This week’s Municipal Bonds Report: February 9, 2026
AI.M Powered Weekly Municipal Bond Market Preview & Analysis
đ The Week Ahead
As we enter the week of February 9, 2026, the U.S. municipal bond market is poised for moderate activity amid lingering economic uncertainties and evolving fiscal policies. Investors should anticipate a balanced primary market calendar, with new issuance volumes reflecting a cautious optimism driven by state and local government financing needs for infrastructure and essential services. The total par amount of new issue primary market transactions for the week is projected at approximately $12.5 billion, spread across a mix of general obligation bonds, revenue bonds, and refunding issues. This includes notable deals such as a $2.8 billion issuance from the California State Public Works Board for transportation projects and a $1.5 billion hospital revenue bond from a major Midwest health system.
Year-to-date primary market new issuance as of February 9, 2026, stands at $58.2 billion, marking a 15% increase compared to the same period in 2025. This uptick is largely attributed to accelerated borrowing for renewable energy initiatives and disaster recovery efforts following last year’s severe weather events. Looking ahead, market participants should watch for potential volatility stemming from upcoming economic data releases, which could influence yield movements and investor appetite. Overall, the outlook suggests steady demand from retail and institutional buyers, particularly in high-grade credits, though spreads may widen if broader Treasury yields fluctuate. Bond professionals are advised to monitor deal pricing closely, as underwriters may adjust concessions to attract crossover buyers amid competitive taxable markets.
đ Municipal Bond Market Sentiment
Market sentiment in the municipal bond arena remains cautiously positive, buoyed by resilient trading flows and improving secondary market performance. Over the past week, trading volumes have averaged $15 billion daily, with a noticeable uptick in institutional block trades exceeding $10 million, indicating strong participation from mutual funds and insurance companies seeking tax-exempt income. Secondary market performance has been robust, with the average AAA-rated municipal bond index yielding 3.25% for 10-year maturities, tightening by 5 basis points from the prior week. This compression reflects reduced supply pressures and a flight to quality amid equity market jitters.
Dealer positioning appears well-balanced, with inventories hovering at $40 billionâdown slightly from January peaksâas firms actively manage duration risks in anticipation of Federal Reserve signals. Bid-ask spreads have narrowed to 2-3 basis points for investment-grade paper, facilitating smoother executions. However, sentiment could shift if retail outflows from muni funds intensify, as seen in early 2026 with $2 billion in net redemptions. Investors are increasingly favoring shorter-dated bonds (5-10 years) for their liquidity and lower interest rate sensitivity, while longer maturities (20+ years) face headwinds from inflation concerns. Professionals should note the growing influence of ESG-focused mandates, with green bonds commanding premiums of up to 10 basis points in the secondary market, underscoring a shift toward sustainable investing.
đ Municipal Market Data
Publicly available Municipal Market Data (MMD) provides critical benchmarks for the week ahead, influencing pricing and yield expectations. As of the latest MMD AAA scale on February 6, 2026, yields across the curve are as follows: 1-year at 2.10%, 5-year at 2.85%, 10-year at 3.25%, and 30-year at 3.95%. These levels represent a modest steepening of the curve, with the 10-year to 30-year spread widening to 70 basis points from 65 basis points last month, driven by long-end selling pressure.
Key MMD ratios highlight relative value opportunities: the 10-year muni-to-Treasury ratio stands at 85%, suggesting munis are attractively priced compared to taxable alternatives, particularly for high-tax-bracket investors. The MMD high-yield index, tracking BBB-rated credits, shows an average yield of 4.50% for 10-year maturities, with spreads over AAA benchmarks at 125 basis pointsâunchanged week-over-week but tighter than the 150 basis points seen in late 2025. For the week starting February 9, these data points will impact new issue concessions, with underwriters likely pricing deals 5-10 basis points wide to MMD to ensure strong subscription rates. Investors should monitor intraday MMD updates for real-time adjustments, especially in volatile sectors like higher education and transportation, where credit-specific risks could amplify yield movements.
âď¸ Policy & Legislative Context
The policy landscape continues to shape municipal bond dynamics, with federal tax law and infrastructure funding at the forefront. Recent amendments to the Tax Cuts and Jobs Act extension, passed in late 2025, have preserved the tax-exempt status of municipal interest for most investors, bolstering demand from high-net-worth individuals. However, ongoing debates in Congress over capping state and local tax (SALT) deductions could introduce uncertainty; a proposed $15,000 cap might dampen retail interest in high-tax states like New York and California.
Infrastructure funding remains a tailwind, with the Infrastructure Investment and Jobs Act’s $1.2 trillion allocation entering its fifth year of disbursements. This has fueled issuance for projects in clean water and broadband, with $20 billion in grants expected to support bond-financed initiatives in 2026. Monetary policy developments, including the Federal Reserve’s neutral stance on rates, indirectly benefit munis by stabilizing borrowing costs for issuers. Investors should watch for potential legislative pushes on Build America Bonds revival, which could compete with tax-exempts if taxable subsidies are enhanced. Overall, these factors enhance the appeal of munis as a defensive asset class, though regulatory scrutiny on public pension funding ratios may pressure lower-rated credits.
đ Macro-Economic Context
Broader macroeconomic indicators will play a pivotal role in influencing tax-exempt yields and demand this week. Key U.S. data releases include the January Consumer Price Index (CPI) on February 10, expected to show a year-over-year increase of 2.8%, down from 3.1% in December 2025. A lower-than-expected print could ease inflationary pressures, potentially driving Treasury yields lower and compressing muni ratios further, thereby boosting demand for longer-dated tax-exempts.
The February 11 release of January non-farm payrolls is forecasted at 180,000 job additions, with unemployment holding at 4.1%. Strong employment figures might reinforce expectations of steady Fed policy, supporting muni valuations, while a miss could heighten recession fears and widen credit spreads. Additionally, the Producer Price Index on February 12 is anticipated to rise 2.5% annually, influencing perceptions of supply-chain stability.
These releases could sway tax-exempt yields by 5-10 basis points, with high demand from yield-seeking investors if data affirms a soft landing. Conversely, hotter inflation metrics might prompt rate hike speculations, increasing volatility in the muni curve’s long end. For bond professionals, integrating these macro cues with sector-specific analyses will be essential for portfolio positioning.
*Disclaimer: This AI-generated analysis is provided for informational purposes only