The Week in Muniland

The market has gotten off to a slow start in the third quarter as geopolitical volatility has returned to the fixed-income markets. For the week, two-, 10- and 30-year yields rose 2, 7 and 7 basis points respectively. The Bloomberg Municipal Bond Index returned –0.32% last week, bringing month-to-date returns to –0.40%. Year-to-date returns now sit at 1.91%.

• Why it matters: The market did see some modest underperformance relative to US Treasuries, with after-tax spreads widening a handful of basis points in the belly of the curve. That said, the market remained on solid footing. Demand continued to support the market, with investors adding $1.4 billion to the market last week, according to Lipper, extending the positive streak of inflows to 12 weeks. With June now fully in the rearview mirror, investors added a whopping $6.5 billion to the market. Year-to-date inflows now sit at nearly $57 billion, continuing to track at the second-highest level on record for the comparable period. This week’s supply picks up slightly, with $11 billion expected to price. However, we anticipate the market to remain well supported given inflows and July 15 reinvestment cash hitting the market.

As investors enter the third quarter, some may be wondering whether the supportive market conditions can continue throughout the rest of 2026.

• Why it matters: While there will likely continue to be uncertainty around economic growth, inflation and interest rates, we believe several of the key drivers supporting municipal bonds will remain intact. As we mentioned in our first section above, demand has remained robust despite an elevated issuance calendar, helping the market absorb a significant amount of supply while generating positive returns. At the same time, yields remain elevated, and attractive after-tax income opportunities continue to draw investor interest. Furthermore, seasonal reinvestment flows should provide an additional technical tailwind during the summer months. We also believe the opportunity set has widened—particularly in intermediate maturities—creating opportunities for active investors to be selective across duration, maturity structures and credit exposures. To be clear, periodic volatility is likely along the way, but the combination of supportive technicals, relative value and a constructive demand backdrop leaves us optimistic about the market for the remainder of the year. For a more detailed discussion of our outlook, see our blog Municipal Midyear Outlook: Room to Run as Demand Drives the Market.
  
  

As municipal separately managed accounts (SMAs) continue to grow, they are reshaping the market in ways that extend far beyond asset growth alone.

• Why it matters: The municipal market looks very different today than it did just a few years ago. According to recent research from J.P. Morgan, municipal SMA assets reached approximately $1.6 trillion at year-end 2025, representing the majority of household muni ownership and roughly one-third of the entire market. At the same time, the Municipal Securities Rulemaking Board noted that 2025 was another record year for trading activity—with trade counts more than doubling from 2021 levels. Beneath that is a meaningful shift in market structure. As SMA adoption has grown, average trade sizes have declined while the number of transactions has increased dramatically, reflecting a market that is increasingly driven by customized portfolios and individualized client mandates. While a more fragmented market can create challenges for some investors, it can also create opportunities for managers with the scale, technology and trading resources necessary to efficiently navigate the market. The ability to analyze large amounts of market data, source liquidity electronically and customize portfolios at scale is becoming an even more important differentiator.