Opportunity at the Long End of the Muni Curve
Pat Luby - Head of Municipal Strategy, CreditSights
Wilson Lees - Analyst, CreditSights
23 July 2025
Insights into Recent Trends and Market Dynamics at the Long End of the Muni Curve, including:
- Recent Performance Drivers: Uncover the factors behind the sharp underperformance of long-duration municipal bond indices and how this compares with shorter maturities.
- Market Reactions to New Issuance: Examine the impact of recent increases in long-duration supply and the effects of longer amortization schedules on municipal bond yields.
- Investor Activity Trends: Gain insights into changing investor demand across different maturities, with a focus on net buying patterns for bonds beyond 12 years.
- Evolving Supply and Demand Dynamics: Explore how the proportion of new issuance at the long end of the curve is shifting, and what this means for different segments of the municipal bond market.
- Yield Curve and Relative Value Analysis: Understand the relationship between tax-exempt municipal yields and comparable corporate bond yields, including where the crossover points occur along the maturity spectrum.
Executive Summary
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- The 22+ Year Muni Index got crushed last week, posting a negative total return of -1.77%, and relative to the Muni Index, it is lagging MTD and YTD; the 12-22 Year Index is also lagging, but not as badly.
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Long-duration IG institutional investors that are subject to the 21% federal corporate income tax should be watching the heavy new issue calendar for opportunities to add municipal credit risk at levels that are competitive with comparably rated corporate bonds.
The 12-22 Year and 22+ Year Indices both underperformed the Muni Index last week, and they are lagging MTD and YTD. But last week’s underperformance (and cheaper yields) appear to have attracted buyers, as net buying by customers was strongest for bonds due in more than 12-years ($2.3 bn, compared to $443 mn the week before), according to MSRB data from Bloomberg. For the week ended on Friday, July 18, customer trading of fixed-rate bonds in the secondary market (bonds traded at prices other than the original offering price) was down 10% from the prior week, but net buying increased to $3.6 bn from $1.7 bn. And, net buying was strongest for bonds due in more than 12-years ($2.3 bn, compared to $443 mn the week before), according to MSRB data from Bloomberg. In the previous week (that ended July 11), net buying had been strongest for bonds due in 1-year or less ($457 mn).
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