Municipal Bond Snapshot February 2026

Key Takeaways:

• Municipals posted solid gains in February, extending January’s momentum amid robust investor demand.
• The back half of the curve remains exceptionally steep, more than two standard deviations above long-term historical averages.
• The market enters March facing seasonal headwinds, though historically attractive yields and a steeper curve should continue to support demand.

MUNICIPAL BOND MARKET UPDATE

• Treasury yields declined in February as volatility in risk assets sparked a flight to quality. The 10-year fell below 4.0% for the first time since November, ending February at a 16-month low.
• Tax-exempt yields fell 10-15 basis points (bps) across the curve.
• Supply totaled $40 billion, one of the largest February calendars on record, but was easily absorbed amid strong demand.
• Mutual funds recorded another month of heavy inflows, with year-to-date totals tracking toward the third strongest start on record.
• Muni/Treasury ratios remain rich, with the 10-year ratio ending February at 64%, well inside its long-term average.
• The front end of the curve steepened modestly but remains historically compressed with 2s10s ending the month at +49 bps and 5s10s at +42 bps.
• The back end remains exceptionally steep, with 10s20s at +132 bps, nearly twice its long-term average.
• Credit spreads were largely unchanged and remain near the tighter end of recent ranges, with limited dispersion across investment-grade categories.
• The first two months of 2026 mirrored the start of 2025, with demand easily absorbing elevated supply. As we enter March, a weaker technical period for the municipal market, any pullback would present an opportunity to add selectively at more attractive entry points.