Municipals

Thoughts from the Muni Desk

January 15, 2026
Mark Paris
Mark Paris
Chief Investment Officer, Head of Municipal Strategies, Invesco Fixed Income
Tim Spitz
Tim Spitz
Head of Municipal Business Strategy and Development
Bridge from underneath

Key takeaways

Elevated yields

1

Muni yields were elevated at the start of 2026, offering investors the potential of attractive tax-advantaged income.

Positive 2025 returns

2

Investment grade and high yield munis generated positive returns in 2025, with significant divergence among sectors.

Steep yield curve

3

Longer-duration munis offer more yield than shorter-duration ones and greater potential for price appreciation.

Here’s our insight and perspective on what’s happening in the muni market, including supply and demand, credit trends, and a quick look at key muni data points, in our January 15 update.

Tim: Let’s start 2026 by getting back to basics. Why should investors consider municipal bonds?

Mark: I agree, the beginning of a new year is a great time to step back and reflect. And when it comes to muni bonds, I think it all comes down to yield. Recent muni yields are close to historically high levels, so they could be appealing to many investors, especially those in the top income tax bracket.1 Elevated yields can translate into attractive tax-advantaged income. Munis currently have tax-equivalent yields north of 6%, compared to the approximately 4% yield offered by a 10-year US Treasury security.1 So, it may be an opportune time to put more money to work in the muni market. Yield matters for other reasons, too. There’s up to a 92% correlation between starting yields and future 10-year returns.2 Yield has also been the primary driver of total return performance over the past 10 years, a time when the combination of price return and yield return resulted in a cumulative total return of 116.34% for the Bloomberg Municipal Bond High Yield Index.3

Tim: Let’s also look back at 2025 performance. It provides a starting point for the market going into 2026.

Mark: Yes, 2025 was a positive year overall, with both investment grade and high-yield municipal bonds finishing in positive territory. Looking at performance in the aggregate, investment grade munis handily outpaced high-yield munis, with the Bloomberg Municipal Bond Index and Bloomberg Municipal Bond High Yield Index returning 4.25% and 2.46%, respectively.4 A closer analysis, however, reveals that most high-yield sectors performed well, but the dispersion between top and bottom performers was quite pronounced. This divergence in returns underscores the importance of managing a portfolio’s risk exposures. While investment grade muni sectors returned anywhere from 3.53% (hospitals) to 5.74% (housing), high-yield muni sectors saw returns from -5.90% (transportation) to 6.30% (airports).4 Taken together, 2025 results show a market that rewarded selectivity and reinforces the value of thoughtful positioning as we move into 2026.

Tim: As we settle into 2026, where do you see the most opportunity for the muni market in the near term?

Mark: I think this year, longer-term munis are attractive from both a yield and price appreciation perspective.5 The muni yield curve steepened substantially during 2025,5 driven by shifting investor demand, record supply, and uncertainty around federal policy. As a result, longer-term munis are offering significantly higher yields than shorter-term ones.5 In this environment, I think lengthening a portfolio’s duration could help investors take advantage of potential price appreciation while also providing income for longer. In my opinion, the market position of longer-duration munis will only strengthen as the Federal Reserve continues to cut interest rates.

To read the complete article, including munis by the numbers.

Explore Invesco’s municipal bond capabilities

  • 1

    Sources: Standard & Poor’s, Bloomberg L.P., and Bankrate.com, as of Jan. 14, 2026. Over the past 15 years, the highest tax-equivalent yield (9.14%) through Dec. 31, 2025, was on Oct. 30, 2023. Past performance does not guarantee future results. Investments cannot be made directly in an index. Tax-equivalent yield is the pretax yield a taxable bond needs to equal that of a tax-free municipal bond. The maximum tax rate of 40.8% (maximum tax bracket and 3.8% health care tax for 2026) was used to calculate the tax-equivalent yield.
  • 2

    Sources: Macrobond and Bloomberg. L.P., as of Dec. 31, 2025. Past performance does not guarantee future results. Correlation data has a 10-year lag.
  • 3

    Source: Morningstar, as of Dec. 31, 2025. The Bloomberg Municipal Bond High Yield Index is an unmanaged index considered representative of the high-yield tax-exempt bond market. Investments cannot be made directly in an index.
  • 4

    Source J.P. Morgan Global Markets Strategy, as of Jan. 2, 2026. The Bloomberg Municipal Bond Index is an unmanaged index considered representative of the investment grade tax-exempt bond market.
  • 5

    Source: Bloomberg, L.P., as of Jan. 14, 2025. The respective yields by maturity year, indicate longer-maturity bonds yield significantly more than shorter-term bonds: 2027 2.24,, 2028 2.24,, 2029 2.21,, 2030 2.24,, 2031 2.27, 2032 2.32, 2033 2.42, 2034 2.47, 2035 2.57, 2036 2.67, 2037 2.82, 2038 2.93, 2039 3.00, 2040 3.14, 2041 3.28, 2042 3.41, 2043 3.54, 2044 3.68, 2045 3.82, 2046 3.93, 2047 3.99, 2048 4.04, 2049 4.08, 2050 4.12, 2051 4.15, 2052 4.17, 2053 4.18, 2054 4.19, 2055 4.20, and 2056 4.21.

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