skip navigation
Blog

Stay up to date on timely topics and market events. Subscribe to our Blog now.

MARKETS
April 15, 2025

Muni Monthly—March 2025

By Sam Weitzman
Download the Article

Stay up to date on timely topics and market events. Subscribe to our Blog now.

Performance Overview

Municipals posted negative returns and underperformed taxable fixed-income in March.

Market volatility was heightened in March amid the Trump administration’s tariff rhetoric ahead of an imposed April 2 deadline when sweeping tariffs of at least 10% were to go into effect on most goods coming into the US. Meanwhile, weaker economic data was released during the month, including lower-than-expected nonfarm payrolls, inflation and consumer confidence data—all of which came in below expectations. The Federal Reserve kept rates steady, but revised growth forecasts lower. All told, Treasury yields remained relatively steady, while municipal yields moved higher across the curve, underperforming amid weaker supply and demand technical conditions.

Exhibit 1: Municipal and Treasury Yield Curves
Municipal and Treasury Yield Curves
Source: Bloomberg. As of 31 Mar 25. AAA Callable Municipal Yield Curve and US On-/Off-the-Run Sovereign Curve. Select the image to expand the view.

Supply and Demand Technicals

Supply continued at a record pace in the first quarter.

Municipal supply remained elevated in March. Total issuance of $43 billion in March was 15% higher than March 2024 levels. Year-to-date issuance of $119 billion now exceeds 2023’s record pace by 18%, with tax-exempt issuance 19% higher at $93 billion, and taxable issuance 14% higher at $7.6 billion. Municipal demand softened during the month of March due to seasonal tax-related selling pressures. The Investment Company Institute (ICI) reported that March fund flows slowed to $252 million, including outflows toward month-end, down from $5.8 billion in February.

Exhibit 2: First Quarter Tax-Exempt Municipal Issuance
First Quarter Tax-Exempt Municipal Issuance
Source: Western Asset, Bloomberg. As of 31 Mar 25. Select the image to expand the view.

Fundamentals/Outlook

State and local revenue collections remain near record levels.

Municipal fundamentals remained strong and support an attractive risk-adjusted value proposition for the asset class. The Census released updated state and local tax collection estimates, which indicated continued revenue growth for traditional municipalities. Calendar-year 2024 collections increased 4.5% to $2.1 trillion year-over-year (YoY), marking a record high level according to the Census data. Individual income tax collections increased 4.9% YoY, corporate income tax collections declined 0.4% YoY and sales tax collections increased 1.5% YoY. Property tax collections also recorded a strong trend higher, growing 7.7% YoY. We expect that a strong labor market and consumer spending should support tax collections and municipal credit conditions over the medium term. We also anticipate these direct revenue sources will play a more critical role in state and local budgets, particularly if federal spending reductions extend more broadly to municipal credit.

Exhibit 3: 12-Month Trailing State and Local Revenue Collections
12-Month Trailing State and Local Revenue Collections
Source: Western Asset, Census NSA major state and local tax revenue. As of 13 Mar 25 (4Q24 data). Select the image to expand the view.

Valuations

Tax-exempt municipals offer above-average after-tax yield pickup versus taxable counterparts.

Elevated supply conditions contributed to higher income opportunities and improved relative valuations in the municipal market. The Bloomberg Municipal Bond Index average yield-to-worst (YTW) ended the year at 3.85%, up over 50 basis points from the start of the year and equivalent to 6.50% on a taxable-equivalent basis. The municipal yield curve has steepened meaningfully this year, offering more attractive opportunities in intermediate and longer maturities. These attractive tax-exempt income levels, along with favorable fundamentals, underscore the risk-adjusted value proposition of tax-exempt munis amid broader economic uncertainty in 2025.

