MainLine West, with the help of summer intern Peter Magen, is using artificial intelligence—not to manage your money or make decisions for us—but as a powerful assistant that helps us work faster and more efficiently. Our AI model can process thousands of pages from of issuer data multiple sources, apply our guidelines and objectives, and return clear, actionable results—a thing of beauty. Don’t just take my word for it—Peter will walk you through the process in this month’s muni credit review.
Munis managed to doggie paddle through a heavy new-issuance calendar, posting a modest loss for the month (-0.20%) but still outperforming U.S. Treasuries (-0.26%). Since last month’s close, tax-equivalent yields have risen, the curve has steepened, and MainLine West is expecting asset allocators will take notice and begin adding munis to client portfolios. Or, as ChatGPT might put it: “Municipal bonds are offering strong value in mid-2025, particularly for tax-sensitive investors in higher federal brackets.” Need we say more?
Muni Market Review:
Munis managed to barely outperform US Treasuries, but underperformed Corporates, but still trail year-to date big. Supply remains highly elevated creating the steepest yield curve, and highest tax equivalent yields since 2011. This will not stay this way, muni fear index is low, inflows are picking up, and supply is due to ease. More specially:
- Munis yields were -14 to +13 bps changed on the month, making the yield curve steeper and at record levels. For the month muni returns were lower (.20%), and for the year lower (.55%).
- Taxables were higher 11 to 16 bps for the month. US Treasuries performance for the month was lower (.26%), year to date up 3.75% while US Corporates were up .06% for the month, and up 4.24% year to date.
- The steep muni yield curve shows the strong demand for short-term paper due to investor concerns and placing long bonds (10 years and out) as a great value.
- Outperforming sectors are housing and transportation bonds, underperforming are higher education and hospital/healthcare bonds.
With a low muni fear index, record-high tax-equivalent yields, a historically steep yield curve, and improving inflows, MainLine West anticipates that municipal bonds will gain ground and outperform in the second half of 2025. Expect the yield curve to begin flattening, with 15- to 30-year bonds poised to outperform—a value opportunity that asset allocators should not ignore.
Market News & Credit Update:
- If you do not believe MainLine and the obvious muni value, maybe this will help you. A study released by an investment arm of MacKay Shields found that accounting for taxes, muni yields exceed the S&P 500 earnings yield by 244 bps, a gap not seen since 2001-02. This reflects munis being at their best value in over two decades.
- Year-to -date the muni housing market has been its top performer. It is up .85 % versus the index being down 1.03, its best outperformance in 12 years. A long-time favorite for MainLine West SMAs, housing bonds are viewed as a strong long-term, high-income sector with a track record of safe, consistent outperformance. They offer defensive price stability, though they typically lag the index in a rallying market.
- It’s raining PSFs. The muni darling (Texas Permanent School Fund endowment) is AAA/Aaa and is insuring a record amount of bonds in 2025. During the last two weeks of July, it guaranteed roughly $4 billion in bonds. PSF is on pace to set a record level of insuring in 2025, helping Texas school districts and charter school issue debt and lower their costs of borrowing. Next month, we’ll take a closer look at the PSF—examining the reasons behind the high issuance and assessing whether all PSFs are truly created equal. And yes, MainLine will be putting our new AI Credit Profile model to work.
MW & AI – Why?
Our summer intern, Peter Magen, is helping MainLine West step confidently into the age of AI. No, it’s not managing your money or making decisions for us—instead, our AI model serves as a powerful assistant, delivering the data we need to work faster and more efficiently. Why use AI? Because having the right information at the right time can make all the difference. And here it is—a true thing of beauty: a diagram of our AI model.
The model processes between 350 and 1,000 pages of source material per issuer, extracting key information, summarizing complex data, and generating a clear, data-rich 10- to 15-page credit profile. These reports help us determine whether an issuer aligns with the portfolio’s investment objectives, risk parameters, and thematic goals. In most cases, the credit profile also highlights potential concerns or red flags that warrant further review before moving forward with an investment decision. The entire process is highly efficient, typically taking just 4 to 6 minutes per issuer, depending on complexity. MainLine leverages a range of advanced AI platforms, each specializing in different types of analysis—from financial data parsing to climate and demographic modeling. This multi-platform approach allows us to cross-verify key findings and ensure we’re working with the most reliable, consistent, and accurate information available.
