Market Overview: How did munis fare in 2Q?
Municipal bond (muni) yields rallied during the second quarter of 2026, supported by robust demand and summer reinvestment capital. US Treasury yields rose as the market began pricing in potential rate hikes. Persistent interest rate volatility over the quarter was largely fueled by the ongoing Iran conflict, which shifted the market narrative back toward inflation. In response, the Federal Reserve held the federal funds rate at 3.50-3.75%. Strong technicals drove muni outperformance throughout the quarter; despite elevated new-issue supply, summer reinvestment flows and solid demand anchored muni yields even as Treasuries repriced on rising inflation expectations.
Valuations: How did munis perform compared with US Treasuries in 2Q?
Muni yields fell 12 basis points (bps) on average across the curve for June, compared with Treasury yields rising 7 bps on average. For the quarter, muni yields fell by an average of 17 bps, while Treasury yields rose 21 bps. Muni/UST ratios tightened by 3% on average across the curve in June. For 2Q, ratios moved lower by an average of 7% across the curve, ending 2Q at 60%/64%/82% respectively for 5/10/30 years.