Municipal Spreads: This past week, munis yields were relatively unchanged for the week with yields on 10-year notes at 2.73%. With yields remaining unchanged, munis did slightly outperform Treasuries, with the 10-year muni-to-Treasury ratio yielding 66.71%, compared to the prior week when the ratio was at 67%. We did see the muni curve flatten by 1.6 basis points to end the week at 161 basis points.

According to LSEG Lipper Global U.S. Fund Flows data, investors added roughly $1.3 billion to municipal bond funds last week. This follows the prior week’s inflow of $720 million.

Since the start of the last quarter of 2025, munis have cheapened on the front end with the 2 and 5 year ratio cheapening by 4-6 percentage points, while the 10 and 30 year ratios have outperformed Treasuries by 3 to 4 percentages points. Despite this mismatch in performance when compared to Treasuries, munis still have a positive return for the quarter of approximately 1.8% and year-to-date return of about 4%. This 4% return is due to the Fed policy easing as prior to the Fed rate cut in September, munis were in the red. Despite the positive gain of 4%, munis still are lagging other fixed income returns as Treasury returns are at 6%, and US Corporates are at 7%. This is due to the heavy issuance at the start of the year as well as the speculation of the potential elimination of tax-exemption of munis being included in the One Big Beautiful Bill that was passed earlier this year.