Municipal bonds have faced a difficult period, declining 2.5% in March, and are on track for their largest monthly loss since September 2023. This performance is worse than that of Treasuries, which dropped by 1.8% during the same period. The downturn in the fixed-income market is attributed to the conflict in the Middle East, which has pushed up oil prices and raised concerns about inflation. This decline deepened on March 3, 2026, with benchmark municipal bond yields rising by as much as 11 basis points. Ten-year muni yields increased by 11 basis points to 2.63% by 4 p.m. in New York. This marks the biggest gain since April, when volatility from former President Donald Trump’s tariff policies impacted the market. The surge in oil prices has led traders to scale back expectations for multiple Federal Reserve interest-rate cuts this year, contributing to a sell-off in Treasuries and subsequently affecting municipal bonds. Despite the recent woes, some segments of the municipal market have shown resilience. In January, the Bloomberg Municipal Bond Index returned 0.50%, with almost all segments of the market producing positive performance due to attractive yields. Intermediate maturities outperformed other ends of the curve and provided the strongest returns. Lower-rated bonds also delivered strong returns, largely offsetting the impact of higher rates. Municipal supply remained heavy in January, with $35 billion issued, exceeding last January's issuance and the five-year average of $27 billion. This continued strong demand from various investors, including mutual funds, exchange-traded funds, and separately managed accounts, coupled with a strong employment picture, suggests a constructive outlook for the municipal market in the coming year, despite current geopolitical and inflation concerns.