Exhibit 4: Taxable-Equivalent Municipal Yield Pickup vs. the Five-Year Average
Taxable-Equivalent Municipal Yield Pickup vs. the Five-Year Average
Source: Bloomberg, Western Asset. As of 31 Mar 25. 10- and 30-year comparison reflects Bloomberg Valuation Service (BVAL) AAA Muni Curve and US On-/Off-the-Run Sovereign Curve. AA Muni reflects the Bloomberg AA Muni Bond Index. A Muni reflects the Bloomberg A Muni Bond Index. BBB Muni reflects the Bloomberg BBB Muni Bond Index. HY Muni reflects the Bloomberg High Yield Muni Bond Index. AA Corp reflects the Bloomberg AA Corporate Bond Index. A Corp reflects the Bloomberg A Corporate Bond Index. BBB Corp reflects the Bloomberg BBB Corporate Bond Index. Taxable-equivalent yield considers top marginal tax rate of 40.8%. Indexes are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges. Past performance is not an indicator or a guarantee of future results. Select the image to expand the view.
Yield-to-Worst (YTW) is the lesser of yield-to-maturity or yield-to-call across all known call dates.

© Western Asset Management Company, LLC 2025. The information contained in these materials ("the materials") is intended for the exclusive use of the designated recipient ("the recipient"). This information is proprietary and confidential and may contain commercially sensitive information, and may not be copied, reproduced or republished, in whole or in part, without the prior written consent of Western Asset Management Company ("Western Asset").
Past performance does not predict future returns. These materials should not be deemed to be a prediction or projection of future performance. These materials are intended for investment professionals including professional clients, eligible counterparties, and qualified investors only.
These materials have been produced for illustrative and informational purposes only. These materials contain Western Asset's opinions and beliefs as of the date designated on the materials; these views are subject to change and may not reflect real-time market developments and investment views.
Third party data may be used throughout the materials, and this data is believed to be accurate to the best of Western Asset's knowledge at the time of publication, but cannot be guaranteed. These materials may also contain strategy or product awards or rankings from independent third parties or industry publications which are based on unbiased quantitative and/or qualitative information determined independently by each third party or publication. In some cases, Western Asset may subscribe to these third party's standard industry services or publications. These standard subscriptions and services are available to all asset managers and do not influence rankings or awards in any way.
Investment strategies or products discussed herein may involve a high degree of risk, including the loss of some or all capital. Investments in any products or strategies described in these materials may be volatile, and investors should have the financial ability and willingness to accept such risks.
Unless otherwise noted, investment performance contained in these materials is reflective of a strategy composite. All other strategy data and information included in these materials reflects a representative portfolio which is an account in the composite that Western Asset believes most closely reflects the current portfolio management style of the strategy. Performance is not a consideration in the selection of the representative portfolio. The characteristics of the representative portfolio shown may differ from other accounts in the composite. Information regarding the representative portfolio and the other accounts in the composite are available upon request. Statements in these materials should not be considered investment advice. References, either general or specific, to securities and/or issuers in the materials are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendation to purchase or sell such securities. Employees and/or clients of Western Asset may have a position in the securities or issuers mentioned.
These materials are not intended to provide, and should not be relied on for, accounting, legal, tax, investment or other advice. The recipient should consult its own counsel, accountant, investment, tax, and any other advisers for this advice, including economic risks and merits, related to making an investment with Western Asset. The recipient is responsible for observing the applicable laws and regulations of their country of residence.
Founded in 1971, Western Asset Management Company is a global fixed-income investment manager with offices in Pasadena, New York, London, Singapore, Tokyo, Melbourne, São Paulo, Hong Kong, and Zürich. Western Asset is a wholly owned subsidiary of Franklin Resources, Inc. but operates autonomously. Western Asset is comprised of six legal entities across the globe, each with distinct regional registrations: Western Asset Management Company, LLC, a registered Investment Adviser with the Securities and Exchange Commission; Western Asset Management Company Ltda. is regulated by Comissão de Valores Mobiliários; Western Asset Management Company Pty Ltd ABN 41 117 767 923 is the holder of the Australian Financial Services License 303160; Western Asset Management Company Pte. Ltd. Co. Reg. No. 200007692R is a holder of a Capital Markets Services License for fund management and regulated by the Monetary Authority of Singapore; Western Asset Management Company Ltd, a registered Financial Instruments Business Operator and regulated by the Financial Services Agency of Japan; and Western Asset Management Company Limited is authorised and regulated by the Financial Conduct Authority ("FCA") (FRN 145930). This communication is intended for distribution to Professional Clients only if deemed to be a financial promotion in the UK as defined by the FCA. This communication may also be intended for certain EEA countries where Western Asset has been granted permission to do so. For the current list of the approved EEA countries please contact Western Asset at +44 (0)20 7422 3000.