Municipal Spreads: Muni yields fell over the past week by an average of 2 basis points across the curve with yields on 10-year notes falling by 3.1 basis points to finish the week at 2.62%. With yields falling last week, munis were able to outperform Treasuries with the 10-year muni-to-Treasury ratio now yielding 61.71%, compared to 62.80% from the prior week. We continue to see the muni curve steepen with the curve steepening by 1.5 basis points to finish the week at 199 basis points.

According to LSEG Lipper Global U.S. Fund Flows data, investors added roughly $2 billion to muni bonds funds over the past week. This follows the prior week’s inflow of $994 million and is the largest inflow of funds since September 2025.

2026 is off to a strong start with the month of January seeing returns of .94%. When compared to the same time period last year, returns were at just .50%. Munis saw positive returns all across the curve with 12-17 year maturities seeing the largest gains with returns of 1.30%, while the long end saw gains of .50%. With munis being positive for the month, muns did outperform Treasuries slightly across the curve. We saw the 2-year ratio go from 70.27% at the start of the month to 62.80%, while the 5-year ratio went from 64.19% to 58.96%, the 7-year ratio 63.38% to 59.08%, the 10-year ratio from 64.43% to 61.71%, and the 30-year ratio went from 86.41% to 86.26% in the same timeframe.

February returns have been mixed with 6 out of the last 10-year seeing positive returns. With demand continuing to remain strong, coupled with some weakness in Treasuries, along with elevated supply for February, we could see some volatility in munis potentially reversing any returns we had in January.