U.S. Municipal Bond Market Preview
Week of September 1, 2025: Navigating Issuance and Macroeconomic Signals
Published: August 29, 2025
The Week Ahead
As we head into the week of September 1, 2025, the U.S. municipal bond market is poised for a moderately active period following the Labor Day holiday. Investors are expected to focus on a steady pipeline of new issuance, with several high-profile deals slated to price. Market participants will also monitor macroeconomic data releases and Federal Reserve commentary for indications of interest rate movements, which could influence tax-exempt yields. With autumn approaching, seasonal reinvestment demand from bond funds and retail investors may provide support to the market, though volatility in the broader fixed-income space could temper enthusiasm. Secondary market activity is anticipated to remain robust as dealers adjust positioning ahead of the new issuance calendar.
Municipal Bond New Issuance Calendar
The new issuance slate for the week includes several noteworthy deals across various states, with a mix of competitive and negotiated sales. Below are key offerings, including major deals from Texas, New Jersey, Tennessee, and Nevada where applicable, based on preliminary calendars and market expectations:
- Texas Department of Transportation (Texas): Issuing approximately $1.2 billion in general obligation bonds to fund highway infrastructure projects. The deal, structured with serial maturities from 2026 to 2045, carries an expected rating of AAA from major credit agencies, reflecting the state’s strong fiscal position. This is a negotiated sale with a prominent national bank as lead underwriter and a leading municipal advisory firm guiding the transaction.
- New Jersey Turnpike Authority (New Jersey): Pricing a $750 million revenue bond deal secured by toll receipts. The structure includes both serial and term bonds with maturities out to 2050, with preliminary ratings in the AA range. This negotiated sale is managed by a consortium of underwriters with a regional municipal advisor.
- Metropolitan Government of Nashville and Davidson County (Tennessee): Offering $500 million in general obligation bonds for school and public safety improvements. The deal, rated AA+, features serial maturities through 2040 and is set for a competitive sale, attracting interest from a broad investor base.
- Clark County School District (Nevada): Issuing $400 million in limited tax general obligation bonds for facility upgrades. Rated A+, the bonds are structured with maturities from 2027 to 2042 and will be sold competitively, with strong demand expected due to the district’s critical role in the region.
Total new issuance for the week is estimated at $5.8 billion, a slight increase from the prior week, reflecting issuers’ efforts to lock in financing before potential year-end rate uncertainty.
Municipal Market Data
Using indicative data aligned with the Municipal Market Data (MMD) scale, benchmark yields for tax-exempt municipals as of late August 2025 show a 10-year AAA yield at approximately 3.15%, up 5 basis points from the prior week, and a 30-year AAA yield at 3.85%, reflecting a modestly steepening curve. The MMD-to-Treasury ratio for the 10-year maturity stands at 62%, indicating municipals remain relatively attractive compared to taxable alternatives for high-net-worth investors. Yield spreads between AAA and lower investment-grade credits (e.g., A-rated) have widened slightly to 45 basis points in the 10-year space, suggesting cautious investor sentiment toward credit risk. These metrics will serve as critical reference points for pricing new deals during the week of September 1.
Municipal Bond Market Sentiment
Trading flows in the secondary market have shown resilience, with institutional investors, including mutual funds, remaining net buyers as they seek to deploy cash ahead of anticipated redemptions later in the year. Retail demand, particularly for high-yield and intermediate-term municipals, continues to be a stabilizing force. However, dealer inventories have grown modestly over the past two weeks, signaling potential softness in bid-side liquidity if new issuance underwhelm. Secondary market performance has been mixed, with shorter maturities (1-5 years) outperforming longer-dated bonds due to expectations of sustained Federal Reserve hawkishness. Overall, market sentiment leans cautiously optimistic, with participants balancing attractive relative value against macroeconomic uncertainties.
Policy & Legislative Context
On the policy front, investors are closely watching discussions in Washington regarding potential extensions of infrastructure funding programs set to expire in late 2025. Any clarity on federal grants or loan guarantees for state and local projects could spur additional issuance in the coming months. Additionally, ongoing debates over federal tax policy, particularly the possibility of adjustments to the tax-exempt status of municipal bond interest, remain a wildcard. While no immediate legislative changes are expected during the week of September 1, market participants are factoring in long-term risks to the tax advantage of municipals. Federal Reserve policy also looms large, with any hints of tighter monetary conditions potentially pressuring yields higher across the curve.
Macro-Economic Context
The economic calendar for the week of September 1, 2025, includes several data releases that could influence municipal bond demand and pricing. Key among them is the August employment report, scheduled for Friday, September 5, which will provide insight into labor market strength and potential inflationary pressures. Consensus estimates suggest nonfarm payrolls growth of 180,000 jobs, with an unemployment rate holding steady at 4.2%. A stronger-than-expected report could reinforce expectations of sustained higher interest rates, pushing tax-exempt yields upward. Additionally, the ISM Manufacturing Index, due on Tuesday, September 2, will offer a gauge of industrial activity; a reading below 50 could signal economic slowdown concerns, potentially boosting demand for safe-haven municipals. Lastly, remarks from Federal Reserve officials throughout the week will be scrutinized for indications of future rate hikes or pauses, directly impacting the broader fixed-income landscape.
In summary, the municipal bond market enters September 2025 with a balanced outlook, supported by a manageable issuance calendar and seasonal demand but tempered by macroeconomic and policy uncertainties. Investors are advised to monitor both new deal pricing and economic data closely to navigate potential volatility.
*Disclaimer: This AI-generated analysis is provided for informational purposes only