Weekly Municipal Monitor—Taxable Spread Opportunities Abound

Blog

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

Muni Inflows Turn Positive for the Year

AAA municipal yields moved 6 bps lower across the curve, trailing Treasuries. Municipal mutual funds recorded a twelfth consecutive week of inflows, turning net flows positive for the year. The Bloomberg Barclays Municipal Index returned 0.36%, while the HY Muni Index returned 0.55%. High-yield muni returns are now flat for the year following declines of nearly 20% in March.

Positive Technicals Persist

Fund Flows: During the week ending July 29, municipal mutual funds inflows were $1.8 billion, according to Lipper. Long-term muni funds recorded $890 million of inflows, high-yield muni funds recorded $181 million of inflows and intermediate muni funds recorded $116 million of inflows. Municipal fund net inflows YTD total $3.1 billion.

Supply: The muni bond market recorded $7.6 billion of new-issue volume last week, down 26% from the prior week. Issuance of $247 billion YTD is 29% above last year’s pace, primarily driven by taxable issuance as tax-exempt issuance is unchanged year-over-year. We anticipate approximately $8 billion in new issuance this week (+5% week-over-week), led by a $1.4 billion LA MTA transaction and a $900 million Taxable State of Hawaii transaction.

This Week in Munis: Taxable Spread Opportunities Abound

Low taxable Treasury rates, and favorable economics for issuers to advance refund tax-exempt municipal debt with taxable issuance has led to heightened taxable issuance. Taxable municipal issuance, inclusive of corporate CUSIPs, reached $91 billion at month-end, according to Bloomberg. This issuance is on pace to double 2019 taxable issuance, which was already at its highest level since the Build America Bonds program.

We continue to recognize increased foreign interest in taxable municipals. Low to negative global government interest rates and declining hedging costs have contributed to increased foreign demand of taxable municipals. Moreover, favorable sub-sovereign capital treatment of general obligation bonds, as well as infrastructure qualification for certain revenue liens have also been supportive of foreign bank and insurance demand.

Foreign municipal demand has increased 29% over the last five years to $107 billion, according to the Federal Reserve. As global growth and rates continue to grind lower, we anticipate foreign interest in the municipal bond asset class to persist, particularly given favorable relative valuations versus other fixed-income asset classes despite lower default rates.

Explore Bloomberg Barclays Taxable Municipal Bond Index vs Long Corporates Yield-to-Worst.

Explore Municipal Bond Yields and Index Returns.

Explore Tax-Exempt and Taxable Municipal Valuations.

© 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.