Municipal Summary
Municipals have continued to hold steady-to-firmer despite a drift higher in Treasury yields, with the latter still contending with 1) geopolitical conflict, 2) rising oil prices, 3) new tariff headlines, and 4) a strong labor market via Tuesday's JOLTS release — factors that together pushed 10yr and 30yr UST yields back to the technically important 4.50% and 5.00% levels, respectively. But the tax-exempt market has found enough support from 1) a positive price trend across the curve, 2) strong fund inflows, 3) even stronger reinvestment flows, and 4) retail demand for taxable equivalents >5.00% that even a huge/record-sized primary calendar priced in a seasonally neutral month hasn't derailed recent momentum. Instead, primary and secondary markets have provided strong enough price discovery to continue lowering benchmark yields — which has pulled ratios lower too, but not to unreasonably "rich" levels.
So activity in the municipal market has once again proven orderly, even in a highly ambiguous and volatile rate context. Meanwhile, distribution and risk management have also shown some resilience, with large primary deals getting bumped, sell pressure contained, and street balances still manageable.
Turning to couponing: each month MuniStreet updates the distribution of new issue coupons across the negotiated calendar (Figures 1 & 2). During the first five months of 2026, a steady 77–79% of primary market negotiated par was priced with a 5% fixed coupon — a high total, but also consistent over the last few years. This is true despite a return of total-return demand via better long, intermediate, and high-yield fund inflows — buyers who otherwise tend to be more comfortable with lower couponing. But the prevalence of 5% coupons is mostly the result of a municipal marketplace still dependent on a retail/SMA buyer who, even several years after the start of the hiking cycle, continue to emphasize rate protection and improving liquidity positions. The latter is also confirmed by the large balances held across money market funds.
Figure 1: 5% coupon still dominates across the tax-exempt negotiated calendar.
Figure 2: 5% coupon also still dominates across most of the curve; at least through the 20-year maturity, after which coupons become slightly more mixed.
Fundamentals
JOLTS job openings surged 731K to 7.618mn (vs 6.866mn expected) — 9-sigma beat, highest in nearly 2 years; gain almost entirely from professional and business services (+668K) and very small establishments (1-9 employees).
Job openings to unemployment ratio rose to 1.03 (highest since January 2025); jobs-workers gap turned positive; hiring, quits, and layoffs all edged down — "low-hire, low-fire" intact.
Goldman: QCEW suggests nonfarm payrolls could be revised up ~180K through December 2025 (~20K/month from April-December).
Paychex: small-business employment growth accelerated for a third month in May; wage growth steady, below 3%.
Cleveland Fed's Hammack: "may soon be appropriate for policy to act to address the growing risks of persistently elevated inflation."
Hike by December probability rose to 71%; swaps fully price a 25bp hike by March.
UST 2s10s flattened to 40bps — flattest in over a year; 5s30s at 78.4bps — flattest since May 2025.
Powell signaling desire to reduce or end forward guidance.
USTR proposed new tariffs of 10-12.5% on major trading partners under forced-labor investigation; public comment ends July 6, hearings start July 7; Section 122 10% tariffs expire July 24.
Oxford Economics: effective US tariff rate remains ~9.3% despite court rulings; Section 122 expiring tariffs likely to be replaced by Section 301 measures keeping the effective rate near 10%.
Eurozone inflation accelerated — headline >3% for first time since 2023; core also above expectations on services rebound.
Money market fund assets hit record $8.28 trillion (~4x 2012 levels).
BMO: 5s30s flattener fueled by higher oil, hawkish Fedspeak, stronger JOLTS; ADP expected +120K for May.
DB 2026 Default Study: era of ultra-low default regime is behind us; US spec-grade defaults still 4% (vs 20-year median 2.9%); Europe spec-grade at 4.6% (vs 2.3% median).
ING: long-end stickiness driven by real rates and record supply, not inflation expectations (10Y breakevens 2.4% US, 2.2% Europe — likely too benign).
Barclays: entire rise in 30Y nominal yield since 2022 has been driven by real yield.
Apollo: word count in FOMC statement could drop toward Greenspan-era levels as Warsh simplifies communication.
Trump suggested Strait of Hormuz blockade could remain in place through Labor Day (September 7).
US IPO activity accelerating after four consecutive muted years.
Tripp Kaiser, CFA, is the founder of MUNISTREET, 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.