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Monthly Summary

  • Municipals (munis) lost ground in July as yields rose across the curve. The Bloomberg Municipal Bond Index returned -1.85% month-to-date (MTD), reducing its year-to-date (YTD) gain to +0.43%. Lower-rated credit continued to outperform, with the Muni High Yield Index leading at +2.52% YTD despite a -1.51% MTD return. Munis fared worse than Treasuries, which returned -1.11% in July.
  • Demand remains the primary driver of 2026 performance and may hold through year-end. It continues to absorb record tax-exempt issuance, with supply about 9% above 2025. Municipal flows topped $65 billion YTD, split evenly between mutual funds and ETFs.
  • Underlying credit quality remains firm, as stronger than expected revenues helped offset rising costs and enabled governments across the country to balance their budgets. Well-funded state and local rainy-day reserves continue to keep default expectations low.
  • Be sure to review the second installment of Jennifer Johnston's Research Matters demographics series, an in-depth look at the "Silver Tsunami" and its implications for major health care sectors; her forthcoming paper on the Budget Season is also on the horizon.

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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