Investing.com — Bank of America said pressure for higher yields continues in the municipal bond market, with US and Japan coordinated intervention and a tentative Middle East ceasefire deal preventing Treasury yields from rising too sharply. The bank recommended muni investors maintain hedges through the summer at neutral or lower ratios.
The firm noted curve steepening may remain controlled, but yield pressure persists. Cross maturity hedging should also be considered given the steepening bias of the Treasury curve, according to the report.
Municipal bond issuance through August 5 declined 1% year-over-year. Lower new money issuance has become an established trend, and higher refunding volumes have not been sufficient to offset declining new money volumes. August is likely to show another month of year-over-year issuance decline, the bank said.
Investors may need to spend more time in the secondary market to find appropriate bonds, Bank of America noted.
The US and Japan coordinated intervention reduces cross-currency equivalent yields of US bonds for some foreign investors. Large taxable municipal spreads should provide enough cushion to weather this issue, the bank said.
First-time payment defaults totaled $146.1 million in July, bringing the year-to-date total to $719.0 million, down 70% year-over-year. First-time distress totaled $27.1 million in July, with the year-to-date total reaching $2.95 billion including Brightline Trains Florida. Excluding Brightline’s CUSIPs, year-to-date distress fell 54.6% year-over-year.
A second Chapter 9 bankruptcy filing of 2026 occurred in July.
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