Q3 2025 Credit Commentary - Anticipated Challenges Are Now With Us And Highlighted By The Government Shutdown

2025-10-09 15:39:00 ET

By Patricia Healy, CFA

This may be the quarter that muni credit quality begins to turn. However, munis are an extremely safe asset class and often viewed as a flight to quality product. There have been many more upgrades than downgrades over the past few years, so one might expect the trend to plateau; and then, of course, there are the challenges ahead. They include demographic changes such as our aging population; changes in the federal approach to healthcare, education, disaster relief, immigration, and tariffs; as well as the response of the economy or pockets of the economy to the changes. Other challenges include protecting against increasing cyberattacks as well as natural disasters and extreme climate events - and increasing insurance costs for these hazards. Munis with the strongest credit quality in the AA category and above should show resiliency in facing these challenges even with a turn of credit....

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