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Monthly Summary

  • Municipals closed the first half of the year with outperformance month-to-date (MTD) and year-to-date (YTD) against most other fixed income sectors. In June, the Bloomberg Municipal Bond Index gained +0.96%. By comparison, the US Aggregate returned +0.24%, US Treasuries posted +0.28%, while corporate bonds trailed at +0.19%.
  • Coming into 2026, we identified demand as the key driver of performance. Healthy demand has continued to offset record levels of tax exempt issuance, with supply running about 8% higher than in 2025.
  • Underlying credit quality holds firm, bolstered by strong investment markets that have supported income tax revenues, along with pension and endowment funds.
  • See the "Trending Topics" section for our 2026 mid-year outlook. Then read part two of Jennifer Johnston's Research Matters demographics series, which explores the "Silver Tsunami" and its impact on key health care sectors.

WHAT ARE THE RISKS?

All investments involve risks, including 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. 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. Derivative instruments can be illiquid, may disproportionately increase losses, and have a potentially large impact on performance. An investor may be subject to the federal alternative minimum tax, and state and local taxes may apply. Diversification does not guarantee a profit or protect against a loss.

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IMPORTANT LEGAL INFORMATION

This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. This material may not be reproduced, distributed or published without prior written permission from Franklin Templeton.

The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as at publication date and may change without notice. The underlying assumptions and these views are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market. There is no assurance that any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets will be realized. The value of investments and the income from them can go down as well as up and you may not get back the full amount that you invested. Past performance is not necessarily indicative nor a guarantee of future performance. All investments involve risks, including possible loss of principal.

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