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This month’s Muni Monthly covers performance, supply and demand technicals, fundamentals and valuations for the month ending November 2025.

Performance Overview: Munis posted below average returns in November.

Municipals posted positive returns in November as indicated by the Bloomberg Municipal Bond Index total return of 0.23%, which was below the prior 10-year average November return of 1.16% during this seasonally stronger month. Munis generally underperformed Treasuries and corporates, which returned 0.62% and 0.58%, respectively, with those sectors reacting more favorably to weaker-than-anticipated economic data released during the month.

Exhibit 1: Bloomberg Municipal Bond Index Returns

Source: Bloomberg, Western Asset. As of 30 Nov 25.

Supply and Demand Technicals: Tax-exempt muni supply maintained an elevated pace throughout the year.

A softer supply-and-demand technical backdrop was a key contributor to municipals’ November underperformance. New-issue volume remained robust amid a record issuance year, with total volume reaching $45 billion, nearly double the level seen in November 2024. The $40.6 billion of tax-exempt supply marked the second-highest November on record over the past decade.

On the demand side, investor flows decelerated heading into year-end. Lipper reported $2.3 billion of net inflows into municipal mutual funds, down sharply from October’s $6.5 billion. Demand continued to concentrate in longer-maturity funds, with the long-term category attracting $1.5 billion of net inflows.

Exhibit 2: Historical Municipal Supply

Source: ICI, Western Asset, Bloomberg. As of 30 Nov 25.

Fundamentals: Upgrades continued to outpace downgrades in November.

Despite a modest slowdown in upgrade momentum relative to downgrades, upgrades continued to outpace downgrades by nearly a 2-to-1 margin in November. A notable highlight was Moody’s upgrade of the School District of Philadelphia’s general obligation bonds to Baa1 from Baa2, driven by sustained operating improvement and strengthened liquidity. The upgrade extends a decadelong credit recovery for the district, which was rated as low as Ba3 in 2014 and has now achieved four successive upgrades from the agency.

Valuations: Municipals generally offer higher after-tax yield advantages now than at the start of the year.

The muni underperformance in November aligns with themes observed throughout much of 2025: weaker technicals, rather than deteriorating fundamentals, have created attractive long-term income opportunities. While yields on the Bloomberg US Treasury and Corporate Indexes declined 63 basis points (bps) and 57 bps year-to-date (YTD) through November 30, 2025, respectively, the Bloomberg Municipal Bond Index yield fell only 16 bps and the Bloomberg Long Municipal Bond Index yield rose 19 bps over the same period. As a result, the after-tax income advantage of munis relative to comparable taxable fixed-income alternatives has increased across most maturities and credit quality structures. We believe this attractive relative value should continue to support steady demand, particularly if the Federal Reserve continues to reduce front-end rates in the near term.

Exhibit 3: YTD Changes in After-Tax Yeild Pickup

Source: Bloomberg, Western Asset. As of 30 Nov 25. 10- and 30-Year comparison reflects Bloomberg Valuation Service (BVAL) AAA Muni Curve and US On-/Off-the-Run Sovereign Curve. AA Muni reflects the Bloomberg AA Muni Bond Index. A Muni reflects the Bloomberg A Muni Bond Index. BBB Muni reflects the Bloomberg BBB Muni Bond Index. HY Muni reflects the Bloomberg High Yield Muni Bond Index. AA Corp reflects the Bloomberg AA Corporate Bond Index. A Corp reflects the Bloomberg A Corporate Bond Index. BBB Corp reflects the Bloomberg BBB Corporate Bond Index. After-tax yield considers top marginal tax rate of 40.8%. Indexes are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges. Past performance is not an indicator or a guarantee of future.

Definitions:

“AAA” and “AA” (high credit quality) and “A” and “BBB” (medium credit quality) are considered investment grade. Credit ratings for bonds below these designations (“BB,” “B,” “CCC,” etc.) are considered low credit quality, and are commonly referred to as “junk bonds.”

One basis point (bps) is one one-hundredth of one percentage point (1/100% or 0.01%).

The Bloomberg Municipal “Muni” Bond Index covers the USD denominated long-term tax-exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds, and prerefunded bonds.

The Bloomberg Municipal High Yield Bond Index is an unmanaged index made up of bonds that are non-investment grade, unrated, or rated below Ba1 by Moody’s Investors Service with a remaining maturity of at least one year.

The Bloomberg Taxable Municipal Bond Index is a rules-based, market-value-weighted index engineered for the long-term taxable bond market. To be included in the index, bonds must be rated investment-grade (Baa3/BBB- or higher) by at least two of the following ratings agencies if all three rate the bond: Moody’s, S&P, Fitch. If only two of the three agencies rate the security, the lower rating is used to determine index eligibility. If only one of the three agencies rates a security, the rating must be investment-grade.

The Bloomberg US Corporate Bond Index measures the performance of the investment-grade, fixed-rate, taxable corporate bond market. It includes U.S. dollar-denominated securities publicly issued by US and non-US industrial, utility and financial issuers.

The Bloomberg US Treasury Index measures the performance of US dollar-denominated, fixed-rate, nominal debt issued by the US Treasury with at least one year until final maturity. Treasuries, if held to maturity, offer a fixed rate of return and a fixed principal value; their interest payments and principal are guaranteed.

The Bloomberg Valuation Service (BVAL) provides prices on a daily basis for over 2.5 million securities across all asset classes.

The Bloomberg AAA BVAL Callable Municipal Credit Curve is represented by the US General Obligation AAA Muni BVAL Yield Curve. The BVAL curve is populated with pricing from uninsured AAA General Obligation bonds. The curve is populated with high quality US municipal bonds with an average rating of AAA from Moody’s and S&P. The yield curve is built using non-parametric fit of market data obtained from the Municipal Securities Rulemaking Board, new issues, and other proprietary contributed prices. The curve represents 5% couponing. The 3-month to 10-year points are bullet yields, and the 11-year to 30-year points are yields to worst for a 10-year call.

The yield curve shows the relationship between yields and maturity dates for a similar class of bonds.

Inverted yield curve refers to a market condition when yields for longer-maturity bonds have yields which are lower than shorter-maturity issues.

Yield to worst (YTW) is the lowest potential yield that can be received on a bond without the issuer actually defaulting.

 

WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal. Past performance is no guarantee of future results. Please note that an investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

Equity securities are subject to price fluctuation and possible loss of principal.

Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls. Low-rated, high-yield bonds are subject to greater price volatility, illiquidity and possibility of default.

Municipal income may be subject to state and local taxes. Some income may be subject to the federal alternative minimum tax for certain investors. Capital gains, if any, are taxable.

Changes in the credit rating of a bond, or in the credit rating or financial strength of a bond’s issuer, insurer or guarantor, may affect the bond’s value.

U.S. Treasuries are direct debt obligations issued and backed by the “full faith and credit” of the US government. The US government guarantees the principal and interest payments on US Treasuries when the securities are held to maturity. Unlike US Treasuries, debt securities issued by the federal agencies and instrumentalities and related investments may or may not be backed by the full faith and credit of the US government. Even when the US government guarantees principal and interest payments on securities, this guarantee does not apply to losses resulting from declines in the market value of these securities.

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The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as at publication date and may change without notice. The underlying assumptions and these views are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market. There is no assurance that any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets will be realized. The value of investments and the income from them can go down as well as up and you may not get back the full amount that you invested. Past performance is not necessarily indicative nor a guarantee of future performance. All investments involve risks, including possible loss of principal.

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