Municipal Market Newsletter Archive

Something Is Changing

October 8th, 2025 by Kurt L. Smith

You are not reading this letter for advice on the stock market or crypto so obviously that is not what I am talking about with respect to change. The change I am talking about, of course, is regarding interest rates. On September 17, 2025, the Federal Reserve reduced the federal funds rate by 25 basis points cut on September 17^th as anticipated. Odds are currently high for another 25 basis point cut on October 29^th (94.6% odds of cut per Bloomberg as of October 7, 2025).

We have talked about short-term cash yields and how the trend there has been lower. But the low yields for the past six months occurred on or about September 17^th. On the short-term side, six-month US treasury bills bottomed at 3.75% on September 16^th and are basically flat since, hence the continued high odds for another rate cut at the end of this month.

Yields on longer term US treasury ten-year notes hit their six-month low on September 17^th, and just as I told you last month, yields have bounced higher since. This is early stage, but so far, the ten-year yield has done everything a change in trend needs. Look for higher yields on the ten-year note throughout year end and beyond.

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Tags: bond market trend, Federal Reserve, long-term trends, municipal bond market, treasury bill
Posted in Municipal Market Letter

The End of a Move?

September 8th, 2025 by Kurt L. Smith

Sideways market movements can often seem perplexing. Just when you think interest rates should move one way, they meander the other; seemingly for months on end.

Welcome to the summer of 2025. Four months of longer-term U.S. Treasury yields ending little changed. The volatility of April saw interest rates plunge, then jump to even higher rates in May. Here we are at the end of unofficial summer after Labor Day with interest rates working their way back down to…normal?

This is how the bond markets act like a market. Several steps forward, one back. We have been here before: from the interest rate highs of October 2023 to a low in September 2024 I wrote often about the frustrations of a market in a correction.

The part of the bond market I care most about is the longer bonds. On this day before the monthly employment numbers are released (yes, by the Bureau of Labor Statistics), the thirty-year bellwether treasury trades at 4.88% (all prices and yields per Bloomberg). This yield is 94% of the 5.18% high back on October 23, 2023, and is much higher than 3.89% correction low on September 17, 2024. The trend for long term interest rates remains higher as I have said since March 2020 and the long end of the market is the place to see that most clearly.

Short-term interest rates, indicated by the six-month treasury bill, show a different picture. Today’s 3.96% yield sits on top of the spike low of 3.92% on April 7, 2025, during the height of April’s volatility and is down substantially from the 5.59% high of August 29, 2023. This summer’s plunge of yield on the six-month treasury bill puts the odds of a Federal Reserve rate cut of 25 basis points on September 17th at 95%, again per Bloomberg.

The Federal Reserve is a follower in my book, a follower of the six-month bill. Usually, employment data confirms the recent direction of interest rates so it would not surprise me if short term yields continued lower and the Federal Reserve comes through on September 17th with this first rate cut since December 18, 2024.

Unfortunately, it is those with cash in money market funds and other short-term instruments like treasury bills that have seen the effects of lower yields. These are generally not the moves you want to see as a holder of cash: a diminishing of your income.

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Tags: bellwether bonds, bond bear market, Federal Reserve, treasury bond, trend change
Posted in Municipal Market Letter

Municipal Performance Lags

August 4th, 2025 by Kurt L. Smith

What else is new? According to Bloomberg the municipal bond market is “logging its worst performance relative to US government debt since the start of the pandemic.” Municipals have lost 1% so far this year, trailing the 3% gain on US treasuries by about four percentage points.

Municipal bond pundits love to talk about supply and demand in the new issue market. but over the long term, we believe that supply and demand should even out. As we have talked about for years, performance is determined not by owning the market, but by selecting your municipals with performance in mind.

We are in a bear market for bonds, and this means you have the wind in your face instead of at your back. Rising interest rates subtract from performance. Prior to the end of the bull market, falling interest rates gave a capital gain performance boost to portfolios. This trend change, in March 2020, makes performance figures in bonds look quite puny ever since.

