Municipals Quarterly: 2Q26 in review

Research evidence excerpt

Municipals Quarterly: 2Q26 in review

Exhibit 1: Overweight high grades and solid A-rated long duration bonds in 2026

Strategic and tactical views & key forecasts

Strategic views

• (1) High grade bonds, solid A-rated bonds*: overweight in 2026

• (1) Territories; (2) small private colleges; (3) rural, single-facility hospitals: underweight

• Overweight long maturity munis in a bull market

Tactical views

• Investors should consider doing some partial hedging if 10yr AAA gets to 2.00% area

Key forecasts

• 2026 issuance forecast revised down to $600bn; $443bn new money and $157bn of refundings

• 2026 principal redemptions forecast revised down to $462bn; coupon payments to total $181bn

• Now $138bn net supply expected in 2026. Jun, Jul, Aug and Dec the most favorable supply/demand imbalances

• 1s10s should continue to flatten in 2H26

• Muni/Tsy ratios will trade at somewhat rich levels most of the time in 2026

• Credit spreads for high grades should remain stable in 2H26; could see mild widening in single-As and BBBs

Note: *If the holder is certain they are not subject to the AMT under current tax law.

Source: BofA Global Research

BofA GLOBAL RESEARCH

2Q26 in review

Roller coaster macros, stable munis

2Q26’s headlines were dominated again by the US-Israel/Iran conflict, but with the focus

transitioning from a hot war to the ceasefire negotiation process. Oil prices went from

$100+/bbl at the beginning of the quarter to the $70/bbl range by June. Meanwhile, the

10yr Treasury yield climbed to similar highs from 2024-2025 during 2Q26 due to

renewed inflation concerns but then declined to the 4.40% range by June. The Treasury

curve flattened. Munis outperformed Treasuries consistently during the quarter and

muni/Treasury ratios stayed low.