Municipal Strategy: Pricing Prepay: A Chart Pack

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Municipal Strategy: Pricing Prepay: A Chart Pack

Idea

June 8, 2026 10:00 AM GMT

Morgan Stanley & Co. LLCMMunicipal Strategy | North America Mark T Schmidt, CFA

Strategist

Pricing Prepay: A Chart Pack Mark.Schmidt1@morganstanley.comMorgan Stanley India Company Private Limited+ +1 212 296-8702

Gowtami P Pyla

If corporate spreads widen, would muni prepays follow suit? We StrategistGowtami.Pyla@morganstanley.com +91 22 6995-2290

chart muni to corporate yield and spread ratios for the municipal Samyuktha Gopal

gas & energy prepay market. Muni-corporate ratios vary with Strategist

Samyuktha.Gopal@morganstanley.com +91 22 6995-2022

supply, market technicals, state, and structure. AAs, US Banks, Morgan Stanley & Co. LLC

and repeat issuers tend to trade better. Christina C Sigler

How closely should prepay valuations track those of their funding recipient? The Christina.Sigler@morganstanley.com +1 212 761-4116

question takes on new importance as the market approaches $125bn in size. We find

that the prepay market is best thought of as a hybrid:

• Muni/corporate ratios are best understood as a guiding range for valuations.

• Muni/corporate yield ratios are more helpful than spread ratios.

• Muni-specific factors matter: coupon, tenor, and muni investor familiarity

Related Gas & Energy Prepay Research

with the corporate funding recipient influence valuations as much as the

Munis: Powering the AI Race (March 16, 2026)

corporate guarantor's underlying spread.

Pay Attention to Energy Prepay (October 17,

2025)

Prepay spreads should have an idiosyncratic aspect – it's a tough market to arb:

Conceptually, an investor could hedge corporate exposure via CDS. In reality this is

impractical:

• You still can't directly short tax-exempt munis. You would also need to hedge