For example, as of August 1, 2025, Vanguard Long-Term Tax-Exempt Fund Admiral Shares (VWLUX) reported total returns of -1.77%, +1.63%, and +0.18% for the one-, three-, and five-year periods, respectively (Source: Bloomberg). You can pick your favorite municipal bond vehicle and it, unfortunately, will probably look fairly similar.

Similarity in the municipal market appears to be the rule in our four trillion-dollar market. Yes, managing assets is a matter of scale, as it appears most of the participants hold similar bonds. How else can I describe similar performance figures?

Owning the market has its advantages, particularly in a bull market. Owning seven stocks has its advantages as well, if they are THE seven stocks and the market continues as a bull. But owning the market in municipal bonds may not serve you as well as selecting your municipal bonds may serve you. Look at your statement over the past one-, three- and five-year periods or even longer.

In my opinion, the bear market for bonds is not complete. The asset gathering of Wall Street firms continues in municipals and watch any of their commercials; they are not selling the idea of buying in a bear market. Hard to fathom a bond market where our bellwether bond, the US Treasury 1.25% 5/15/2050 traded at over 100 in 2020 and consistently in the 50s or below for almost three years now, is worthwhile. Somebody, or something, owns that bond and hopefully it is not you. Have municipal bonds fared better than that bellwether? Perhaps, but who wants them; it is an indictment on owning long-term bonds in a bear market.

There are much better ways to keep your money safe and earn a worthwhile return at the same time. Individual municipal bonds are the key in a bond bear market. Individual bonds have maturity dates, unlike the mutual funds and exchange traded funds that are marketed however they are marketed. A maturity date is key; it was key to avoiding 5/15/2050 (then and now).

Since April 2025’s dramatic sell-off in bonds, interest rates have been trading in a range. How long this will continue, I do not know. But I do believe the trend is for higher interest rates despite seemingly everyone else continuing to invest in the municipal market, and its pathetic performance returns, hoping for better. The trend is not their friend, but it is ours.

Let me show you how The Select Approach^TM could work for you. For example, the Georgetown ISD bonds (below) is indicative of the general market. Look at those yields, below 3%, even before Friday’s rally (8/1/2025). We have options for short-term tax-exempt bonds; I suggest you consider them. We continue to find worthwhile bonds and I look forward to hearing from you.

Georgetown Independent School District, Texas

Unlimited Tax School Building and Refunding Bonds, Series 2025

Aa2 Moody Underlying AA Underlying S&P

Aaa Moody and AAA S&P on Permanent School Fund Guarantee

Due 2/15 Dated 8/26/25 Maturity 2/15/55

$334,005,000 Sold

Years Maturity Coupon Yield*

1 2026 5.00% 2.52%

2 2027 5.00% 2.54%

3 2028 5.00% 2.57%

4 2029 5.00% 2.61%

5 2030 5.00% 2.75%

6 2031 5.00% 2.97%

7 2032 5.00% 3.10%

8 2033 5.00% 3.27%

9 2034 5.00% 3.38%

10 2035 5.00% 3.57%

11 2036** 5.50% 3.71%

12 2037** 5.50% 3.89%

13 2038** 5.50% 4.00%

14 2039** 5.00% 4.20%

15 2040** 5.00% 4.31%

16 2041** 5.00% 4.40%

17 2042** 5.00% 4.52%

18 2043** 5.00% 4.64%

19 2044** 5.00% 4.69%

20 2045** 5.00% 4.73%

21 2046** 5.25% 4.76%

22 2047** 5.25% 4.81%

23 2048** 5.25% 4.84%

24 2049** 5.25% 4.87%

25 2050** 5.25% 4.87%

30 2055** 5.25% 4.90%

*Yield to Worst (Call or Maturity) **Callable 2/15/35

Source: Bloomberg

This is an example of a new issue priced the week of 7/28/25. Provided for illustrative purposes only and is not a recommendation to buy or sell any specific investment.

Prices, yields and availability subject to change. Investment return and principal value of fixed income securities may fluctuate, and bond prices are subject to interest rate risk, credit risk, and liquidity risk.

Tags: bellwether bonds, bond bear market, bond market trend, Federal Reserve, municipal bond market, treasury bond, trend change
Posted in Municipal Market Letter

Optimism Continues

July 1st, 2025 by Kurt L. Smith

The year is half over, and I hope you have enjoyed every minute of it. Financially speaking, the markets have not done much of anything, which has aligns well with our investment strategy. You continued to earn worthwhile tax-free returns and we’ve identified several new opportunities over the past six months.

