PrintMunis little changed as 2025 dwindles
BY SourceMedia | MUNICIPAL | 12/29/25 04:05 PM ESTMunicipals were little changed as short-term U.S. Treasuries richened slightly and equities ended down.
The two-year muni-UST ratio Monday was at 70%, the five-year at 66%, the 10-year at 67% and the 30-year at 88%, according to Municipal Market Data's 3 p.m. EDT read. ICE Data Services had the two-year at 69%, the five-year at 64%, the 10-year at 67% and the 30-year at 87% at a 4 p.m. read.
Supply may set another record next year, but volume is more likely to trend back toward historically normal levels, said Mark Paris, CIO of Invesco's
Invesco
This year, strong demand has generally "kept the lid on" muni prices, and next year market technicals may move in munis' favor, Paris and Spitz said.
Some firms have forecast principal redemptions and coupon payments ? which could total as much as $701 billion ? exceeding supply, they said.
"Depending on how much of that money is reinvested, net supply could be as large as [negative] $61 billion in 2026," Paris and Spitz said.
If so, the technical environment could be supportive for the asset class, they said.
The credit environment remains stable and resilient: Defaults remain low, and credit rating upgrades continue to outpace downgrades, they said.
While post-pandemic momentum has slowed, through the third quarter of 2025, Moody's Ratings and S&P Global Ratings had a combined upgrade/downgrade ratio of 1.4 to 1, and given solid fundamentals, they expect similar figures next year.
The muni credit market has experienced headwinds this year, including "potential federal funding cuts, the impact of tariffs and sector-specific pressures," said Goldman Sachs
"However, the broader strength of credit fundamentals, the buoy of a Federal Reserve easing cycle and municipals' track record during prior easing cycles provide plenty of reasons to be optimistic," they said.
The Fed has already cut rates 150 basis points, a significant move "mirrored in only three other cycles over the past 25 years: the 2000 tech bubble, the global financial crisis, and the COVID-19 pandemic," Goldman strategists said.
Munis have shown their resilience and outperformance potential in past easing cycles, despite the economic slowdowns that usually accompany them, they said.
For instance, the 1- to 10-year Municipal Bond Index has historically delivered an average annualized return of 6.38% 18 months after the Fed cut rates 150 basis points. This represents a 2.82% outperformance compared with its 25-year annualized average return of 3.56%, Goldman strategists said.
This pattern extends across the muni curve, with "the muni 1- to 5-year and muni aggregate indices having similar outperformance relative to their long-term averages," they said.
As the Fed continues to cut rates, money-market yields ? which are attractive ? are expected to decline, making tax-exempt munis more appealing relative to value, Goldman strategists said.
AAA scales
MMD's scale was little changed: 2.46% (unch) in 2026 and 2.41% (unch) in 2027. The five-year was 2.43% (unch), the 10-year was 2.76% (unch) and the 30-year was 4.24% (unch) at 3 p.m.
The ICE AAA yield curve was bumped one to two basis points: 2.45% (-1) in 2026 and 2.41% (-2) in 2027. The five-year was at 2.38% (-1), the 10-year was at 2.76% (-1) and the 30-year was at 4.18% (-1) at 4 p.m.
The S&P Global Market Intelligence municipal curve was little changed: The one-year was at 2.44% (-1) in 2025 and 2.41% (-1) in 2026. The five-year was at 2.43% (unch), the 10-year was at 2.76% (unch) and the 30-year yield was at 4.22% (unch) at 3 p.m.
Bloomberg BVAL was unchanged: 2.47% in 2025 and 2.42% in 2026. The five-year at 2.37%, the 10-year at 2.71% and the 30-year at 4.13% at 4 p.m.
Treasuries saw small gains.
The two-year UST was yielding 3.463% (-2), the three-year was at 3.509% (-2), the five-year at 3.672% (-3), the 10-year at 4.113% (-2), the 20-year at 4.751% (-1) and the 30-year at 4.803% (-1) near the close.
