Weekly Municipal Monitor

Municipal bonds outperformed broader fixed-income markets in early 2026 due to strong technical factors and significant mutual fund inflows. While the market faces potential seasonal headwinds from upcoming tax liabilities, Western Asset believes long-term investors should watch for income opportunities during any temporary weakness.

Key Takeaways

• 1.Municipals outperformed Treasuries and Corporates in early 2026, supported by 'January effect' technicals including heavy reinvestment and limited supply.
• 2.Muni mutual fund demand remains exceptionally strong, with $2.4 billion of net inflows last week marking the 11th consecutive week of positive flows.
• 3.Seasonal strength may fade as tax season approaches (February through May), typically a period of higher supply and softer demand, potentially offering entry points for long-term investors.

Table of Contents

• Macros, Markets and Munis
• Supply Picked Up Last Week Amid Accelerating Demand
• This Week in Munis: Seasonal Strength
• Municipal Credit Curves and Relative Value
• Exhibit 6: AAA Munis vs. Treasuries
• Exhibit 7: Tax-Exempt and Taxable Muni Valuations
• Western Asset Key Themes for Muni Investors

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