This month’s Muni Monthly covers performance, supply and demand technicals, fundamentals and valuations for the month ending April 2026.
Performance Overview: April muni returns bounced back from March weakness.
Fixed-income markets were focused on escalating geopolitical tensions in April, as rising oil prices fueled concerns about inflation. While ceasefire agreements in the Middle East provided some optimism early in the month, Treasury yields ultimately moved higher amid stalled diplomatic progress and uncertainty surrounding the Federal Reserve leadership transition. In total, Treasury yields increased by 5-8 basis points (bps) across the curve. Municipals shrugged off the negative returns seen in taxable fixed-income markets, as well as the traditional technical weakness that typically pressures the asset class in April. High-grade municipal yields rallied 8-16 bps across intermediate and shorter maturities during the month and the Bloomberg Municipal Bond Index returned 1.15%. The rebound from March’s steep underperformance led year-to-date (YTD) returns back into positive territory at 0.97%.
Exhibit 1: Bloomberg Municipal Index Monthly Returns
Source: Bloomberg, Western Asset as of 30 Apr 26.
Technicals: Muni demand tracking at a strong $30 billion so far this year.
Municipal technicals began the month on weaker footing as tax season concluded, but improved as April progressed. April new issuance was elevated at $51 billion, slightly below the $53 billion recorded both in March and April 2025. Demand remained firm, with municipal mutual funds recording approximately $5 billion of net inflows during the month, largely comprised of long-term fund flows, according to Lipper. YTD inflows are tracking at a robust $30 billion through April, which if sustained through year-end would outpace the prior year’s demand trend.
Exhibit 2: Municipal Mutual Fund Annual Flows
Source: Bloomberg, Western Asset as of 30 Apr 26.
Fundamentals: Munis continue to benefit from strong revenue collections and elevated cash.
Credit fundamentals continue to demonstrate resilience, though late-cycle characteristics are emerging. Several large issuers are contending with delayed budgets and projecting longer-term budgetary shortfalls. YTD in 2026, the three major rating agencies have downgraded more debt than they have upgraded, by a ratio of 1.3x. In the high-yield segment, some larger issuers have drawn on debt service reserve funds and may pursue restructurings. That said, the broader municipal market continues to benefit from strong revenue collections and elevated cash balances. However, given relatively tight spread levels, Western Asset believes active credit selection remains critical.
Exhibit 3: Moody’s, S&P and Fitch Rating Changes by Par Value
Source: Bloomberg, Western Asset as of 31 Mar 26.
Valuations: Taxable equivalent yields remained elevated in April.
Despite recent outperformance, Western Asset believes the municipal market continues to offer attractive after-tax income opportunities. The Bloomberg Municipal Bond Index yield-to-worst stands at 3.68%, or 6.22% on a taxable-equivalent basis for top federal taxpayers, above historical averages and competitive with lower-rated taxable fixed income sectors. Income opportunities have improved across much of the curve, with 10-year high-grade yields rising more than 20 bps YTD to approximately 3.0%, and longer maturities increasing by 17 bps to around 4.3%. As seasonal technical headwinds fade, these levels could present an attractive opportunity for investors to reposition income and risk exposures in line with overall objectives.
Exhibit 4: Muni and Taxable Equivalent Muni Yield-to-Worst
Source: Bloomberg, Western Asset. As of 1 May 26. Yield-to-worst (YTW) is the lowest potential yield that can be received on a bond without the issuer actually defaulting. Taxable-equivalent yield considers the top effective marginal tax rate of 40.8%. Indices are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges. Past performance is not an indicator or a guarantee of future results.
Definitions:
“AAA” and “AA” (high credit quality) and “A” and “BBB” (medium credit quality) are considered investment grade. Credit ratings for bonds below these designations (“BB,” “B,” “CCC,” etc.) are considered low credit quality, and are commonly referred to as “junk bonds.”
One basis point (bps) is one one-hundredth of one percentage point (1/100% or 0.01%).
The Bloomberg Municipal “Muni” Bond Index covers the USD denominated long-term tax-exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds, and prerefunded bonds.
The Bloomberg Municipal High Yield Bond Index is an unmanaged index made up of bonds that are non-investment grade, unrated, or rated below Ba1 by Moody’s Investors Service with a remaining maturity of at least one year.
The Bloomberg Taxable Municipal Bond Index is a rules-based, market-value-weighted index engineered for the long-term taxable bond market. To be included in the index, bonds must be rated investment-grade (Baa3/BBB- or higher) by at least two of the following ratings agencies if all three rate the bond: Moody’s, S&P, Fitch. If only two of the three agencies rate the security, the lower rating is used to determine index eligibility. If only one of the three agencies rates a security, the rating must be investment-grade.
The Bloomberg US Corporate Bond Index measures the performance of the investment-grade, fixed-rate, taxable corporate bond market. It includes U.S. dollar-denominated securities publicly issued by US and non-US industrial, utility and financial issuers.
The Bloomberg US Treasury Index measures the performance of US dollar-denominated, fixed-rate, nominal debt issued by the US Treasury with at least one year until final maturity. Treasuries, if held to maturity, offer a fixed rate of return and a fixed principal value; their interest payments and principal are guaranteed.
The Bloomberg Valuation Service (BVAL) provides prices on a daily basis for over 2.5 million securities across all asset classes.
The Bloomberg AAA BVAL Callable Municipal Credit Curve is represented by the US General Obligation AAA Muni BVAL Yield Curve. The BVAL curve is populated with pricing from uninsured AAA General Obligation bonds. The curve is populated with high quality US municipal bonds with an average rating of AAA from Moody’s and S&P. The yield curve is built using non-parametric fit of market data obtained from the Municipal Securities Rulemaking Board, new issues, and other proprietary contributed prices. The curve represents 5% couponing. The 3-month to 10-year points are bullet yields, and the 11-year to 30-year points are yields to worst for a 10-year call.
The yield curve shows the relationship between yields and maturity dates for a similar class of bonds.
Inverted yield curve refers to a market condition when yields for longer-maturity bonds have yields which are lower than shorter-maturity issues.
Yield to worst (YTW) is the lowest potential yield that can be received on a bond without the issuer actually defaulting.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal. Past performance is no guarantee of future results. Please note that an investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.
Equity securities are subject to price fluctuation and possible loss of principal.
Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls. Low-rated, high-yield bonds are subject to greater price volatility, illiquidity and possibility of default.
Municipal income may be subject to state and local taxes. Some income may be subject to the federal alternative minimum tax for certain investors. Capital gains, if any, are taxable.
Changes in the credit rating of a bond, or in the credit rating or financial strength of a bond’s issuer, insurer or guarantor, may affect the bond’s value.
U.S. Treasuries are direct debt obligations issued and backed by the “full faith and credit” of the US government. The US government guarantees the principal and interest payments on US Treasuries when the securities are held to maturity. Unlike US Treasuries, debt securities issued by the federal agencies and instrumentalities and related investments may or may not be backed by the full faith and credit of the US government. Even when the US government guarantees principal and interest payments on securities, this guarantee does not apply to losses resulting from declines in the market value of these securities.
WF: 10359681
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