Thoughts from the Muni Desk

Here’s our insight and perspective on what’s happening in the muni market, including supply and demand, credit trends, and a quick look at key muni data points, in our December 18 update.

Tim: In this final issue of 2025, let’s look at the year ahead. Muni supply has been at record levels for the last couple of years. Do you expect significant new issuance in 2026?

Mark: Many analysts are forecasting another record year, with $600 billion or more of new supply.¹ If they’re right, that could exceed 2025 levels — new issuance was $540 billion year to date through December 4.¹ But not everyone agrees. Dissenters point to continued uncertainty with rates and a return to normal after two heavy years of issuance. They expect about the same level of supply, while others predict a modest decline. We’re in the latter camp, given our view that issuance should normalize and drop toward more historically normal levels. For 2026, we expect to see about $575 billion in new supply,² as state and local governments continue to come to the municipal market to fund infrastructure spending.

Tim: We’ve seen positive inflows during 2025, with $36.6 billion going into investment grade munis and $11.5 billion into high yield munis year to date through December 4.³ What about the demand side of the equation in 2026?

Mark: Yes, and strong demand has generally kept the lid on muni prices in 2025. Next year, however, I think market technicals may move in munis’ favor. Some analysts have forecast principal redemptions and coupon payments totaling as much as $701 billion,⁴ which would eclipse supply forecasts. Depending on how much of that money is reinvested, net supply could be as large as -$61 billion in 2026.⁴ If so, the technical environment could be very supportive for municipals next year.

Tim: Credit fundamentals should support a positive outlook for the market, correct?

Mark: The credit environment continues to look both stable and resilient. Defaults remain low, and credit ratings upgrades still outpace downgrades. Yes, the post-pandemic momentum has slowed, but through the third quarter of 2025, Moody’s Ratings and S&P Global Ratings had a combined upgrade/downgrade ratio of 1.4 to 1.⁴ Given the solid fundamentals, I expect to see similar numbers in 2026. Whatever happens, we’ll continue to rely on the skill and experience of our 24-person Invesco Municipal Credit Research team to evaluate every issue we consider for investment.⁵

Tim: We’re proud of our credit analysts and the work they do. For the last four years, the Invesco Municipal Credit Research Team has been one of the top three credit teams in Smith Research & Gradings Annual All-Star Municipal Analysts Awards.⁶

Mark: And 19 of our analysts just won 20 all-star awards for 2025.⁶ I think they’re the best in the business! Led by Mark Gilley, the team averages more than 18 years of industry experience — with some analysts in the business for more than three decades.⁷ Our proprietary credit research process is really what makes us unique — we vigorously underwrite every single bond that we buy, something that you won’t see at other shops.

On behalf of the team, I’d like to thank the institutional investors who cast their votes for Invesco. This is a terrific achievement and something that shareholders of our funds can also be proud of.

To read the complete article, including munis by the numbers.