This week’s Municipal Bonds Report: September 28, 2026
AI.M Powered Weekly Municipal Bond Market Preview & Analysis
📅 The Week Ahead
The municipal primary market reopens Monday with an estimated $10.011 billion of new-issue supply for the week of Sept. 28, split between $8.79 billion of negotiated deals and $1.221 billion of competitive loans, according to LSEG data reported by The Bond Buyer on Sept. 25. That is a meaningful step down from the $12.228 billion penciled in for the week of Sept. 21 and well below the roughly $15 billion that cleared in the week ended Sept. 11 — a calendar the market should welcome given how badly last week’s technicals deteriorated.
The Municipal Improvement Corp. of Los Angeles leads the negotiated slate with $1.81 billion of Los Angeles Convention Center lease revenue bonds, followed by the New Jersey Transportation Trust Fund Authority with $1.7 billion of refunding transportation program bonds. Those two credits account for roughly 40% of the week’s negotiated volume, which concentrates execution risk in appropriation-backed and transportation paper at precisely the moment long-dated tax-exempt yields are testing levels not seen in fifteen years. The competitive calendar is led by Thornton, Colorado, with $199.89 million of water enterprise revenue bonds. Also worth watching: Chicago comes with a refinancing this week into spreads that have already widened, which analysts told The Bond Buyer on Sept. 24 may reflect the market pricing in a downgrade.
On the supply trajectory, August volume reached $59.57 billion across 873 deals — up 14.5% from $52.006 billion a year earlier and the heaviest August on record, per LSEG — bringing year-to-date issuance to just shy of $400 billion as of Sept. 1, up 4.1% from the comparable 2025 pace. SIFMA’s tally through August puts volume at $408.5 billion, up 4.0% year-over-year, against first-half issuance of $299.293 billion, up 5.2%. With October historically the peak supply month and 2025’s full-year record at $579.936 billion, the market remains on track for the $600 billion consensus and a third consecutive record year. The offset this week is calendar-driven: Oct. 1 redemptions land midweek and should provide a reinvestment bid.
💹 Municipal Bond Market Sentiment
Last week was a capitulation week at the front end. Muni yields were cut five to 15 basis points on Thursday, Sept. 24, with the heaviest damage in the short end and the belly, then cheapened by up to another 12 basis points on Friday, Sept. 25 — again concentrated inside the intermediate range — even as Treasuries richened by up to eight basis points across most of the curve. J.P. Morgan strategists led by Peter DeGroot characterized conditions as the beginnings of a negative feedback loop in which underperformance begets outflows and outflows beget underperformance, a dynamic they expect to persist until the rates backdrop settles. They framed the selloff as occurring against a backdrop of historic bid-wanted-in-competition volume, continued rate volatility, tax-loss selling and unfavorable technicals.
The bid-list data support that reading. Wednesday’s bid list volume was the second-highest ever recorded at $3.4 billion, according to NewSquare Capital’s Kim Olsan, who described a “domino effect” in which munis first corrected on a ratio basis to the cumulative cheapening of Treasuries — the 10-year UST began the week at 4.955% and reached 5.208% by Thursday — and then absorbed the resulting mutual fund redemptions. Because mutual fund redemptions settle at day’s end, managers tend to raise more cash than immediately required in anticipation of further outflows, amplifying secondary supply. Olsan expects continued weakness until Treasuries stabilize, and cautions that Oct. 1 redemptions may not be sufficient to absorb the bid lists if volume stays at these levels.
Flows told a more nuanced story than the price action. Investors added $633 million to municipal bond mutual funds in the week ended Wednesday, Sept. 23, per LSEG Lipper, reversing $1.81 billion of outflows the prior week that had broken a 21-week inflow streak. High-yield funds remained in redemption, shedding $206.4 million after $583.7 million of outflows the week before. Year-to-date net inflows of $69.3 billion still stand as the second-highest on record behind 2021’s $81.1 billion — the demand base has not broken, but the marginal buyer has gone quiet. Dealer capacity is the constraint: SIFMA data show average daily trading volume of $14.3 billion through August, down 8.0% year-over-year, meaning high trade counts on lighter par.
Secondary prints showed real concession. San Antonio 5s of 2051 traded at 5.10% Thursday versus 5.00% Tuesday, and Richmond, Virginia 5s of 2054 at 5.12%-5.11% against 4.97% on Sept. 17. Notably, new issues continued to clear — BofA Securities priced $1.92 billion of Hampton Roads PPV military housing taxable revenue bonds on Thursday — which argues for aggression on the calendar and patience with secondary offerings.
📊 Municipal Market Data
Refinitiv MMD’s AAA scale was cut six to 12 basis points at its 12:40 p.m. read on Thursday, Sept. 24, pushing the 10-year to 3.96%-3.98% and the 30-year to 4.99%-5.01%. The last time 30-year MMD printed above 5% was January 2011. The ICE AAA curve was cut three to 11 basis points the same session while Bloomberg BVAL yields rose eight to 10 basis points; Friday brought further cuts of up to 12 basis points concentrated at the front end. Two-year MMD had already reached 3.01% on Friday, Sept. 18 — the first print above 3.00% since late April 2025.