By leveraging cutting-edge large language models (LLMs) from providers such as Anthropic (Claude), OpenAI, and Google Cloud, Mainline has developed a proprietary system that automates the production of detailed, data-driven credit reports and bond deal summaries. This AI-powered workflow integrates multiple agents — including financial analysis, demographic evaluation, and climate risk assessment — to deliver institutional-quality insights in a fraction of the time traditional analysts might require, especially for complex or opaque issuers.
MainLine’s intelligent automation accelerates due diligence while enhancing the consistency, accuracy, and depth of analysis—particularly for new issue municipal bonds and credit-intensive transactions. By incorporating forward-looking risk factors like climate change and demographic shifts, it enables investors to better assess long-term credit stability. MainLine’s proprietary platform curates these AI-driven insights to support critical portfolio decisions, identifying opportunities that align with our investors risk tolerance and highlighting those most likely to demonstrate financial resilience. By combining the scalability of AI with deep fixed-income expertise, MainLine empowers more strategic, confident, and efficient municipal bond investing.
Our proprietary credit profiling engine marks a transformative step forward in how we evaluate municipal bond issuers, purpose-built to identify SWAN—Sleep Well At Night—opportunities that emphasize income consistency, capital preservation, and long-term resilience. Leveraging a broad array of high-quality, real-time data, the platform delivers a multidimensional credit analysis that moves well beyond traditional ratings. It evaluates core issuer fundamentals, bond structure, and financial terms, while integrating deeper layers of intelligence including demographic trends, political, social and geographic risk factors, and sector-specific performance drivers.
Critically, the model incorporates advanced climate risk analytics sourced from the nation’s top environmental research institutions—providing insight into both physical and transitional exposures that increasingly influence municipal credit quality. This comprehensive approach enables us to detect early indicators of credit deterioration, surface long-term value, and construct portfolios aligned with each client’s risk profile and financial objectives. Key data inputs that inform each report include (not the full list):
- Credit Ratings from nationally recognized agencies and Security Structure
- Issuer and Offering Details (e.g., governance, purpose, legal structure)
- Financial Terms of the Offering (maturity schedules, covenants, bondholder protections)
- Source of Repayment, Project analysis, and Repayment Factors
- Demographic Data (population trends, income levels, employment base)
- Climate Risk Factors (physical and transition risks from leading climate research)
- Geographic, Political, and Social Risk Indicators
- Sector-Specific Intelligence (tailored insights for healthcare, education, utilities, etc.)
- Historical Financial Performance (operating margins, liquidity, debt levels, debt service coverage).
- Debt, Tax and Cost of Service Burden
- Revenue Source Concentration and Government Dependency
- Capital Project and Debt Refinancing Activity
- Covenant Compliance Trends and Risk Flags
The information in our credit profile reports comes from a wide range of trusted and relevant sources to give a full, accurate picture of each issuer. This includes official documents like offering statements, audited financial reports, and ongoing disclosures filed through EMMA and the MSRB. We also use reports from credit rating agencies and financial databases to get a clear view of each issuer’s current standing and trends over time.
In addition to financial data, we incorporate demographic and economic information from national and regional databases, as well as research from leading climate science organizations to better understand environmental risks. We also pull in sector-specific insights and real-time market data, along with information from issuer websites and local or state government publications. All of this helps us build thorough, well-rounded credit profiles that go beyond surface-level numbers and provide the detail investors need to make informed decisions.
After gathering and analyzing all this information, MainLine calculates a proprietary credit profile score for each issuer. This score is then carefully compared to the issuer’s existing credit ratings. When discrepancies arise, we dig deeper to understand the reasons behind them. Sometimes, the credit profile raises additional questions or uncovers new information, prompting further investigation to complete our review.
Sometimes it highlights information not identified in the credit reports. To ensure accuracy and reduce the risk of errors, we run multiple AI models and draw from a variety of trusted sources, cross-checking data to identify and correct any inconsistencies. This rigorous validation process strengthens the reliability of our analysis and gives you greater confidence in every investment decision. Bottom line, it provides MainLine West a credit profile on each issuer we buy that is more detailed information and deeper in analysis then any other source of credit review. That is why… MW & AI!