Calmer Seas, Munis Not at Ease

Research evidence excerpt

Calmer Seas, Munis Not at Ease

Barclays | Municipal Weekly

On the flip side, MSA tobacco has been the worst-performing muni sector, with the Nassau

County Tobacco default weighing on the entire space and pushing year-to-date returns into

negative territory. IDR/PCR credits, including the airline sector, have also continued to

underperform, along with the belly of the curve and 5% coupon bonds (Figure 3). Overall, this

performance has not been particularly surprising.

High-quality credit spreads over MMD are now near their nine-month lows, while BBBs and

the HY index still offer somewhat more value (Figure 4).

Looking ahead, the outlook is mixed. On one hand, a US-Iran peace memorandum could help

stabilize markets and put downward pressure on Treasury yields. On the other hand, this week’s

FOMC outcome was more hawkish than expected, and late-June seasonals are typically less

supportive for the asset class. Supply in the coming weeks should remain manageable, though

July is expected to be relatively heavy. In our view, investors should remain relatively light until

more attractive entry points emerge later in the summer.

FIGURE 3. Worst Muni Performers in June FIGURE 4. Spreads Over Benchmark

% bp IG HY BBB

0.5% 250

0.0%

-0.5%

-1.0%

-1.5% 0

HY Tobac. HY IDR/PCR HY Air. IG 7Y IG 5% AA Jun-24 Oct-24 Feb-25 Jun-25 Oct-25 Feb-26 Jun-26

Source: Bloomberg FI Indices Source: Bloomberg FI Indices

Bond Tenders Continued to Slow Down

Over the past several years, bond tenders have been a key focus for municipal market

participants, but activity has recently slowed and could decline to the lowest level since 2022

(Figure 5).

Higher rates are the primary driver of this slowdown. In 2025–2026, long-dated municipal yields

have risen meaningfully and become more volatile.