Municipals Weekly: Warsh era begins with higher rates

Research evidence excerpt

Municipals Weekly: Warsh era begins with higher rates

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Municipals Weekly

Warsh era begins with higher rates

Industry Overview

Key takeaways 22 May 2026

Municipals• The Warsh era began with higher long-end Treasuries; munis rose too but ratios

United States remain tight and 10s30s flattening continued.

• 10yr AAA MMD tends to migrate toward annual lows during the summer; recent shifts Table of Contents

higher increase tax exemption value.

Market views and strategies 2• US banks held $93bn of HTM muni bonds as of 1Q26, $190bn of AFS munis and

$189bn of muni loans. Performance 5

Supply & demand 7

Warsh era starts with higher rates CurveRelative value 89

The Warsh era started with higher rates at the very long end of the Treasury curve and Trade activity 11

the 10yr breaking above 4.50%, appearing to be driven more by some overseas selling Credit corner 12

rather than the Fed’s posture change. Long term muni yields also moved up quite a bit,

Defaults, distress & HY 19

but muni ratios remained tight and 10s30s flattening was maintained. Neutral hedge

Acronyms 20

ratios should continue to work.

Research Analysts 26

Rates trend toward annual lows during summer months

We reviewed 10yr AAA MMD rates from 2000-2025, calculating each day’s ratio to the Yingchen Li

annual low level for its year. Typically, rates migrate toward annual lows during the Municipal Research Strategist

BofAS

summer after moving away from them during the spring. While 2026’s rate path is yingchen.li@bofa.com

mimicking 2025’s, albeit at lower levels, recent shifts higher increase the value of the Ian Rogow

tax exemption, which has moved above its 3yr moving average. Municipal Research Strategist

ian.rogow@bofa.com

The vintage effect isn’t a vintage effect John Lombardi