Municipal Bond Snapshot October 2026

Key Takeaways:

  • Municipals rallied sharply in October, following Treasury yields lower in a flight to safety driven by AI-debt concerns, reversing most of September’s decline.
  • As rates fell, the muni curve steepened, restoring attractive roll-down in intermediate maturities.
  • Munis enter November with positive momentum, high absolute yields and improving technicals, though tax-loss selling could keep volatility elevated into year-end.

MUNICIPAL BOND MARKET UPDATE

 

  • Interest rates fell in October as concerns about the debt-financed AI buildout triggered a flight to safety. The FOMC held rates steady, pointing to tighter financial conditions and a willingness to wait for more data before considering further hikes.
  • Municipals outperformed Treasuries in October as a broader risk-off backdrop and elevated starting yields attracted buyers, driving tax-exempt yields 32 to 90 bps lower across the curve, with the largest declines in the front end.
  • October issuance totaled $50.5 billion, 15% below last year but above the 10-year average. Fewer refunding deals amid elevated rates drove the slowdown, though year-to-date supply remains 4% higher year over year.
  • Fund flows continued to reflect tax-loss harvesting behavior, with open-ended funds experiencing outflows while ETFs saw record inflows.
  • Tax-loss selling drove early volatility in the secondary, while new issues remained well received as investors replenished positions sold for tax purposes.
  • The muni curve bull steepened in October, reversing most of September’s flattening. Two- and five-year yields fell 88 and 76 bps, compared with 71 bps for the 10-year and 32 bps for the 30-year.
  • 2s/10s widened 17 bps to +73 and 5s/15s steepened 12 bps to +97. The 10s/20s slope reached +103, its first triple-digit reading since March.
  • Muni/Treasury ratios fell from September highs as munis outperformed. The 10-year ratio ended at 69% and the 30-year ratio at 91%; intermediate ratios remain near the upper end of five-year averages.
  • Credit spreads held firm, while prepay energy was a notable laggard, widening 25 to 50 bps.
  • Munis enter November with positive momentum and more stable trading conditions. Absolute yields remain well above 20-year averages, the curve is steeper, and technicals should improve as supply lightens and reinvestment flows pick up.
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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.

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