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28th September 2026

Municipal market update

Municipals extended their selloff last week underperforming Treasuries as a volatile rate backdrop collided with a less favorable seasonal technical environment. Through the summer, steady fund inflows and reinvestment dollars kept municipals resilient despite the geopolitical and economic headlines driving swings in Treasuries. With that support now fading, the AAA MMD scale was cut in every session, with the heaviest pressure inside ten years.

MMD yields rose 45, 30, and 18 basis points in 2, 10, and 30 years, respectively, with the 2-year closing at 3.46%, a new 2026 high.

Treasuries were whipsawed by energy prices and developments in the conflict with Iran, opening the week stronger as oil fell on hopes of a diplomatic resolution before reversing as oil prices climbed. The sharpest move came Wednesday, when a higher-than-expected PMI release, hawkish FedSpeak reinforcing expectations for another hike at the next FOMC meeting, and a weak 5-year auction pushed the 10-year Treasury yield roughly 15 basis points higher to 5.12%. On the week, MMD yields rose 45, 30, and 18 basis points in 2, 10, and 30 years, respectively, with the 2-year closing at 3.46%, a new 2026 high. Treasury yields rose a more modest 5 to 16 basis points across the curve, leaving municipal-to-Treasury ratios meaningfully cheaper, with the 2-year and 10-year ratios near 72% and 78%, respectively.

Selling pressure in the secondary market remained intense, with daily bids-wanted climbing to $3.4 billion on Wednesday, the highest level since the pandemic, as customer sales and tax-loss swaps weighed on dealer balance sheets. The weakness carried into the primary market, where several issuers downsized their offerings. Chicago O’Hare reduced its deal from over $1 billion to approximately $500 million, while Pennsylvania Turnpike downsized from $450 million to $163 million. Fund flows stabilized somewhat, with Lipper reporting inflows of $633 million following the prior week’s $1.8 billion outflow.

This week, primary-market supply is expected to be lighter at approximately $11 billion heading into quarter-end. Cabrera will serve as Co-Manager on the Sales Tax Securitization Corporation’s $460 million issue. The three largest transactions on this week’s calendar include:

• $1.805 billion Municipal Improvement Corporation of Los Angeles Lease Revenue Bonds (Los Angeles

Convention Center)

• $1.490 billion California Community Choice Financing Authority Clean Energy Project Revenue Bonds

• $678 million Los Angeles Department of Water & Power Power System Revenue Bonds

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