Halftime MuniLand Report

Halftime MuniLand Report

The municipal bond market proved resilient in the first half of 2026. Strong retail investor demand for MuniBonds successfully absorbed volatility from shifting Fed policy, wider credit spreads, and geopolitical tensions.

First-Half 2026 Key Metrics

• Total Return:

The Bloomberg Municipal Bond Index gained 2.15% year-to-date.

• Inflows:

Municipal Bond funds attracted roughly $65 billion, setting a pace that could break annual records. (a measure of investor demand)

• Supply:

Issuance rose 6.5% year-over-year to $305 billion.

• Issuance Mix:

Remained steady compared to 2025, sitting at 73% new money, 27% refundings, and 7% taxable municipal bonds.

MuniBond SMA Observation

· Most MuniBond SMAs (Separately Managed Accounts offered by the large asset managers like Vanguard, PIMCO, Fidelity, etc) have mandates on their SMA accounts restricting maturities to less than 10-15 years. That is great if the investor only wants to earn 3.00% yield or less on your capital.

In addition, we have seen many if not most of these SMAs run by the major firms with little or no exposure to the same state of residence where the client resides.

· As evidenced by our June 2026 purchases on page 2, we are securing 50% more yield priced to a 8-10 year call feature with maturities above 20 years.

· Look at the shape of the AAA yield curve below:

Most of bonds in these low-cost “robo” SMAs have maturities less than 7 years until a maturity, which can be simply sold at yield levels below 3%.

July 14, 2026

Examples of June 2026 Buys

· Mount Pocono School District, Pennsylvania

GO, A1/AA rated

BAM INSURED

5% Coupon

4.74% yield to 2034 call, 2056 maturity

TEY over 8.00% for high earning Pennsylvania residents

· Buffalo NY Parking Authority

AA/A Stable

5% Coupon

4.55% yield to 2036 Call

TEY over 9.00% for high earning New York residents

· Oregon St Double Barreled General Obligation

Aa1/AA+ Stable

4.60% Coupon

4.60% yield to 2033 Call

TEY over 9.20% for high earning Oregon residents

July 14, 2026

Conclusion

Strong market demand is currently keeping up with increased supply, but a tighter-for-longer Federal Reserve policy remains the biggest threat to bond prices and performance momentum.

For the month of July, the market is expecting $70bn of principal redemptions and coupon payments while forecasting approximately $50bn of issuance. This is the classic positive summer technical as more demand than supply available should, and I say should, compress yields as prices go up.

Naturally, the volatile price of oil due to the shaky Iranian conflict will impact US Treasury yields. This “headline” risk aka “Front page of the newspaper” risk impacts Treasury yields which strongly influence MuniBond yields.

The opportunity to lock in equity-like TEYSs (Tax Equivalent yields over 8%) priced to a 8-10-year call feature remains in MuniLand.

We will continue to take advantage of the steep, upward slope yield curve to sell ripe MuniBonds at yields less than 3% and reposition the capital yielding over 4.5% for our clients.

The Outcome will be more Income with Watkinson Capital.

Best,