The municipal bond market experienced fluctuations in 2024, with tax-free yields rising in response to Treasury yield movements, particularly in the latter half of the year. Market uncertainty increased following the Federal Reserve’s December rate cut, which coincided with ongoing inflation concerns and economic crosscurrents. 

As 2025 begins, the potential extension of 2017 tax cuts under the new administration may impact demand for tax-free bonds, particularly if corporate tax rates are lowered. Climate-related risks, such as the LA fires and hurricanes, have drawn attention to municipal finance, with increased insurance costs and resilience measures potentially leading to more bond issuance. 

Despite these pressures, municipal credit quality remains stable, supported by strong reserves, prudent budget management, and infrastructure reinvestment. However, challenges persist in certain sectors, including healthcare, higher education, and public K-12 schools, due to shifting demographics, rising costs, and expiring pandemic aid.

Finsum: These are important things to monitor for municipal bonds, and the increasing role of DOGE, could drastically change this bond segment.