Underwriting spreads for all bonds rose in 2025, continuing the upward trend from 2024, which saw spreads rise more than pennies for the first time in 15 years.
Underwriting spreads rose to $4.30 in 2025 from $4.23 in 2024. Spreads on negotiated bonds rose to $4.64 in 2025 from $4.47 in 2024, while spreads on competitive deals decreased to $1.78 from 2024's $2.69, according to LSEG data.
Refunding spreads increased, rising to $4.24 in 2025 from $3.37 in 2024, while new-money decreased to $4.40 from $4.66 over the same period, per LSEG.
The gross underwriting spread is the payment or discount that an underwriter receives for marketing a deal. It is calculated as the dollar amount of the underwriting discount per $1,000 of an issue.
"Spreads widened in 2025 because underwriters were absorbing more rate volatility, more distribution risk and greater balance sheet exposure," said James Pruskowski, managing director at Hennion & Walsh.
Concurrently, "record and persistent supply hit a market where dealer balance sheets were still constrained and spreads adjusted accordingly," he said.
This is the second year of underwriting spreads rising more than a few cents. Prior to that, spreads fell for 15 years, with slight fluctuations, declining from 2009's high of $6.21 to 2022's low of $3.64.
The one exception was 2021, when rates were very low and "deals were flying off the shelves, and you were pricing deals that would have sub-one handle coupons on the front end," said Ron Banaszek, co-head of public finance and lead underwriter at Blaylock Van.
Underwriting spreads then moved lower in 2022 — a time when interest rates rose significantly due to the Federal Reserve's aggressive monetary tightening campaign, he said — and remained stagnant in 2023 before rising in 2024 through 2025.
The market had gotten to a state where it was a consistent decline in underwriter takedown and it "hit the bottom of where you could get good execution based on the compensation that was being provided to the firm," said Ajay Thomas, head of public finance at FHN Financial.
And given the complexity of the deals in the market and the level of compensation where issuers needed to provide firms with incentives to get their salesforces to engage with investors, "there was a natural rise in what that bottom level would need to be," he said.
There appears to be a correlation between issuance and underwriting spreads, said Michael Decker, senior vice president of policy and research at Bond Dealers of America.
In 2022 and 2023, underwriting spreads "bottomed out," and those were cyclically low years for supply during which issuance fell year-over-year, he said.
However, underwriting spreads recovered in 2024 and rose further in 2025, which were record issuance years at $513.652 billion and $586.194 billion, respectively, according to LSEG.
"To get the supply to clear the market, spreads maybe widened out a touch," Banaszek said of the rising issuance over the past two years.
"It seems to be a story of when issuance is down underwriters are competing for less business, so they're willing to cut their price. When issuance is up, they don't have to do that," Decker said.
As the market grows, issuers are likely to pay more to access capital, said Matt Fabian, president of Municipal Market Analytics.
"That's not just in terms of the interest rates that they pay on their coupons, but also in fees for bankers and other professionals," and the kinds of bonds they sell with specific structures, which could mean less flexibility or more state support, he said.
And on the banking side, firms will hire more bankers with market growth, leading to more overhead and increased costs, Fabian said.
All of those factors, he noted, contribute to underwriter spreads' rebound.
A lingering effect on underwriting spreads is Citi's departure from the muni market and UBS' exit from the negotiated banking business, both in late 2023, Thomas said.
While firms had to contend with some serious discussions about whether the economics of staying in the muni market made sense, issuers had to deal with ensuring these firms provided a certain level of service, attention and execution on their deals. For the latter, that led to issuers agreeing to compensate firms for doing that, he said.
Even with rising underwriting spreads, they are not unreasonably high, Thomas said.
In certain markets, takedowns are very low, and it's difficult to provide the service that issuers demand at that level of compensation.
And if issuance continues to rise — initial projections for 2026 supply range from $520 billion to $750 billion-plus, with most believing issuance be at least $600 billion — underwriting spreads may gradually rise, but average spreads will not return to "$6, $7, $8 a bond," Decker said.
