Last month we reviewed Munis around the world, and this month we will review Munis around the universe. Changes to a Federal tax code in the “Big Bill” created a new sector in the Muni market, taking tax-exempt financing to the stars. Space ports and parks now qualify as Munis and is a sector that has long-term sonic boom potential. Once again, Muns are leading the way to improving society and quality of life. To the moon with Munis!
Municipal bonds gave back a little of their strong performance in February but still remain ahead of most other fixed income investments so far this year, returning about 2.2% compared with roughly 1.7% for the broader bond market. The next 30 to 60 days are typically a more challenging seasonal period for Munis as new bond issuance tends to increase. Even so, MainLine expects the market to remain relatively stable, with solid investor demand helping absorb the additional supply.
Muni Market Review
Municipals gave back some of their strong start to the year in February, but remained the top performer year-to-date. Munis were up 1.25% for the month, (2.20% YTD) versus US Treasuries up 1.74% (1.70% YTD), and US Corporates up 1.57% (1.70% YTD) (Bloomberg Composite Indices). Munis are entering into a technically tough time of year, and demand seems steady, but supply appears to be picking up. The next 30 to 60 days could be interesting, but MainLine does not expect Munis to steer too far from their present course.
Additional February highlights:
- The Muni yield curve steepened, with yields lower from 13 to 10 bps, with the intermediate area the top performer at 18 bps lower. The Muni curve remains steep, especially from 15 to 25 years. It looks like, in February, some of the other Muni managers finally got the memo and are starting to allocate in that part of the curve. An investor can pick up 130 bps by extending from 10 years out in maturity to 20 years.
- Taxable yields were lower in the month by 29 to 32 bps, due to a flight from equities rally.
- Weekly Muni inflows are averaging highest they have since 2021, which was a year of good Muni performance. This remains a critical key to market performance in 2026.
- Year-to-date supply is roughly 2% behind 2025, but appears to be picking up.
- After a slight spike in the fear index, levels have set back lower and look constructive for Muni investors going forward.
MainLine West has continued the liquidation of Fund V and has raised roughly 80% of original capital called. This will continue in the coming weeks, and we will start planning to redistribute it back in short order.
Market News & Credit Update
- SMA assets are up 6% from 2024 and are now estimated at $1.2 to $1.4 trillion (28%-31% of Muni holdings). Their growth has been fueled by minimum, account balance decline, money being managed by professional managers, and the ability to provide more personalization. This growth has come with an increase in “concentration” and use of technology. Roughly 65% of the assets are now concentrated in 30 “strategies” (increasing from 50% in 2019), and MainLine estimates roughly half of them are managed by the “big five”. Sounds like consolidation and conformity to MainLine.
- In In MainLine West’s 2026 Outlook, one of the keys for Muni outperformance in 2026 was demand growth, and we are finding another source for it with increases in state income tax rates and the increase in the SALT exemption (from $10,000 to $40,000). From proposed millionaire taxes (Washington, Massachusetts) to higher top tax rates (Rhode Island, Virginia), the trend appears to be that tax rates are going up from here. States need revenue growth for infrastructure spending, and increasing income taxes looks like the answer. All of this encourages more tax-exempt income. States need revenue growth for infrastructure spending, and increasing income taxes looks like the answer. This, too, encourages more tax-exempt income.
Introduction:
Last month we reviewed municipal bonds around the world. This month we will review Munis around the universe. In 2026, a new sector was born in the municipal market, extending tax-exempt financing to space parks and spaceports. There are limits and guidelines, but it is not hard to see where this could go. MainLine will review both the current landscape and the future opportunities of municipal space bonds.
Background:
In July 2025, the “Big Bill,” legislation that was originally expected to eliminate some tax exemptions, instead introduced a potentially multi-billion-dollar new sector in the municipal market. The bill changed federal tax law under Internal Revenue Code § 142 to allow tax-exempt private activity bonds to fund spaceports and space parks in much the same way airports have long been financed.
