23rd March 2026

Municipal market update

In a widely expected decision, the FOMC held its benchmark interest rates steady as policymakers weighed hotter-than-expected inflation readings, mixed labor market signals, and the evolving conflict with Iran. While the median fed funds rate projection in the closely watched dot plot was unchanged from year-end 2025, the distribution shifted in a more hawkish direction, with more members now expecting only one rate cut in 2026 rather than two, followed by another in 2027, though the timing of those reductions remains uncertain. A key driver behind the Fed’s more cautious tone is the war with Iran, as the conflict escalates, uncertainty over its duration and its impact on global energy markets have pushed up near-term inflation expectations. Adding to that backdrop, February producer price index (PPI) rose 0.7% month-over-month and 3.4% year-over-year on a seasonally adjusted basis, coming in well above expectations.

The SIFMA Municipal Swap Index reset to 2.41%, slightly down from 2.43% last week.

The markets responded with another week of sell-offs across equities, U.S. Treasuries, and Municipals. Over the week, U.S. Treasury yields rose by as much as 15 basis points, with the largest moves on the front end. MMD yields followed in tandem, rising by up to 13 basis points across the curve, particularly on the front end. On the supply side, the municipal market is expecting a heavy week with $12.5 billion to be priced. Much of that volume is being driven by the week’s three largest deals, all exceeding $1 billion, including a $2.60 billion New York City GO bond sale, a $1.40 State of Illinois GO bond sale, and a $1.16 billion PA Economic Development Financing Authority revenue bond sale. Investors continued to add another $1.8 billion to municipal funds, representing the seventeenth consecutive week of inflows and bringing the total inflows for 2026 to over $17 billion. The SIFMA Municipal Swap Index reset to 2.41%, slightly down from 2.43% last week.

This week’s three largest transactions include:

$2.60 billion New York City General Obligation Bonds (Aa2/AA/AA/AA+)
$1.40 billion State of Illinois General Obligation Bonds (A2/A-/A-/-)
$1.16 billion Pennsylvania Economic Development Financing Authority UPMC Revenue Bonds (A2/A/A/-)

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