Municipal Bond Insurance: A Rising Tide Lifting All Boats
The municipal bond market is experiencing a resurgence, and bond insurance is playing a pivotal role. Recent data indicates a 4% year-over-year increase in municipal bond insurance volume in 2025, with major players like Assured Guaranty and Build America Mutual (BAM) leading the charge. This isn’t just a temporary blip; it signals a fundamental shift in investor appetite and issuer strategy.
Why the Sudden Surge in Demand?
Several factors are converging to fuel this growth. Firstly, the need for infrastructure investment across the US is immense. Municipal bonds are a primary funding source for these essential projects – from airport expansions to water system upgrades – and insurance adds a layer of security that attracts a wider range of investors. Secondly, heightened market volatility has increased the appeal of insured bonds, perceived as a safer haven.
Robert Tucker, Senior Managing Director at Assured Guaranty, highlights this point: “Our insurance can broaden market distribution and attract diverse investors… For investors, it provides safety and security.” This sentiment is echoed by Mike Stanton, Head of Strategy and Communication at BAM, who notes that municipalities are increasingly utilizing bond insurance to facilitate financings.
Assured Guaranty and BAM: Dominating the Landscape
Assured Guaranty continues to hold the largest market share, insuring $25.031 billion in deals – a 15-year high – representing 58.4% of the market. Their success is driven by a focus on larger transactions and a growing demand for insurance on AA-rated credits. They saw a 58% increase in insuring AA credits year-over-year, totaling approximately $7 billion in insured par.
BAM isn’t far behind, insuring $17.798 billion, or 41.6% of the market. A significant portion of their activity – over 85% – is focused on new-money investments, indicating a strong commitment to funding new infrastructure projects. BAM also experienced substantial growth in revenue bond sectors like public power (up 91% year-over-year) and airports (up 458% year-over-year).
Did you know? BAM’s largest-ever deal was in Montana, insuring $130 million for High School District No. 1 in Helena.
Looking Ahead: Trends to Watch in 2026 and Beyond
The momentum isn’t expected to slow down. Here are key trends shaping the future of municipal bond insurance:
- Increased Focus on ESG (Environmental, Social, and Governance) Projects: Investors are increasingly prioritizing ESG factors. Insured bonds financing green infrastructure projects – renewable energy, sustainable transportation, and water conservation – will likely see heightened demand.
- Expansion into Smaller Issuers: While large transactions currently dominate the insured market, both Assured Guaranty and BAM are exploring ways to extend insurance coverage to smaller municipalities, broadening access to capital.
- Technological Innovation: The use of data analytics and AI is streamlining the underwriting process, allowing insurers to assess risk more accurately and efficiently. This could lead to more competitive pricing and faster turnaround times.
- Secondary Market Growth: The secondary market for insured bonds is gaining traction, providing liquidity and further enhancing investor confidence. Assured Guaranty’s 11% overall increase in insured par, including the secondary market, demonstrates this trend.
- Direct Retail Participation: BAM is seeing increased allocation to tax-exempt markets from direct retail clients who value the unconditional guaranty of principal and interest payments.
The Role of Separately Managed Accounts (SMAs)
SMAs are becoming increasingly important players in the municipal bond market. BAM notes that these accounts are “increasing their allocations to the tax-exempt market and are more likely to hold to maturity,” making insured bonds particularly attractive. The ability to allocate bonds to multiple strategies within a single institutional manager, facilitated by the BAM-wrap, is a key benefit.
Case Study: Chicago O’Hare International Airport
The $1 billion issue for Chicago O’Hare International Airport, which included $225 million of BAM-insured general airport revenue bonds, exemplifies the benefits of bond insurance. The BAM-wrap attracted additional institutional accounts and broadened the investor base, ensuring a successful financing.
Pro Tip:
For investors seeking stability and security in a volatile market, consider allocating a portion of your portfolio to insured municipal bonds. The added layer of protection can significantly reduce risk.
Frequently Asked Questions (FAQ)
- What is municipal bond insurance? It’s a financial guarantee that protects investors against default on the principal and interest payments of a municipal bond.
- Who are the major bond insurers? Assured Guaranty and Build America Mutual (BAM) are currently the leading insurers in the market.
- Why are municipalities issuing more insured bonds? Insurance broadens the investor base, lowers borrowing costs, and provides greater certainty in a volatile market.
- What types of projects are typically financed with insured bonds? Essential infrastructure projects like airports, water systems, schools, and transportation networks.
- Is bond insurance expensive? The cost of insurance is typically factored into the bond’s yield, but the added security often outweighs the expense.
Explore further: Assured Guaranty Website | Build America Mutual Website | LSEG Data
What are your thoughts on the future of municipal bond insurance? Share your insights in the comments below!