- Space Parks: Facilities that manufacture and assemble space technology and include research activities.
- Spaceports: The equivalent of airports for vehicles traveling to and from space.
This legislation expanded the types of infrastructure that can be financed with tax-exempt municipal bonds into the growing space economy. Interestingly, the concept isn’t entirely new — a bond deal for a space park was issued more than fifteen years ago.
Spaceport America (New Mexico) Issued in 2009 and 2010, the New Mexico Spaceport Authority oversaw the construction of Spaceport America – the world’s first purpose-built commercial spaceport. To help finance the project, the New Mexico Finance Authority issued revenue bonds backed in part by local sales taxes collected in Doña Ana and Sierra counties.
The original financing totaled about $220 million in tax-exempt bonds and carried an AA+ rating from S&P. The bonds were later refinanced in 2021, leaving only $13.6 million outstanding as of June 2025, with the remaining balance scheduled to be fully repaid by June 2026.
So why was federal tax law changed, and how might future spaceports and space parks be financed?
The Space Details
The recent change to the federal tax code allows private companies developing large space-related infrastructure projects to access the lower borrowing costs of the municipal bond market. They can do this by issuing bonds through qualified public entities that provide tax-exempt financing.
Importantly, these bonds do not need to be repaid with tax revenues. Instead, they can be backed by the revenues of for-profit companies. This structure is already common in other areas of municipal finance. For example, airlines such as United Airlines have issued bonds through airports like JFK. In that arrangement, the airline receives tax-exempt financing, the airport benefits from increased economic activity, and the airline is responsible for repaying the debt.
To qualify for tax-exempt financing, a spaceport or space park facility must support one or more of the following activities:
- Manufacturing, assembling, or repairing spacecraft or related technology.
- Providing launch or re-entry services.
- Operating flight control systems.
- Transporting crew members, spaceflight participants, or cargo to and from spacecraft.
Additional requirements include:
- A state or local government must be the tax owner of the financed facility, although the land may be leased from the U.S. federal government.
- Spaceports do not have to be open to the public. Activities such as spacecraft manufacturing, assembly, and repair are specifically eligible for tax-exempt bond financing.
For now, spaceports and space parks financed with municipal bonds must be located on Earth. Projects located directly in space are not yet eligible. The law currently treats spaceports in the same category as airports, meaning they are considered Earth-based transportation infrastructure.
MainLine Thoughts/Conclusions:
- Municipal bonds are pioneering a new frontier, once again, for public infrastructure, with space becoming the latest area where munis can help support projects that benefit society.
- The sector will increase issuance growth. Tax-exempt financing provides low-cost financing for a small and growing, highly capitalized industry. Initially it will be limited and only the most notable names in the business will be able to issue bonds.
- Credit quality will be an important factor to watch. This is unlikely to be a traditional Sleep-Well-At-Night sector at the start. Many of these bonds will probably be non-rated or below investment grade, similar to many privately financed airport deals today. However, if projects prove successful over time, the sector could mature into a more broadly investable part of the municipal market.
- Looking further ahead, MainLine believes tax-exempt financing could someday support projects located directly in space. Under current law, projects must qualify as “enumerated facilities” under Internal Revenue Code Section 142, which currently includes transportation infrastructure, waste management, and energy production on Earth. If these types of projects provide clear public benefits and help advance society, it is not hard to imagine tax-exempt financing eventually supporting similar infrastructure beyond our planet.
Once again, municipal bonds are helping support the growth of a new industry. For now, tax-exempt financing for spaceports and space parks remains firmly grounded on Earth, but it’s not hard to imagine a future where Munis help finance projects beyond our planet. Imagine, for example, a massive solar farm in space helping power cities like New York. MainLine West looks forward to the day we can conduct a site visit and perform our due diligence on project risk and principal protection. SWANs in space!