Municipal Bonds Municipal bonds: 5 investment themes for 2026

Municipal bonds are entering 2026 on stronger footing, with healthier fundamentals and attractive after-tax yields setting the stage for potential outperformance versus taxable bonds. A steeper yield curve is creating opportunities both at the long end, where valuations look more compelling after last year’s underperformance, and at the short end, where select issues offer appealing income. Robust demand from SMA and ETF buyers continues to support the market, particularly in shorter and intermediate maturities, even as elevated new issuance comes to market.

At the same time, tight valuations in many general obligation bonds argue for careful security selection and a greater focus on revenue sectors that may offer better compensation for risk. Within revenue bonds and securitized muni structures such as housing- and student loan–backed deals, deep research can uncover idiosyncratic opportunities that enhance total return while maintaining a disciplined approach to credit quality.