As we close out the first half of the year, both equities and fixed income show signs of strength. Stocks have bounced up nicely, while bond prices have only edged slightly higher over the past six weeks, resulting in slightly lower yields. For example, look at the Katy ISD bonds below compared to last month’s Fort Bend County Toll Road. Last month there were no maturities below 3%; this month the first six years are below 3%. Longer term yields move relatively little (not much optimism out there), so perhaps more bond investors have turned skittish and prefer short-term over long-term, or they are just more optimistic on short-term bonds.

Meanwhile, stocks continue to perform in their own world, with bonds seemingly benefitting slightly from their buoyancy. Such optimism and bounce up in stock prices should make the first half performance figures look strong. If we could weather the storm that was back in April, just think where we can go from here. Isn’t optimism contagious?

You are familiar with this ebb and flow of markets because that is what you are investing in: a market. We know as bondholders that performance does not always move up and to the right. But that is the hope/belief/reality for those investing in stocks. On the other hand, bondholders, particularly those who believed long-term bonds were not a part of a market, have seen their performance struggle for years.

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Tags: bond bear market, bond market performance, Federal Reserve, long-term trends, municipal bond market, trend change
Posted in Municipal Market Letter

Bonds Make A Splash

June 3rd, 2025 by Kurt L. Smith

For more than five years I have written the trend for long-term bond prices is down. Bonds have been in a bear market since the 2020 top in prices (low in yields). Our bellwether bond, the 1.25% of May 15, 2050, topped in price on August 6, 2020, just over 102 and on October 20, 2023, it hit its low of 43.25 (all prices and yields per Bloomberg).

How anyone could argue a case for owning long-term bonds is a mystery. We expected a correction of this steep decline, and the correction concluded at 56.185 on September 17, 2024, the day before the Federal Reserve first cut short term interest rates fifty basis points.

Since the Federal Reserve’s rate cut, long-term bond interest rates have soared and prices plunged, first to 46 on January 10, 2025, before correcting back up to 53 on April 3^rd. This is when the US bond futures contract lost ten points in three days. Warning! Our bellwether fell back to 46 as a result but only able to recover to 49.

This past week the bellwether traded fractionally above 45 as it neared the 2023 low which I believe will eventually be taken out. At these prices the yield on this and other longest-term treasury bond is north of 5%. Will the yield hit 5.50%, 6%, or even 7%? Hard to say, but I can continue to say, and write, the trend for long-term bond prices remains down.

Cash is king. While investors may own a tremendous amount of cash, municipal bond investors almost exclusively own the market for municipal bonds. That is, municipal bond investors own long-term bonds which have performed poorly for them (close to break-even) over the past one-, three-, and five-year periods. The Bloomberg Municipal Bond Index has performed accordingly. Comparing performance to your municipal bond mutual fund of choice, or your favorite exchange traded fund ETF, and you will see similar poor results. When you compare it to your Select Approach^TM portfolio on your statement you will see a different, better reality. You do not own the market; your bonds are different.

Turning to short term yields, the Federal Reserve cut rates again on November 7th, 2024, and lastly on December 18th, 2024, for a total of 100 basis points. The six-month treasury bill was approximately 5.40% in June 2024, near its high. On December 18th the bill was about 4.30%, so the 100 basis points of Federal Reserve interest rate cuts were following the treasury bill yield. Last month, on April 7^th, the treasury bill traded below 4% which might have indicated another 25-basis point cut, but last week the yield was 4.30%, the same level as December’s treasury bill interest rate.

At current treasury bill interest rates, there is little reason (or hope) for the Federal Reserve to cut interest rates. Six-month treasury bills ran from near 0% in 2020 to their 5.4% high in June of 2024. Was the move down below 4% merely a correction? If so, treasury bills could also climb to new highs in yield.

Certainly, treasury bill yields hold sway over the returns of cash in one’s portfolio. We do not control these rates, but what we can control is not owning the market of municipal bonds and the poor performance such ownership has delivered these past umpteen years.

