PNC Public Finance Outlook: Navigating Market Disruption and Volatility

It has been a volatile year thus far in the Public Finance sphere, and the uncertainty is likely to continue in the near term, as several considerations have the potential to create disruption in the market.

The introduction of tariff policy has been an unsettling factor in the Public Finance space and has contributed to substantial volatility in the bond markets over the last few months. As inflationary pressures increase, entities in the non-profit, higher education, and governments spaces are feeling the impact of rising costs.

Institutions for higher education may be among those feeling the effects of federal policy issues most keenly. The impacts are vast and differ from institution to institution; however, the uncertainty has many institutions in the sector taking a defensive posture to hedge against the unknown.

Even as it remains to be seen what the overall federal policy impacts will be, entities in all sectors are also facing additional uncertainty stemming from ongoing geopolitical tensions and macroeconomic impacts.

The overall long-term outlook remains unclear, but in the meantime, according to Head of PNC Public Finance Samantha Funk, the short-term takeaway is the importance of staying nimble. “We’ve seen how vulnerable the markets can be to the disruption stemming from tariffs and other policy issues, and it will be important to keep that top of mind,” Funk said. “But issuers should also be mindful that the market is still open.”

One bright spot in an otherwise foggy environment is the municipal bond market, which has continued to perform very well. Supply remains elevated, due to the attractiveness of the relative value of the municipal asset class to investors, and the market has digested the elevated supply well. Part of the strong performance may be due to the current seasonal redemption period, in which investors are receiving repayment that they can then redeploy into the negotiated market. There is still a lot of capital coming into the municipal bond market, and 2025 is likely to continue to be an elevated issuance year.

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