The cheapening has been fast and front-loaded. Ten- and 30-year MMD AAA yields have risen nearly 50 basis points since mid-August, and 10-year yields are up roughly 75 basis points since June 30. On relative value, ratios sat near 75% at 10 years and 92% at 30 years as of the week ended Sept. 11, and have since moved to or above their 2026 highs as Treasuries and munis repriced — the strongest crossover-buyer signal the asset class has offered in years, with long tax-exempt yields near 5.00% translating into taxable-equivalent yields in the 8% range for top-bracket investors. Curve structure remains the vulnerability: the municipal 2s/10s spread stood at 87 basis points on Sept. 17 versus 26 basis points for Treasuries, per Municipal Market Analytics, which is the mechanical source of continued front-end risk.
🏛️ Policy & Legislative Context
Monetary policy has turned, and tax-exempt investors are repricing around it. The FOMC voted 12-0 on Sept. 16 to raise the federal funds target range 25 basis points to 3.75%-4.00% — the first hike since 2023 — citing elevated inflation, with the September dot plot implying one additional increase this year and year-end projections clustered between 4.1% and 4.4%. Chair Kevin Warsh offered limited forward guidance while emphasizing that inflation remains too high. The front-end cheapening in munis followed directly from that Wednesday’s bear flattening of the Treasury curve, according to MMA’s Kevin McGuigan. After Thursday’s stronger-than-expected purchasing managers index, City Different Investments’ Sweta Singh said a hike at the next FOMC meeting is “pretty much sealed in.” No FOMC decision falls in the week of Sept. 28, but a number of Fed officials are scheduled to speak, and with the committee in data-dependent tightening mode, every appearance carries duration risk.
On the legislative front, tax-exemption risk has resurfaced in revenue-raising proposals, keeping a familiar tail risk live for issuers weighing acceleration into the calendar. Cutting the other way, several pending bills would expand tax-exempt capacity: the First-Time Homebuyer Affordability Act, introduced in the House in August, would amend Section 146(g) to exempt qualified mortgage bonds from the private-activity bond volume cap, while the Student Loan Bond Expansion Act of 2026 from Senators Grassley and Welch would extend comparable treatment to qualified student loan bonds. House Energy and Commerce leaders began circulating a discussion draft of the Safe Drinking Water Infrastructure Improvement Act of 2026 on Aug. 27, initiating Drinking Water State Revolving Fund reauthorization — relevant to the water and sewer supply pipeline. Surface transportation reauthorization remains paused. On regulation, the SEC’s Office of Municipal Securities has issued guidance following Director Dave Sanchez’s signaled focus on whether municipal advisors are fulfilling their duties to clients, and GASB has published updated Q&As clarifying how subsidies relate to operating revenue — a distinction that matters for higher education and transportation credits.
🌐 Macro-Economic Context
This is a data-heavy week, and the tax-exempt curve is positioned to take direction from it. Friday’s September employment report is the marquee release, with consensus at 100,000 jobs added versus 162,000 in August and the unemployment rate seen rising to 4.2% from 4.1%. Ahead of it, August JOLTS openings are forecast to ease to 7.23 million from 7.27 million and ADP to show 70,000 private-sector jobs. A soft payroll print would relieve pressure on the front end, where munis have absorbed the worst of the repricing; a firm one would validate the market’s pricing of another hike and keep two- to five-year AAA paper on the defensive.
The inflation side is the larger risk. The August personal income and outlays report is expected to show the PCE price index up 0.4% month-over-month with the core measure up 0.3%, both accelerating from 0.2% in July, while personal spending is seen jumping 0.8% from 0.2%. That would follow August CPI at 3.4% year-over-year with core at 2.4%, against a backdrop in which the war with Iran continues to disrupt energy markets and diesel has reached $6 a gallon. ISM manufacturing on Thursday is expected to point to stronger activity in September — the same signal that drove Thursday’s Treasury selloff via a stronger-than-expected PMI. Factory orders, the advance goods trade balance, Case-Shiller home prices, consumer confidence, the Dallas Fed manufacturing index, Chicago PMI and final second-quarter GDP fill out the week.
For tax-exempt demand, the mechanism is straightforward: resilient activity and accelerating core inflation have lifted global bond yields to multi-decade highs, and munis have been correcting on a ratio basis to that move rather than leading it. An upside inflation surprise sustains the bid-wanted pressure and keeps fund flows fragile. A downside surprise, paired with a lighter $10 billion calendar and Oct. 1 reinvestment cash, sets up the more asymmetric outcome — because at taxable-equivalent yields not seen in decades, the income case only needs rate volatility to subside, not to reverse.
Disclaimer: This AI-generated analysis is provided for informational purposes only and should not be considered as investment advice.