Focus on what you can control. My approach, The Select Approach^TM, has performed for years. The warnings in the bond market are over as it appears to me the next leg of the bond bear market is currently unfolding. Will this be the leg that finally gets bond investors attention? Or even worse, will this be the leg that gets the stock market’s attention?

Fort Bend County, Texas

Senior Lien Toll Road Revenue Refunding, Series 2025

A2 Moody Underlying A+ Underlying Fitch AA S&P AGM

Due 3/1 Dated 6/15/25 Maturity 3/1/55

$261,345,000 Sold

Years Maturity Coupon Yield*

1 2026 5.00% 3.07%

2 2027 5.00% 3.09%

3 2028 5.00% 3.09%

4 2029 5.00% 3.16%

5 2030 5.00% 3.20%

6 2031 5.00% 3.27%

7 2032 5.00% 3.35%

8 2033 5.00% 3.43%

9 2034 5.00% 3.55%

10 2035 5.00% 3.65%

11 2036** 5.00% 3.79%

12 2037** 5.00% 3.92%

13 2038** 5.00% 4.01%

14 2039** 5.00% 4.11%

15 2040** 5.00% 4.22%

16 2041** 5.00% 4.35%

17 2042** 5.00% 4.46%

18 2043** 5.00% 4.55%

19 2044** 5.00% 4.63%

20 2045** 5.00% 4.69%

21 2046** 5.00% 4.76%

22 2047** 5.00% 4.82%

25 2050** 5.25% 4.86%

30 2055** 5.25% 4.94%

*Yield to Worst (Call or Maturity) **Callable 3/1/35

Source: Bloomberg

This is an example of a new issue priced the week of 5/19/25

Prices, yields and availability subject to change

Tags: bellwether bonds, bond bear market, Federal Reserve, municipal bond market, treasury bill
Posted in Municipal Market Letter

Loaded With Optimism

April 29th, 2025 by Kurt L. Smith

Are investors concerned out there? Some may say so, but most are doing nothing. Stocks have sold off, but most indices have recovered, some, maybe half, of their losses. Lots of talk, fretting, ignoring, but seemingly little selling going on.

One might expect this in the stock markets. After all, the major stock indexes set record highs in the past several months and remain nicely higher than where they were a year or two (or many years) ago.

This is not the case for bonds. We are five-plus years removed from the bond bull market top in 2020, and investors have little, if anything, to show for their loyalty of sticking with their bond investment.

Performance matters were so I would think. Last month I wrote how losing four points on long term bonds makes positive performance very difficult. Then came April.

On April 4^th the Treasury Bond Future traded above 122; on April 9^th it traded below 112 (all yields and prices per Bloomberg). Ten points lower in three days. Volatility in bonds is nothing new in the ever-expanding bond bear market. Since setting a ten year low in 2020, the ICE Bank of America MOVE index has trended higher. Volatility is not your friend, and it has spread to the stock market as well.

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Tags: asset prices, bond bear market, long-term trends, municipal bond market, treasury bond
Posted in Municipal Market Letter

But Look At The Yield!

April 4th, 2025 by Kurt L. Smith

Last month I left you looking for higher rates. The ten-year treasury note had corrected from 4.80% in mid-January to 4.10% (all prices and yields per Bloomberg). The 4.10% yield on March 4th was indeed the low last week; on March 27th the yield hit 4.40%.

My point is not how to trade the ten-year treasury note. My point is performance matters. Since 2020, the trend in bonds has been down in price (up in yield). This makes performance in the bond markets very difficult. Rather than having the wind at your back (bull market), the wind is in your face.

This makes bond market corrections, as we saw earlier this year (4.80% to 4.10%), a signal for what comes next. Looking at the bigger picture, we saw 5% yields in October 2023 and 3.60% in September 2024. Understanding that those moves in rates were corrections gets us ready for what is next: still higher rates.

Higher interest rates and lower prices are easily seen in the trading of longer-term bonds. The March 2025 treasury bond future traded at 119.5 on March 4^th and below 115.5 on March 27^th. Losing four points inside of a month makes positive performance very difficult; a wind in your face.

