According to Bloomberg, J.P. Morgan Chase raised its forecast for 2025 municipal bond issuance from $490 billion to $560 billion. (1)
Of the amount forecasted, $510 billion is expected to be tax-exempt, up from $450 billion. This amount is 30% higher than the average for the trailing five years. Last week, $20 billion came to market, with California and New York issuing the most debt. (1)
This increased supply will exert pressure on the fixed-income marketplace, potentially leading to higher yields. However, it also presents an opportunity for investors. Longer-dated Munis are currently yielding close to 5% and, in some cases, provide taxable equivalents in the range of 7.5% for higher-tax state residents.
While volatility is likely to persist, it’s crucial for investors to recall where rates stood before the COVID-19 pandemic. On August 4, 2020, the 10-year Treasury closed at 0.52%. Last year, the 10-year rate dipped to 3.62% on September 16, 2024, from its high a year earlier of 4.95% on October 25, 2023. Today, the 10-yr is trading at a 4.41%. (2)
These historical numbers and the timeline range, serve as a reminder that calling the market can be a missed opportunity, and capitalizing on current market rates along the way can be a prudent move. Since a 2% inflation rate is the Fed’s target, lowering rates in the future will also result in lost opportunities for higher yields. If the current rate-cutting cycle continues, we could return to minimal returns, underscoring the significant value still present in the fixed-income market. Today is a time of potentially higher returns than the days to come, and investors should be motivated to seize this opportunity before another rate cut.
