Municipal bond investors enjoyed solid returns on their tax-free portfolios in the third quarter of 2025. A constant stream of cash hitting investor portfolios kept the municipal bond market from crumbling under the weight of a still fairly heavy onslaught of new issue supply. Longer-maturity bonds participated in the positive price action during the quarter, as inflation concerns due to the Trump tariffs eased a bit.
Due to a slowdown in the labor market, the Federal Reserve moved to lower the federal funds rate by 25 basis points in September. With inflation still comfortably higher than the Fed’s 2% target, we would be cautious about expecting a series of rate cuts from the central bank. Municipal bond investors, in particular, should look to income as the leading force behind total-return in the coming quarter, as yields are likely to remain “range bound.”
Credit quality in the municipal bond market remains generally healthy overall so far in 2025. The concerns over the financial risks associated with the fires in southern California have been fully “priced in” to the credits most directly affected by this tragedy. Litigation could take years to determine if any single entity is financially responsible for the damage. Market participants’ credit concerns have recently moved towards the middle of the country, as spreads on Chicago Board of Education bonds-and the City of Chicago’s debt-have come under greater scrutiny.
MTAM continues to avoid any debt related to “The Second City,” as more financial pressure is possible should the local economy weaken further.
Regards,Michael Pietronico
Founding Partner
Miller Tabak Asset Management
mpietronico@millertabak.com
www.millertabakam.com
(212) 850-8103
Twitter (“X”): @MillerTabak