As new financing types emerge — from hyperscaler prepaid deals to spaceports and Bitcoin-backed bonds — the definition of a municipal bond is changing faster than current investor guidelines.
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When people think of munis, they think of municipalities, something backed by taxes, a relatively safe investment, said Jeff Timlin, managing partner and head of municipal bond investing at Sage Advisory, not something with a quasi-corporate backing or backed by cryptocurrency.
Alphabet became the
Both were first-of-its-kind financings that could serve as a blueprint for similar deals.
Alphabet borrowing in the muni market could lead to other capital-hungry hyperscalers to use prepaid gas deals as a financing opportunity, while the team behind the rejected Bitcoin-backed transaction hoped the deal would be one of many muni and crypto collaborations, professionals previously told The Bond Buyer.
The new types of financing may not be what investors signed up for, said James Pruskowski, managing director at Hennion & Walsh.
Most investors buy “munis for safety and tax-free income; school districts, water systems, highways; nobody told them they might end up owning a Google data center bond with a muni label on it,” he said.
Therefore, this is a question the industry needs to answer and “nobody is asking it loudly enough yet, especially in the investment-grade market where retail money lives,” Pruskowski said.
Another instance of a new type of deal is the authorization of tax-exempt private-activity bonds for spaceports under the One Big Beautiful Bill Act, with Barclays strategists predicting in an October 2025 report this could be an active muni subsector with forecasted growth of $20 billion to $25 billion by 2034.
While the legal framework of spaceport bonds is similar to PABs used by airports for infrastructure improvements, attorneys expressed at least some initial confusion over the exact meaning of some terms.
The new types of financing come as supply approaches record levels due to, among other reasons, dwindling pandemic-era aid and higher inflation costs for long-deferred projects, said James Welch, municipal portfolio manager at Principal Asset Management.
As a result, issuance has accelerated in certain sectors, creating opportunities for new financing types within established sectors, he said.
With Bitcoin deals that may or may not get done, and Alphabet entering the space, among other potential creative imaginings from muni bankers, it is increasingly more important to separate the two concepts of what is muni credit versus what is a tax-exempt bond, said Dora Lee, director of research and partner at Belle Haven.
This means there needs to be more education, since just because something is tax-exempt, it doesn’t mean it has the risk profile of muni credit. Likewise, muni credits now come in “multiple flavors” of taxable and tax-exempt, she said.
The “sleepwell market” is still mostly safe, though “the edges are moving faster than the regulators and faster than most investor guidelines,” Pruskowski said.
Scrutiny of what qualifies as a muni bond is coming, and when it happens, there will be direct implications for liquidity, pricing, and investor protection across the market, Pruskowski said.
“The investors paying attention now will be best positioned when it lands,” he said.