Municipal bonds just digested a record $580bn in new supply, yet the market is actually getting stronger. Thomas Casey of BNY Investments notes that despite borrowing costs for issuers jumping 70% over five years due to inflationary project delays, demand remains insatiable. January 2026 alone saw $14bn in inflows. The resilience is driven by a fundamental mispricing: retail buyers are crowded into General Obligation bonds they "recognize," while ignoring the superior math of revenue bonds.

The smart money is moving toward essential service revenue bonds (water, sewer, and transportation) which Thomas Casey of BNY Investments describes as "fundamentally undervalued." These assets enjoy monopolistic power and professional management without the crushing long-term pension liabilities that plague local GO bonds. While the Trump administration’s rhetoric sparked a front-loading of issuance in 2025, the credit fundamentals have normalized rather than deteriorated.

The rise of the ETF wrapper is finally injecting transparency into this historically opaque corner of fixed income. With $45bn flowing into muni ETFs last year, the old "small-block" discount is vanishing. If you are still holding state GOs for the sake of familiarity, you are likely holding an overpriced asset with inferior yields compared to the essential services sector.

Source: Video - The ETF Show - Navigating Municipals: Supply Absorption, Curve Opportunities, and ETF Access