A surge of Baby Boomers needing retirement communities has contributed to unprecedented municipal bond issuance and robust demand.
Municipal bonds (munis) are generally performing well above average due to new tariffs, the government’s shutdown, and rising inflation. We’ve experienced periods of volatility this year, the level of which we haven’t seen since March 2020. This is just the new normal. Things widened quite a bit during April, but we returned to normal by the end of the month, with some notable differences. Since the Fed began raising rates in 2022, muni yields have risen notably, but relative levels compared to taxable bonds have become particularly attractive, and absolute yields remain at decade-long highs.
Muni Yields Exceed the 10-Year Average
Source: BloombergNew Issuance Shattering Records
Investors in the muni market have driven $45 billion in inflows since Liberation Day, with October accounting for $10 billion in flows. Key drivers of this surge include attractive yields, product interest, and strong performance. The market witnessed significant issuance, with over-subscription levels ranging from 8 to 20 times. Investors should understand the importance of active investment management in the muni market, amid a 70% duration-to-treasury ratio and a yield-to-worst in the mid-threes on tax-exempt bonds. All these points indicate a historically resilient municipal market.
Muni New Issuance ($billions)
Source: MSRB, EMMA, as of 30 September 2025.Racing into the holidays, the year of busy municipal bond issuance continues. Last year’s new-issuance record of $494 billion has already been surpassed, and we are on target to reach approximately $560 billion (depending on estimates). Strategists have pointed out a few reasons for the continued rush to market:
- Early-year tax-policy uncertainty: The seemingly perpetual infrastructure backlog (as cited by the American Society of Civil Engineers).
- Price levels are likely permanently higher and growing due to inflation.
Regardless of rationale, new-deal activity in the municipal market remains elevated heading into the holiday season.
The State of Private Higher Education
We have previously referred to the spiraling demographic trend affecting the private higher-education sector, which is referred to as the enrollment cliff. This reflects an aging population, a shrinking pool of college-aged individuals, and increasing pressure on the value proposition of higher education. There may be value in moderately selective schools with sustainable endowments that can weather the headwinds and maintain or grow enrollment while successfully passing along tuition increases without increasing discounts. It is sensible for investors to be selective in this type of environment.
What is the Silver Tsunami?
A sector facing a somewhat mirror-image virtuous cycle – sometimes referred to as “the silver tsunami” – is the continuing care retirement community (CCRC) sector. The first Baby Boomers retired in 2011, and by 2026, they will begin to surpass 80 years old. While Millennials have recently surpassed Baby Boomers in total population, the Boomers still represent a robust pipeline for retirement communities as they ride this tsunami (as shown below).
A Huge Wave of Retirees
Source: U.S. Census BureauWhat is a CCRC?
A Continuing Care Retirement Community (CCRC) provides a continuum of care for aging residents, beginning with independent living that often consists of apartments or even stand-alone homes. These communities commonly feature amenities such as gyms, swimming pools, beauty salons, fine dining options, and entertainment, and are often situated near recreational offerings like golf courses. As residents require additional assistance with daily activities, such as dressing, grooming, and mobility, the community provides assisted-living services such as more intensive skilled nursing care.
Residents often provide large up-front entrance fees, typically funded by selling their homes. These entrance fees help secure the promise of a lifelong continuum of care, including nursing and memory care.
CCRCs are complex from an investment standpoint due to their direct healthcare exposure, as well as their close ties to real estate values since many residents must sell their primary residence to fund the entrance fee. Given the strong issuance environment and demographic tailwinds, investors must remain vigilant in deciding which CCRCs warrant investment, since not all are created equal.
What’s Ahead
With the government shutdown now behind us and a strong calendar in recent weeks, active investors should continue to seek out compelling opportunities and capitalize on muni market dislocations.
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