Municipal Bond Snapshot May 2026

Key Takeaways:

• Municipals delivered modest gains in May, overcoming broader rate market volatility and near-record supply.
• The back half of the curve offers the most value, with nearly 100 bps of incremental yield between 10- and 20-year maturities, which is attractive relative to historical norms.
• The outlook for June remains constructive, supported by strong fund flows and summer reinvestment demand, though heavy issuance and rate volatility may create periods of pressure.

MUNICIPAL BOND MARKET UPDATE

• Treasury yields rose in May as the US-Iran conflict kept oil prices volatile and inflation fears front of mind.
• Municipals posted modest gains, despite a more challenging Treasury backdrop and a heavy new issue calendar.
• Supply topped $50 billion, down 3% year-over-year, but the second-largest May issuance figure on record.
• Demand remained strong supported by positive fund flows, including $2.3 billion of inflows during the final week — the second-highest weekly total dating back to 1992.
• Tax-exempt yields were mixed for the month with 2-year yields falling 5 bps and 10- and 30-year yields rising 2 bps and 1 bp, respectively.
• The front-end of the curve steepened modestly, with the 2s10s slope ending the month at +56 bps, slightly above its trailing 10-year average.
• 10s/20s finished May at +94 bps, roughly one standard deviation cheap to historical averages.
• The 10-year muni/Treasury ratio ended the month at 67%, down slightly from 68% at April’s close.
• Credit spreads were little changed in May. Early returns from budget season have been more encouraging than headlines suggested. NYC’s executive budget avoided the dramatic measures floated earlier in the year and California’s May revision showed revenue collections running well above January’s projections.
• Going forward, the muni market looks well positioned — including attractive yields, a steeper front-end slope, and above-average spread pickup still available in the long end.