Two recent large taxable deals highlight the continued interest in the market due to relatively lower ratios, lower default rates than corporates and more spread from a credit perspective. Despite this, demand remains the same as in recent years.
Last week, Jefferies priced for New York City (Aa2/AA/AA/AA/) $2.25 billion of taxable general obligation bonds, while BofA Securities priced for Hawaii (Aa2/AA+/AA/) $1.5 billion of taxable GOs.
The two large deals contributed to the $4 billion-plus taxable issuance seen last week, the highest weekly taxable total since March 2023. This "feast" of taxable issuance provided a "rare opportunity for investment-grade buyers — who have been priced out of the tax-exempt market — to add muni credit to their portfolios," said Pat Luby, head of municipal strategy at CreditSights.
Franklin Templeton bought a little of the NYC taxable deal but not as much as it hoped, said James Conn, senior vice president and portfolio manager for the firm.
The firm is fairly active in the taxable space, with its decision-making dependent on clients and its interest in a particular deal, he said.
"We did have a little bit of inflow and a little bit of outflow. So it was an opportunity for us to reshuffle the deck a little bit and get some more current trading-type structures and do our portfolios," he said.
The large taxable deals caught the market a little off guard, but those deals were well-subscribed, Conn said.
"From a taxable buyer's viewpoint, they'd like to see more, but there is nothing on the forward calendar that's very large," he said.
Taxable issuance is expected to hit $40 billion this year, per Nuveen. This is on par with recent years, but down from 2020 and 2021, when taxable issuance was at $144.208 billion and $118.754 billion, respectively.
Currently, taxables are not as large a share of the overall supply so far this year, but the New York City and Hawaii taxable GOs point to the currently available "comparative values," said Kim Olsan, senior fixed income portfolio manager at NewSquare Capital.
Spreads in the New York City pricing brought a concession to similar corporates, she noted.
The five-year tranche priced at +58/UST for a yield of 4.476%, or around 18 basis points wide to levels of Aa3/AA Meta 4.55s in 2031, according to Olsan.
Intermediate spreads widened further in the New York City deal, with the 10-year pricing at +77/UST. A BlackRock 4.90% due in 2035 carried a recent offering spread of +40/UST, she said.
In the 20-year tranche, New York's spread was +78/UST, or almost 30 basis points above an offering of GOOGL (Alphabet) 5.50s due in 2046, she noted.
"The scale of a high-grade state GO gives taxable buyers liquidity and credit advantages," Olsan said.
Hawaii offered GOs across various maturities. The five-, 10- and 20-year tranches priced at similar spreads to the Meta, BlackRock and Alphabet bonds, she said.
Overall, taxables look attractive compared to tax-exempts and market participants tend to get a little bit more spread from a credit perspective, said Chris Brigati, managing director and CIO at SWBC.
For example, single-A taxable munis offer some decent spread and opportunities on a relative basis, he said.
Additionally, relatively low ratios in the muni market — ratios 10 years and in are below 70% — continue to offer decent opportunities for taxables as an alternative investment, Brigati said.
That has been seen across the board, especially among higher tax bracket investors, he said.
From a credit perspective, munis are "habitually cheap," and taxable munis are another avenue to access that market, Conn said.
"It does tap into a little bit different buyer base than the tax-exempt market, but the fundamentals are the same whether they're tax-exempt or taxable, and the valuation process is identical," he said.
Currently, taxable munis are a better option than corporates, based on the indices and lower default rates, said Peter Delahunt, managing director and head of the municipal bond department at StoneX.
"Not only do you have a better credit default scenario, but you also have a better yield to worst pick up in taxable munis. They're a good option now," he said.
There are so many investors whose portfolios are underweight muni credit risk and they can't justify buying tax-exempt bonds, Luby said.
"So [on] the rare occasion when there's a large taxable deal that has decent size per CUSIP, there would be a lot of demand from the sidelines," he said.
Even the smaller taxable deals — which are more common than the limited mega deals — have no difficulty getting put away, Luby said.
Demand for taxables has been there, but it's been "dormant," Luby said.
Many participants have been quietly holding on to their positions and hoping they don't get called. And last year's acceleration in redeeming Build America Bonds "woke" a lot of those investors up because many BABs were called, a trend that continued into 2026, though on a smaller scale, he said.
Having munis being called and forced to replace them with corporate credit risk is not the preferred way to reinvest, Luby said.
Those investors would rather replace their called BABs with muni credit risk, but there's just been limited opportunities to do that, he said.
Larger taxable deals could spur issuers to see more benefit to being active in the taxable market, even if it's for financings where they can do tax-exempt, Luby said.
Some of SWBC's bankers have talked with some issuers and they appear to be more open to things that they haven't been doing in the past, such as taxable issuance, or looking at a deal and saying, "We're bringing a decent sized deal for that particular issue. We're looking at the possibility of splitting it up and doing a portion of it taxable," where in the past they might not have necessarily done so, Brigati said.
In coming years, there may be more large and regular issuers in the market that are interested in tapping into that demand for taxables, he said.
However, increased supply in the taxable market would have to come from a BABs-like event or a change in market structure, Conn said.
"Unfortunately, the market structure right now is such that tax-exempt borrowing for issuers is so much more economically advantageous. So they're not going to say, 'We'll pay another 100 basis points to borrow in the taxable market.' It just doesn't pencil out," he said.
