The municipal bond market experienced a significant surge in July, marking the seventh consecutive month of climbing issuance. Volume in July reached $33.935 billion in 576 issues, a substantial increase of 21.2% from the previous year. This surge was attributed to a variety of factors, including front-loaded issuance ahead of the election, a lower rate environment, and a breakneck pace of supply. The “blistering” pace of issuance in the current market is the highest since the financial crisis, indicating a strong demand for municipal bonds.
One of the key drivers of the high issuance volume in July was the decline in rates, which encouraged issuers to bring deals to market. This lowering of rates stimulated some issuers’ desire to issue bonds that they may have postponed. Additionally, the market dynamics, including summer technicals and redemption demand, helped offset the large supply of new issuance, enabling the market to absorb the influx of new bonds effectively.
Issuers have been front-loading issuance year-to-date to stay ahead of potential rate volatility associated with the upcoming election. While there is pent-up demand and economic stability, there is also an incentive to delay supply due to expected Federal Reserve rate cuts. The market has already factored in a possible rate cut in September, indicating a cautious approach by issuers in uncertain times.
In July, tax-exempt issuance totaled $29.933 billion in 521 issues, representing a 24.8% increase from the previous year. On the other hand, taxable issuance fell by 18.2% to $2.607 billion in 50 issues. Alternative-minimum tax issuance saw a significant increase, rising to $1.395 billion, up by 67.4% from the previous year. Both new-money and refunding volumes increased, indicating a healthy balance in the market.
California claimed the top spot in municipal bond issuance year-to-date, accounting for $41.004 billion, up by 31.4% year-over-year. Texas followed closely behind with $39.684 billion, showing an increase of 8.6%. New York, Florida, and Massachusetts rounded out the top five, each experiencing significant growth in issuance compared to the previous year. The regional distribution of issuance indicates a robust market across various states.
Looking ahead, the pace of issuance is expected to moderate but remain higher year-over-year. While the surge in issuance in July was unexpected, there is a sense of stability and optimism in the market moving forward. As the market adjusts to changing dynamics and economic factors, issuers and investors alike will need to adapt to a new normal in the municipal bond landscape.
Overall, the surge of municipal bond issuance in July 2025 reflects the resilience and adaptability of the market in response to evolving conditions. With a combination of favorable market factors and strategic decision-making by issuers, the municipal bond market continues to demonstrate its importance and relevance in the broader financial landscape.