Higher costs, growing inflation, dwindling COVID-era aid and a backlog of long-delayed projects led states and governments to come to the municipal bond market this year at a pace set to meet 2025's record of nearly $580 billion, if not break it.
Muni volume currently stands at $372.991 billion, up only 0.8% from $370.022 billion at the same time last year. Now that the second half is underway, several firms revisited their supply projections for the year.
Initial supply projections for this year ranged from a high of $750-plus billion to a low of $520 billion, with most firms expecting issuance this year to hover around $600 billion.
As the year progressed, some revised their forecasts, narrowing the range of issuance predictions from $700 billion to $555 billion, as more shops expect issuance to be around $600 billion.
On the high end of 2026 predictions was $750 billion from James Pruskowski, managing director at Hennion & Walsh.
He has since revised his forecast downward to $700 billion as "rates got in the way of the calendar."
"Every driver I called at the start of the year is still running hot; mega-infrastructure, housing, climate, data centers," Pruskowski said.
The problem is not demand but rather "issuers do not love selling bonds when Treasury rates are as high as they are for as long as they have been this year. That is a timing issue, not a thesis change," he said.
BofA Securities initially forecast supply at $640 billion but revised it to $600 billion at the end of March.
Both new-money and refundings were lower than expected during the first quarter of the year, BofA strategists said.
While they expected "new money growth to be slower than 2023-2025's double-digit rates due to state and local governments' enlarged outstanding debt, slowing down to 3% growth was not something we anticipated given the 2.5% GDP growth expected in 2026," they said.
Therefore, they revised projected new-money issuance to $443 billion from $470 billion.
Refunding volume is also quite "disappointing" despite 5% year-over-year growth in Q1, BofA strategists said.
The 10-year AAA yield was low in the fourth quarter of 2025 and in the first two months of 2026, and the pool of bonds eligible for refunding is also larger than last year, they said.
"The fact that low yields only brought 5% refunding growth suggests that refunding volume in 2026 will not be much higher than 2025's $150 billion," BofA strategists said.
Therefore, the firm revised its refunding forecast to $157 billion from $170 billion.
SWBC has moved its supply forecast higher to $610 billion-$590 billion, up from the original prediction of $580 billion-$600 billion, said Chris Brigati, managing director and CIO at the firm.
Supply during the first half was in the middle of Brigati's target range, and with the strong supply so far in August, he opted to raise his forecast slightly.
"If issuers still see the fact that people are buying the paper, we still have needs to fulfill and projects to finance, the issuer side is going to remain robust enough to warrant the continued elevated supply," he said.
A slowdown in issuance could occur if some of the
Both CreditSights and Ramirez opted not to revise their $600 billion forecasts.
Year-to-date issuance has been tracking close to CreditSights' estimate, said Pat Luby, head of municipal strategy at the firm.
Municipal Market Analytics said issuance could still be $600 billion this year, but the bias is now toward lower than higher, said Matt Fabian, president at the firm.
As of Friday, issuance was almost "on top" of last year, but there remain enough announced issuance plans, and enough need for extra borrowing, mostly on the new money side, that it's still very reasonable that supply could hit $600 billion before the end of the year, he said.
Now, though, it's more a "push," as supply appeared to slow over the summer to the market's detriment, Fabian said.
Furthermore, it's been disappointing that issuers haven't been able to bring more bonds, but there's still a likelihood that they could before the year-end, he noted.
J.P. Morgan revised its supply forecast downward to $580 billion from $600 billion in mid-June.
Long-term tax-exempt issuance through June 5 remained on a record-setting path of $226 billion, up 6% year-over-year, while taxable issuance fell to $16 billion, down 23% over the same time period.
Sector-specific drivers of the growth of tax-exempt issuance included "the expiration of federal fiscal stimulus, historically deferred new infrastructure and maintenance, rapid growth of data centers, climate resiliency, regulatory compliance, technology upgrades, need for increased capacity, bolster financial flexibility and to shore up balance sheets," J.P. Morgan strategists said.
Furthermore, a common driver across all tax-exempt sectors is the "significant post-pandemic increase in cumulative inflation and public project costs," they said.
Therefore, "with project costs still elevated and given the proximity of actual [year-to-date] long-term tax-exempt supply to our forecast for the period … we think it makes sense to maintain our full-year forecast of around $545 billion in tax-exempts," they said.
That said, with taxable issuance, including corporate CUSIPs, down year over year, J.P. Morgan strategists revised its forecast for taxable munis to $35 billion from $55 billion.
Barclays has revised its projection upward to $580 billion-$600 billion from $520 billion
"Based on the first six months of the year, issuance appears likely to track close to 2025 levels," Barclays strategists led by Mikhail Foux said. "Activity started 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."
The firm expects to see more new money versus its previous forecast, now $425 billion, while it keeps its refundings essentially unchanged at $165 billion.
The Bond Buyer's market intelligence analyst, Jeff Lipton, has not revised his forecast of $570 billion-$590 billion.
HilltopSecurities' original forecast of $555 billion holds. The forecast was already on the low end of most predictions.
If issuance averages about $50 billion per month through October and then slows in November and December, total supply could finish near the mid-$570 billion range, said Tom Kozlik, managing director and head of public policy and municipal strategy at the firm.
"That would be above our forecast, but not enough by itself to change our base case," he said. "We would need to see a sustained trend that makes $600 billion more likely than a mid-$570 billion finish before revising our forecast higher."