Municipal yields also jumped comparing the Texas A&M bonds below with last month’s El Paso Water and Sewer. With individual ownership of municipal bonds at seventy percent or $3 trillion of a $4.2 trillion market, we can assume owners will continue to do what they have done: hold and buy more. This is not a recipe for success; it has certainly not been our recipe.

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Tags: bond bear market, bond market trend, long-term trends, municipal bond market, treasury bond
Posted in Municipal Market Letter

Bears Out The Problem

March 9th, 2025 by Kurt L. Smith

Trend reversals take time with long term trends taking a long time to reverse. Throughout the multi-decade stock and bond bull markets we were used to trend reversals. By the time a downward trend was recognized, the odds were the correction was nearing its end and prices began to rise again. You might know this as buying the dips. It worked well for both stocks and bonds following the corrections of 2000, 2008 and 2020. But bonds failed to continue their bull ways while stocks went on to set new highs since then.

Bonds reversed trend in March 2020 almost five years to the day. We have entered a bond bear market, and you know it largely because I remind you every so often. Investors bought bonds on the dip in 2020, including you. Other investors invest in the bond market. Here at The Select Approach^TM, we rely on individual bonds to perform differently from the market.

Rather than selling one’s bonds in 2020 investors continued to buy because they were accustomed to buying dips. Even when the bond market failed to reach new highs in price, investors seemed pleased to buy cheaper bonds at yields much higher than in 2020. Buy more in a bear market? That is the power of Wall Street. That is the power of optimism. That is the power of not knowing the power of a bear market.

Of course, it may also be that investors do not really know how bonds work. Last month I discussed how individuals now own about seventy percent or $3 trillion of the $4.2 trillion municipal market. In a February 12^th Bloomberg article, author Martin Z. Braun looked at the returns (after fees) of open-end municipal bond mutual funds compared to customized portfolios known as Separately Managed Accounts (SMAs). Long national municipal open-ended mutual funds delivered 2.25%, -1.01%, 0.83% and 2.21% for one year, three-year, five-year and ten-year respectively. Looking at the performance of long national municipal separate managed accounts (SMAs), those clocked in with 0.58%, -1.35%, 0.47% and 2.13% for the same respective periods.

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Tags: bond bear market, bond market performance, bond market trend, higher interest rates, Municipal bond, reverse trend
Posted in Municipal Market Letter

Bears Out The Problem

March 5th, 2025 by Kurt L. Smith

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Tags: bond bear market, bond market performance, higher interest rates, municipal bond market, performance, trend change
Posted in Municipal Market Letter

Your Bonds Need Your Help

February 5th, 2025 by Kurt L. Smith

Everyone seems to have some bonds. There are tens of trillions of dollars in bonds out there. The Securities Industry and Financial Markets Association (SIFMA) puts the figure at $46 trillion in the United States and $119 trillion worldwide. Closer to home, municipal bonds now make up $4.2 trillion of the market, per the Federal Reserve, with individuals making up 70% of the market (about $3 trillion) according to Franklin Templeton.

As we discussed last month, investors in the bond markets own the market. Everyone’s portfolio looks like everyone else’s portfolio. When the municipal market started 2024 like a house on fire, everyone benefited. Year-to-date returns, per Bloomberg’s Municipal Bond Index, approached double digits through the first three quarters, only to lose almost all of it in the fourth quarter.

This is what happens when you are not investing with the trend. The trend for bonds is lower prices. I discussed for many months how trending markets will usually undergo a multi-month correction, and that is how I was describing 2024’s bond performance. Individuals piled into municipals, not realizing they were buying into a bond bear market and at the wrong time.

Investing in bonds the same way one has always invested in bonds is…, well you tell me. Look at your results over the past year, or three years, or five years. You are investing in a market in which the trend is down. And you are paying for the privilege, either a little, or a lot.

When it comes to bonds, it also does not matter what fund you own or who the manager is or what their past performance has been. You own bonds and in a bear market your performance is going to suffer. Since seemingly no one has determined that this is a bond bear market, I would say the greatest suffering is yet to come.

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Tags: bond bear market, bond market performance, Federal Reserve, municipal bond market, Sell Bonds, under-performing bond investments
Posted in Municipal Market Letter

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