Municipals Thoughts from the Municipal Bond Desk
Mark Paris , Tim Spitz
May 22, 2026
Municipals Thoughts from the Municipal Bond Desk
Key takeaways
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Airports have been relatively insulated from the fuel price shock experienced by airlines, and their strong cost-recovery tools should help mitigate credit stress if rising ticket prices dampen consumer demand for air travel.
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Recent muni volatility has been driven by a Treasury selloff, elevated new issuance, and declining reinvestment flows. Munis have still outperformed Treasuries year to date, however.
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In the broader muni market, demand remains strong despite heavy tax-exempt supply. Supportive summer technicals are expected as reinvestment capital is expected to pick up.
Tim: Given the rise in energy prices, as well as the recent liquidation of Spirit Airlines, I thought we could talk about airports. That sector seems to be faring quite well despite the circumstances.
Mark: Yes, the immediate impact of the energy shock has been on airlines, highlighted by the collapse of Spirit Airlines and the ongoing pressure on low-cost carriers, which are seeking about $2.5 billion in federal support to offset fuel inflation.1 By contrast, the airport sector has remained remarkably resilient, with credit spreads tightening relative to other transportation subsectors.1 That said, to help recover costs, air carriers may be forced to raise fares or make selective capacity cuts. If higher prices reduce consumer demand or there are fewer flights available, smaller and mid-sized airports that rely on discretionary leisure travel could come under pressure, in my opinion. Still, it’s important to remember that most airports have strong cost-recovery tools, including rate-setting authority and flexible fee structures along with strong liquidity reserves, which should help limit broad credit stress.1
Tim: We’ve seen some major volatility in the past week or so. What’s going on?
Mark: There’ve been a few factors driving muni volatility lately, mainly due to the recent run-up in US Treasury rates and muni market technicals. US Treasuries have sold off this month, with the 30-year Treasury yield hitting its highest level since 2007.2 While uncertainty surrounding the conflict in the Middle East is part of the run-up in rates, it’s not the sole culprit. April’s Consumer Price Index reading, which many use as a gauge of inflation, rose for the second month in a row, while economic growth and employment data have shown resilience.2 As such, the Federal Reserve is widely expected to remain on hold, with the leadership transition unlikely to drive a material policy shift in the near term. Muni market technicals have also posed a challenge this month, with reinvestment flows falling, and new issuance expected at a record $45 billion.3 Despite these short-term challenges, I see reason for some optimism. Firstly, muni bonds have outperformed Treasuries in both monthly and year-to-date periods.4 Secondly, we’ve also seen steady demand from investors, with fund inflows totaling more than $36 billion year to date, and being positive in 23 of the past 25 weeks.5 Finally, we’re approaching the summer months, which have tended to deliver more supportive market technicals.
Tim: What do supportive technicals mean for the muni market?
Mark: Market technicals are the forces of supply and demand for a security, and how they may affect changes in price, volume, and volatility. Weaker market technicals mean new issuance outweighs investment demand, while supportive technicals — such as those that typically occur in June through August — see investment demand meet or exceed new supply. Looking ahead, supply is expected to stay fairly elevated at roughly $50 billion per month, however, reinvestment capital from principal and coupon payments is also expected to increase to an average of roughly $45 billion in the summer months.5 A combination of continued investment inflows and reinvestment capital could be quite supportive of muni valuations in the months to come.
Read the complete article, including munis by the numbers.
Important information
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Past performance does not guarantee future results.
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This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.
The Bloomberg Municipal Bond Index is an unmanaged index considered representative of the tax-exempt bond market.
The Bloomberg US Treasury Index measures US dollar-denominated, fixed-rate, nominal debt issued by the US Treasury.
Fixed income investments are subject to the credit risk of the issuer and the effects of changing interest rates. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. An issuer may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating.
Municipal bonds are issued by state and local government agencies to finance public projects and services. They typically pay interest that is tax-free in their state of issuance. Because of their tax benefits, municipal bonds usually offer lower pre-tax yields than similar taxable bonds.
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