New York Municipal Bonds: Investment Opportunities

Key takeaways:

• New York’s resilient economy and strong tax collections support municipal credit fundamentals, but longer-term fiscal pressures warrant close attention.
• Tight valuations and uneven credit fundamentals make selectivity increasingly important across New York municipal bonds.
• Relatively high yields and New York’s tax advantages can create attractive income opportunities, particularly for investors able to identify value across sectors and issuers.

Strong revenues support New York City, but fiscal pressures remain

Record budget: New York City adopted a record $125.8 billion FY2027¹ budget without broad-based property or income tax rate increases or significant draws on rainy day reserves. However, spending growth continues to outpace recurring revenues.

Resilient revenues: Strong financial markets, improved Wall Street profitability and stable property values have supported better-than-expected tax collections. New York State tax receipts through the first quarter of FY2027 were approximately 6.9% above budget and 12% above the prior year.²

The newly authorized Non-Primary Residence Property Surcharge: the “pied-a-terre tax”) is estimated to generate approximately $500 million annually.³ While it could be significant over time, this tax is relatively small in the context of the city’s budget and collections remain subject to valuation disputes, behavioral changes and administrative delays.

Longer-term pressures remain: Structural budget gaps remain significant, and the city did not make a rainy-day reserve deposit in its FY2027 budget despite record tax revenues.

Strong revenues provide near-term support, but persistent budget gaps reinforce the importance of fiscal discipline over the longer term.

New York fundamentals remain resilient, but risks warrant attention:

Advantages

• Broad economy: New York is the third largest state economy, with roughly $2.5 trillion in annual GDP and the highest GDP per capita among the 50 states.
• The Big Apple: New York City, an international center of business and culture with a population of ~8.6 million sits at the heart of America’s largest metropolitan area. Financial services, healthcare, technology, real estate, fashion, and tourism all contribute to vibrant employment opportunities.
• Established fiscal framework: New York City benefits from state oversight, institutional fiscal controls and multiyear budget monitoring, while its $1.6 trillion property tax base provides a stable source of revenue.
• Strong tax revenue: New York State’s revenue performance has exceeded expectations over the past few fiscal years. The state has used budget surpluses to reduce long-term liabilities and maintain historically elevated reserves that will provide some cushion against potential outyear deficits.

Risks

• Outmigration: New York continues to experience population and income outflows, with $9.9 billion in adjusted gross income leaving the state in the most recent year available.
• Commercial real estate: New York City office vacancy remains elevated, particularly among older and lower-tier properties, despite improving occupancy and stabilizing office attendance.
• Significant liabilities: Large infrastructure spending needs, including for NY Metropolitan Transportation Authority (MTA) will constrain debt reduction efforts. When considering the state, city and various overlapping authorities, the debt, pension and Other Post-Employment Benefits (OPEB) burden placed on New York City residents is well above other similar cities.
• Reliance on high-income earners: A relatively small share of taxpayers generates a disproportionate share of personal income tax revenue, increasing New York's sensitivity to capital markets and contributing to greater revenue volatility.

New York income tax revenues can be volatile

Personal and corporate income tax revenues and quarterly changes

Where we see opportunities in New York munis

Strong retail demand for New York bonds often results in tight credit spreads, which traditionally do not reflect the fundamental picture. While this could mean that investors are not getting properly compensated for the risk they are taking, it also presents an opportunity to capitalize on mispricing. BlackRock currently sees opportunities in various sectors of the New York municipal bond market.

Tax-backed: New York State sales and income tax bonds and New York City Transitional Finance Authority dedicated tax bonds offer strong debt-service coverage and attractive spreads, providing potential resilience in a downturn.

Transportation: We see opportunities in the Port Authority of New York and New Jersey, JFK terminal facilities and regional tolling authorities, which benefit from their roles as key gateways and travel and trade corridors.

Essential services: Water, sewer and public power issuers can offer defensive characteristics, particularly those with strong liquidity and manageable capital needs.

Healthcare: We favor hospitals with lower Medicaid dependency, disciplined management and strong market positions, including select standalone and children's hospitals.

More cautious on NYC GOs: We remain cautious on New York City general obligation (GO) bonds given the city’s elevated debt burden and our preference for revenues sectors that potentially have higher yield than GOs. Wider spreads, however, could create a more attractive entry point.

Our goal is to capture value while avoiding the pitfalls that can come with choosing the “wrong” credits. Our dedicated 18-member analyst team remains vigilant in analyzing the risks and opportunities across issuers and credits on behalf of our shareholders to ensure BlackRock portfolios are based on critical thinking and populated with our best ideas.

Sector dispersion creates opportunities for selective investors

Spread levels across New York municipal bond sectors

New York muni yields remain attractive, but valuations favor selectivity

• New York muni yields remain elevated relative to recent history, supported by increased supply and the higher-rate environment.
• Year-to-date, the NY Muni index returned -4.24%, lagging the national index slightly by 6 basis points (bps).
• Tax equivalent yields (TEYs) remain particularly attractive for New York investors reinforcing the potential benefit of in-state municipal bonds.
• NY was one of the highest issuing state in 2026 with $43bln of total new issuance through September 30, 2026.

New York muni spreads remain relatively tight, with the 10-year spread versus the national AAA at -11 bps, compared with a one-year average of -19 bps.

New York bond yields near recent highs, giving investors the ability to lock in yields at some of the highest levels in the last 10 years

Accessing New York municipal bond opportunities

• BlackRock offers a variety of solutions to help meet client needs.
• These products include New York specific mutuals funds, index ETFs, and separately managed accounts.
• Invest alongside 40+ years of local municipal expertise, backed by the global reach of one of the world’s largest asset managers.

BlackRock offers several ways to access New York specific municipal bonds, including the BlackRock New York Municipal Opportunities Fund (MANKX), iShares New York Muni Bond ETF (NYF), BlackRock MuniYield New York Quality Fund, Inc. (MYN) and customizable separately managed accounts.

Investors seeking complementary municipal exposure may also consider the iShares High Yield Muni Active ETF (HIMU) for high-yield exposure or the iShares Short Maturity Municipal Bond Active ETF (MEAR) for a shorter-duration approach.

Historical performance of MANKX

Standardized performance