased 8.7% to $190.823 billion from $175.61 billion in the first half of 2025, and general obligation bond sales ticked up 0.9% to $104.061 billion from $103.083 billion over the same time period.
Negotiated deal volume was up 4.9% to $236.07 billion from $225.055 billion a year prior. Competitive sales increased 9.6% to $58.814 billion from $53.639 billion.
Deals wrapped by bond insurance totaled $21.424 billion, down 22.3% from $27.572 billion.
Bank-qualified issuance fell 12.4% to $3.749 million in 921 deals from $4.28 million in 1,033 deals.
Among the states, California accounted for the most volume in the first half of the year.
Issuers in the Golden State sold $43.928 billion, a 3.3% decrease year-over-year. Texas was second with $33.734 billion, up 12.8% year-over-year, and New York was third with $26.944 billion, down 10.5%. Massachusetts came in fourth with $11.736 billion, up 40%, and Alabama rounded out the top five with $11.514 billion, a 105.8% increase from 2025.
The rest of the top 10 are: Florida with $11.049 billion, up 9%; Pennsylvania with $10.479 billion, up 6.5%; Illinois with $8.574 billion, up 25.5%; Washington at $8.489 billion, up 24.9%; and Michigan with $7.096 billion, a 4.3% decrease from 1H 2025.
