Municipal Markets Weekly: New issue well digested amidst surging inflows and 1H Aug reinvestment. Long-dated BBB/HY spreads nears five-year tights. CA Prop 40.

Research evidence excerpt

Peter DeGroot AC (1-212) 834-7293

J.P. Morgan Securities LLC

Ye Tian (1-212) 834-3051

J.P. Morgan Securities LLC

Roisin A Gargan (1-212) 834-7010

J.P. Morgan Securities LLC

Global Markets Strategy

JPMORGAN

07 August 2026

Municipal Markets Weekly

New issue well digested amidst surging inflows and 1H Aug

reinvestment. Long-dated BBB/HY spreads nears five-year

tights. CA Prop 40.

The July employment report was softer than expected (with unemployment the key

exception, falling to 4.1% from 4.2%), as was ADP, though other labor prints this week

were favorable. Focus remains on next week’s inflation data (CPI Weds, PPI Thurs).

Our rates team looks for range-bound rates over the near term, with labor market

concerns easing and the Fed returning to a neutral bias, but see medium-term risks

skewed to more tightening and higher long-end yields given Chair Warsh’s balance

sheet and inflation-target comments lifting inflation expectations and term premium;

they maintain 2s/10s curve steepeners.

This week’s ~$17.5bn tax-exempt calendar (largest YTD, 5th-largest on record) was

absorbed smoothly, with HG muni yields closing 10-14-12-6bp lower in 2-5-10-30yrs

and outperforming USTs by 1-4-3bp in 2-5-10yrs (while lagging by 1bp in 30yrs), supported by strong technicals, including ~$32bn of projected 1H Aug reinvestment (2nd

highest two-week stretch of the year) and solid inflows (LSEG +$1.3bn, MondayThursday flows of ~$3bn including reinvestment).

Next week’s ~$12bn tax-exempt calendar is 1.3x the average but should also clear well

if rates remain range-bound to lower and fund flows stay stable. Friday’s payroll-driven

rally was timely given that next week’s calendar is skewed towards the richer longer

portion of the curve, and the fully-valued healthcare sector. We would avoid chasing

tighter spreads on one payroll print, with key inflation data due next week.

The combination of near-record inflows and scant high-yield supply has been playing

out for some time now, driving BBB/HY spreads close to their lowest level in over

the last five years.

HY issuance has stepped down from an average of 9-13% (2019-2021) to between 5-8%

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