This week’s Municipal Bonds Report: September 14, 2026
AI.M Powered Weekly Municipal Bond Market Preview & Analysis
📅 The Week Ahead
Municipal issuers step back from the pace that defined the first half of September. Supply for the coming week is estimated at $10.3 billion, split between $8.71 billion of negotiated deals and $1.59 billion of competitive loans, according to LSEG data reported September 11 — a meaningful step down from the more than $15 billion that cleared in the holiday-shortened week ending September 11, and below the run rate of recent weeks.
The New Jersey Transportation Trust Fund Authority leads the negotiated calendar with $1.67 billion of transportation program bonds. The competitive side is headed by New York State with $317.53 million of general obligation bonds in two series. Among mid-size credits, KeyBanc Capital Markets is scheduled to price $160.1 million of water development revenue and revenue refunding bonds for the Ohio Water Development Authority on Tuesday. The absence of a mega-deal is the story: last week’s calendar was dominated by the Alabama Toll Road, Bridge and Tunnel Authority’s $3.82 billion four-tranche toll revenue and BAN financing — the largest deal of the year — alongside $1.81 billion of New York City GOs, and roughly a third of the calendar sat in those two names.
Year-to-date volume remains on a record trajectory. August issuance totaled $59.57 billion across 873 deals, up 14.5% from $52.006 billion in 880 transactions a year earlier and the heaviest August on record, bringing supply to just shy of $400 billion year-to-date as of September 1, up 4.1% from the comparable 2025 pace, per LSEG. SIFMA’s tally through August puts issuance at $408.5 billion, up 4.0% year-over-year. First-half volume was $299.293 billion, up 5.2%. With two heavy September weeks now behind the market, the 2026 total is tracking the $600 billion consensus that most shops have converged on — a third consecutive record year.
💹 Municipal Bond Market Sentiment
Demand is still positive but thinning. Municipal bond mutual funds took in $192.8 million in the week ended Wednesday, September 9, following $138.7 million the prior week, per LSEG Lipper. High-yield funds reversed, posting $166.2 million of outflows against $61.1 million of inflows a week earlier. Context matters more than the headline: the prior week’s $138 million was just 14% of the trailing 25-week average, even as year-to-date net inflows of $69.3 billion stand as the second-highest on record behind 2021’s $81.1 billion. The bid for tax-exempts has not broken — it has downshifted.
Secondary market tone is the soft spot. Trade counts ran at near-record levels in early September on surging supply and higher rates, and bid-wanted volume topped $2 billion twice in the week ended September 4, the highest level since late April 2025 — evidence that accounts are selling to make room for new issues rather than exiting. Dealers report the primary market absorbing the attention, with both negotiated and competitive deals generally well received and many repriced to lower yields during order periods, leaving secondary activity subdued as buyers chase new-issue concessions. SWBC’s Chris Brigati framed the risk plainly: with the buyside selling into weakness rather than buying, that is “not a good recipe for support.” SIFMA data show average daily trading volume of $14.3 billion through August, down 8.0% year-over-year — turnover is high in count but lighter in par.
📊 Municipal Market Data
The AAA curve cheapened materially through the first half of September. In the week ended September 4, two-, 10- and 30-year AAA yields rose 11, 14 and 15 basis points respectively, with the Bloomberg Municipal Bond Index returning –0.81% for the week and –0.33% year-to-date. The selloff extended on Thursday, September 10, when muni yields cheapened 10 to 15 basis points depending on the scale against 7 to 15 basis points on Treasuries; long-dated muni yields have risen upward of 50 basis points since June 30, reaching the highest levels since the April 2025 tariff volatility. Friday, September 11 brought partial repair, with muni yields richening by up to five basis points even as short and intermediate Treasury yields cheapened three to four basis points.
Relative value has moved decisively. The 10-year muni/Treasury ratio reached approximately 73% in the week ended September 4, its cheapest level since September 2025, with the 10-year Treasury at roughly 4.80%. That compares with 65%, 70% and 84% at five, 10 and 30 years as of July 31. After-tax muni/Treasury spreads as of September 4 tell the same story: 64 basis points at 10 years versus 32 on June 30 and a five-year average of 41, and 160 basis points at 30 years versus 127 and a 99 average. Absolute yields are compelling — the index yield stood at 4.07% as of September 4, a 6.88% taxable-equivalent at a 40.8% rate, a level last seen in July 2025. Observable AAA-rated prints from September 10 anchor the curve: Dane County, Wisconsin GO promissory notes cleared at 2.80% in 2027, 3.23% in 2031, 3.79% in 2036, 4.60% in 2042 and 4.79% in 2046.
🏛️ Policy & Legislative Context
The FOMC meets Tuesday and Wednesday, September 15–16, with the statement at 2:00 p.m. ET Wednesday, an updated Summary of Economic Projections and dot plot, and Chair Kevin Warsh’s press conference at 2:30. The target range is 3.50%–3.75%, and the debate is a live one between a hold and a 25 basis point hike: implied hike probabilities rose from roughly 51% before the August payroll report to about 62% after, and markets were pricing near 70% by September 10. Governor Waller has signaled he would support holding steady absent renewed price pressure, while hawkish voices are expected to press for tightening. Brigati’s view is that a hike could paradoxically stabilize the market by resolving the question.
On tax policy, the exemption is back in the crosshairs. A Tax Foundation compilation of 86 potential deficit-reducing tax changes includes eliminating the municipal interest exemption, which the group estimates would cut the primary deficit by $155.2 billion from 2027 through 2036 — against a prior House Ways and Means estimate of $250 billion over ten years. With national debt clearing $40 trillion and mid-terms approaching, GFOA’s Emily Brock and BMA’s Brett Bolton both expect renewed education campaigns; the report also contemplates eliminating the SALT deduction and repealing LIHTC and New Markets credits. Separately, the MSRB issued a request for comment on modernizing municipal fund securities disclosure.
🌐 Macro-Economic Context
The data that matter most already landed. August CPI, released September 11, rose 0.4% month-over-month and 3.4% year-over-year, both in line with consensus, while core accelerated to 0.3% monthly and 2.4% annually — a tenth above forecast. Thursday’s PPI pointed the same direction. August payrolls, reported September 4, rose 162,000 against a 53,000 consensus with unemployment steady at 4.1% and June–July revisions up a combined 55,000.
The coming week’s releases are secondary to the Fed but will shape the Treasury curve munis follow. Tuesday brings the September Empire State manufacturing index. Wednesday delivers August retail sales at 8:30 a.m. ET alongside trade price indices and July business inventories, hours before the FOMC decision. Thursday brings the September Philadelphia Fed index, August housing starts and building permits, and pending home sales. A firm retail sales print would reinforce the hawkish case; with the 10-year Treasury consolidating near 4.80% and 5.00% within reach, tax-exempt yields at multi-year highs face rate risk from Treasuries rather than from muni credit — while cheap ratios and a below-average calendar argue for stabilization.
Disclaimer: This AI-generated analysis is provided for informational purposes only and should not be considered as investment advice.