INSIGHTS

On September 28, 2026

AAM Viewpoints — Are 5% Muni Yields Here to Stay?

The municipal (“muni”) bond market has followed the selloff of the Treasury market over the past few weeks leading to the AAA MMD (Municipal Market Data) benchmark to yield 5.05% for 30-year bonds. This is the first time the AAA benchmark has been over 5% since January 2011. Yields on individual AA-rated muni bonds are well over 5% in investment for investors looking only 15 years and out on the curve. This would be similar to a pre-tax yield of almost double that for investors in higher tax states such as California and New York. Investors have taken notice of these attractive yields and added roughly $633 million to municipal-bond funds in the week ended Sept. 23, according to LSEG Lipper Global Fund Flows.

Past performance is not indicative of future results.

These higher muni bond yields have the potential to draw in even more retail investors in the coming weeks.

On another note, the par value of bonds put out for the bid on Wednesday, September 23 was $3.4 billion — the most since 2020 during the pandemic. During the pandemic, The 30-year MMD benchmark went from 2.37% to 3.37% and back to down to 1.84% in the span of a week or two. Obviously, we have not experienced the violent swings of 2020, but the lows then proved to be a great entry point. We don’t think muni bonds will bounce back as quickly this time around as the selloff was more orderly this time around. That doesn’t mean these yields will be here to stay, however. The upcoming muni 30-day visible supply has dropped to $15.9 billion as of Thursday, September 24 and is a signal of underwriters’ caution to price deals in such a volatile market. This slowing of the pace of issuance could provide the market with some strength in the coming month.

Another sign of possible strength is the emergence of “crossover buyers.” These are institutions that usually only buy taxable bonds. The 5% threshold seems to be a magic number for these buyers. Ratios have also helped, with the 30-year MMD ratio sitting at an attractive 92%, and the best since September 2025.

It is worth pointing out that this rise in yields has nothing to do with the credit quality of municipal bonds. Oil prices — a leading driver of Treasury yields since the U.S. invasion of Iran in late February — have gone from $70 to $107. This has, in turn, helped push the 10-year Treasury yield from 3.92% to 5.20% and the 30-year from 4.61% to 5.47%. Inflation worries and the expectation for more Fed rate hikes have also affected the muni market. Muni bonds are facing a 2.8% September loss as of Wednesday, putting the asset class on track for its worst month since 2023.

Finally, we know it is a little early in the year to start thinking about muni tax loss harvesting, but the recent rout could provide ample opportunities. Investors holding lower coupon bonds are more than likely to have unrealized losses that can be put to work. This can result in more income potential without sacrificing a day of tax-free interest, as well as potentially offsetting other financial gains.

CRN: 2026-0910-13786 R