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MARKETS
May 12, 2026

Muni Monthly—April 2026

By Sam Weitzman
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Performance Overview

April muni returns bounced back from March weakness.

Fixed-income markets were focused on escalating geopolitical tensions in April, as rising oil prices fueled concerns about inflation. While ceasefire agreements in the Middle East provided some optimism early in the month, Treasury yields ultimately moved higher amid stalled diplomatic progress and uncertainty surrounding the Federal Reserve leadership transition. In total, Treasury yields increased by 5-8 basis points (bps) across the curve. Municipals shrugged off the negative returns seen in taxable fixed-income markets, as well as the traditional technical weakness that typically pressures the asset class in April. High-grade municipal yields rallied 8-16 bps across intermediate and shorter maturities during the month and the Bloomberg Municipal Bond Index returned 1.15%. The rebound from March’s steep underperformance led year-to-date (YTD) returns back into positive territory at 0.97%.

Exhibit 1: Bloomberg Municipal Index Monthly Returns
Bloomberg Municipal Index Monthly Returns
Source: Bloomberg, Western Asset as of 30 Apr 26.

Technicals

Muni demand tracking at a strong $30 billion so far this year.

Municipal technicals began the month on weaker footing as tax season concluded, but improved as April progressed. April new issuance was elevated at $51 billion, slightly below the $53 billion recorded both in March and April 2025. Demand remained firm, with municipal mutual funds recording approximately $5 billion of net inflows during the month, largely comprised of long-term fund flows, according to Lipper. YTD inflows are tracking at a robust $30 billion through April, which if sustained through year-end would outpace the prior year’s demand trend.

Exhibit 2: Municipal Mutual Fund Annual Flows
Municipal Mutual Fund Annual Flows
Source: Bloomberg, Western Asset as of 30 Apr 26.

Fundamentals

Munis continue to benefit from strong revenue collections and elevated cash.

Credit fundamentals continue to demonstrate resilience, though late-cycle characteristics are emerging. Several large issuers are contending with delayed budgets and projecting longer-term budgetary shortfalls. YTD in 2026, the three major rating agencies have downgraded more debt than they have upgraded, by a ratio of 1.3x. In the high-yield segment, some larger issuers have drawn on debt service reserve funds and may pursue restructurings. That said, the broader municipal market continues to benefit from strong revenue collections and elevated cash balances. However, given relatively tight spread levels, Western Asset believes active credit selection remains critical.

Exhibit 3: Moody’s, S&P and Fitch Rating Changes by Par Value
Moody’s, S&P and Fitch Rating Changes by Par Value
Source: Bloomberg, Western Asset as of 31 Mar 26.

Valuations

Taxable equivalent yields remained elevated in April.

Despite recent outperformance, Western Asset believes the municipal market continues to offer attractive after-tax income opportunities. The Bloomberg Municipal Bond Index yield-to-worst stands at 3.68%, or 6.22% on a taxable-equivalent basis for top federal taxpayers, above historical averages and competitive with lower-rated taxable fixed income sectors. Income opportunities have improved across much of the curve, with 10-year high-grade yields rising more than 20 bps YTD to approximately 3.0%, and longer maturities increasing by 17 bps to around 4.3%. As seasonal technical headwinds fade, these levels could present an attractive opportunity for investors to reposition income and risk exposures in line with overall objectives.

Exhibit 4: Muni and Taxable Equivalent Muni Yield-to-Worst
Muni and Taxable Equivalent Muni Yield-to-Worst
Source: Bloomberg, Western Asset. As of 01 May 26. Yield-to-worst (YTW) is the lowest potential yield that can be received on a bond without the issuer actually defaulting. Taxable-equivalent yield considers the top effective marginal tax rate of 40.8%. Indices are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges. Past performance is not an indicator or a guarantee of future results.

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