Municipal Bond Snapshot August 2026

Key Takeaways:

  • Municipals posted mixed returns in August, with gains in shorter maturities but losses out longer.
  • The municipal curve steepened significantly, improving relative value and expected return in intermediate and longer maturities versus the front end.
  • Munis enter September with attractive starting yields and a more favorable curve, though lighter reinvestment demand, heavy issuance, and Fed uncertainty may create additional volatility.

MUNICIPAL BOND MARKET UPDATE

  • Treasury yields finished mixed, with short-to-intermediate rates modestly higher and the 30-year down slightly.
  • Short rates were driven by a hawkish repricing of Fed expectations while long rates were influenced by the Treasury Department’s expansion of its bond buyback program.
  • The direction of municipal yields varied across the curve, with tax-exempt yields inside 10 years falling 2 to 10 bps while yields in the 15- to 30-year range rose 9 to 19 bps.
  • New issuance totaled nearly $60 billion, the highest August volume on record and fifth largest month ever.
  • Demand remained strong with municipal funds recording inflows each week.
  • Despite long-end volatility and a heavy calendar, market conditions remained orderly, with deals generally well absorbed.
  • The municipal curve steepened, with 2s/10s widening 10 bps to +84 bps and 5s/15s widening 24 bps to +109 bps. Both ended well above their trailing 10-year averages.
  • Beyond 15 years, the curve flattened modestly, though that portion of the curve remains historically steep.
  • The 10-year muni/Treasury ratio held at 71%, while two- and five-year ratios fell to 58% and 63%, respectively, leaving the front end less attractive on a relative basis.
  • Credit spreads were largely stable, while Moody’s upgraded Illinois GO to A1, citing improved governance, eight consecutive on-time balanced budgets and rebuilt reserves.
  • Tax-equivalent yields remain near their highest levels of the year, while the steeper curve has improved opportunities for bond roll, particularly in the 10- to 15-year range.
Subscribe to Muni Updates
Disclosures

All material has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy of, nor liability for, decisions based on such information. This represents the views and opinions of GW&K and does not constitute investment advice, nor should it be considered predictive of any future market performance.

Keep
Reading

Hospitals: Facing a New Reality

Municipal Bond | Insight

Medicaid cuts pose new challenges for not-for-profit hospitals. GW&K examines which credits may face the most pressure — and how providers could adapt.

Read Article

Municipal Bond Snapshot July 2026

Municipal Bond | Insight

Municipals sold off in July, with intermediate bonds posting their first negative July since 2013, as rising Treasury yields and rich starting valuations outweighed strong technicals.

Read Article

Municipal Bond Market Commentary – 2Q 2026

Municipal Bond | Insight

Municipal bonds entered the second half of 2026 with solid momentum as strong demand, attractive tax-equivalent yields, and seasonal reinvestment trends support the market.

Read Article