Municipal Summary | Yields/Ratios/Term Spreads | Trading | Index Valuation | Volatility | Fund & ETF Flows | Secondary Selling Pressure | Momentum | Seasonals | Supply | Reinvestment | Credit Spreads | Macro/Rate Summary
Municipal Summary
Municipals struggled a bit last week — especially in the 6-10yr "SMA" area that had been expensive leading into the year. Still, benchmark adjustments were contained, activity and flows were stable/strong, and primary deals were distributed without meaningful concession (see Friday's secondary break commentary). So the municipal market continues to step along in orderly fashion, contending well with fundamental uncertainty, higher equity volatility, and a Treasury market that keeps trading around key technical levels. Steady/growing institutional demand has helped, too: municipal mutual fund inflows were smaller but still positive, and ETF inflows showed some duration extension — the latter reasonably afforded by "cash" drawdowns, as tax-exempt money market AUM declined by nearly the exact amount accumulated by the funds.
30-day forward supply has also begun to fade from recent highs, as expected and seasonally consistent heading into July. And with reinvestment season peaking, the supply/demand context is strong even with the YTD supply pace still running ~6.0% above 2025's record.
One mild concern is higher bids-wanted activity — which, for now, looks more like selling-into-strength than outright liquidation pressure. Still, its a worsening technical to monitor.
Lastly, credit spreads narrowed a touch: mid-week losses pressured high-grades more than high-yield, as is typical during periods of weakness in an otherwise strong and stable credit environment.
Yields/Ratios/Term Spreads
Tax-exempts cheapened modestly on the week, with benchmark yields up 1-4 bps led by the 5-7yr belly while the long-end held mostly unchanged. The back-up lifted cross-market levels ~1-2 ratios and standard deviations to a more neutral reading — roughly −0.4 to −1.1 SD, off the −2.3 to −2.7 SD "rich" of a week ago — suggesting easier entry for near-term crossovers demand. Curve’s also steepened up front (2s10s by+2) but flattened out long (10s30s by −3).
Trading
Net customer buying was positive all week with the 5-day average customer trade size holding ~$368K — well above the ~$310K YTD pace — a sign institutions stayed engaged through the rate chop.
Index Valuation
The investment-grade index closed +0.51% above its rolling 30-day average value, easing from +0.72% the prior week; valuations remain squarely neutral, neither overbought nor oversold.
Volatility
On the AAA benchmark, realized 20-day yield volatility is running ~2.9 bps/day at the 5yr and ~3.2 bps/day at the 10yr maturity — meaning that over the last 20 sessions the benchmark has moved about ±2.9 and ±3.2 bps on a typical day (one standard deviation), which annualizes to roughly ±46 and ±50 bps. Both eased modestly on the week but remain elevated. And on a price basis, using MUB, the ETF's annualized 20-day daily return volatility is running ~3.3% but also drifted lower into Friday.
Fund & ETF Flows
Lipper reported another week of inflows at +$625M, smaller than the prior +$1.4B and skewed short (+$360M) and intermediate (+$175M) rather than long. Municipal ETFs added ~$1.1B on the week, a steady pace but below the mid-May's ~$2B clip. JPM’s longer strategy JMUB led with +$143M last week as per Bloomberg data. Lastly, tax-exempt money-market AUM was drawn down to ~$144B from ~$150B a month ago as cash has moved into bonds, while SIFMA reset 75 bps higher to 2.89%.
Secondary Selling Pressure
Bids-wanted climbed to ~$1.5B midweek before receding to $677M Friday, well below the 5-day ($1.08B) and 10-day ($1.04B) averages — opportunistic selling more likely than forced liquidations; but a worsening technical nonetheless.
Momentum
Short, intermediate and long price momentum all shifted from positive to neutral over the past week, pulling a key technical pillar out from under sentiment. Given momentum's track record as a leading indicator, the loss of an upward trend argues for a bit more caution this week — although momentum is still neutral and not yet negative, so a price bounce higher is also reasonable.
Seasonals
June remains a seasonal soft spot — the fourth-worst month at a +0.11% average return over 2010-2026, despite its reinvestment reputation — but the stronger July (+0.75% average) summer window also lies ahead.
Supply
Issuance ran ~$16.9B last week, keeping the YTD pace at a record ~$274B, while 30-day visible supply eased to $12.6B — just under its ~$13B three-year average.
Reinvestment
June call and maturity proceeds are running near $47.8B, above last year's ~$46.7B (although barely) and ahead of the ~$38-39B seen in 2023-24 — so a meaningful demand cushion against the heavy calendar.
Credit Spreads
Investment-grade and high-yield spreads tightened on the week, with Baa-AAA by ~2 bps to 94 bps and HY-AAA by ~3 bps to 172 bps. The movement was attributed to a worsening HG vs. HY bid with fundamental credit concerns still thin.
Macro/Rate Summary
FOMC Wednesday — Warsh's first meeting as chair; consensus: hold at 3.50-3.75%, drop easing bias, dot plot to remove 2026 cuts with a few participants showing hikes; focus on Warsh's communication style and any forward-guidance changes.
Iran says deal "closer than ever"; oil tumbled; UMich sentiment bounced off record low in June, inflation fears faded.
BMO: doesn't expect major FOMC price action as market already primed for less-dovish Warsh.
DB: stays short 10s, target 4.70%; rising global bond supply (defense, energy, AI) to pressure term premia higher; Fed RMPs held at $10bn/month, expected unchanged through year-end.
DB equity positioning: 2-week S&P pullback ~5% was narrow — Nasdaq 100 -7%, Mag 7 -10% while rest of S&P and small caps hit records;
Barclays: keeps Fed call unchanged — hold this year, single 25bp cut March 2027; core CPI 0.21% MoM masks firmer 0.36% core PCE; risks skewed to tighter path.
ING: expects extended pause — low-hire/low-fire economy, weak wage growth, real disposable income fell three straight months; sees inflation potentially undershooting target in 2H27.
UBS 2026 outlook: 10Y at 4.5% in Q2, ending year near 4.25%; 30Y around 5% continues to attract buyers; median FOMC participant assumes no cuts until 2028.
DB/MS/Barclays/UBS FOMC previews converge: hold, remove easing bias, higher inflation projections, Warsh to acknowledge inflation risk while citing medium-term AI/productivity disinflation.
Bespoke: S&P 500 has never had an up day on a new Fed chair's first Fed day (since 1994).
May NFIB net percent raising selling prices at 36% — highest since March 2023.
BoJ likely to resume hiking next week (Wells Fargo sees +25bps to 1.00%); BoE expected to hold.
PIMCO: bonds can still provide diversification in downturns; central banks have more room to cut than pre-pandemic.
Tripp Kaiser, CFA, is the founder of MuniStreet Research, Executive Director of the Center on Municipal Capital Markets, and a professor of practice at the LBJ School of Public Affairs at the University of Texas at Austin. The information contained in this publication is for informational purposes only and reflects the opinions of MuniStreet. It does not constitute investment or other advice, nor a recommendation or solicitation to buy or sell any security.