Wow, Look at The Demand

If you have read any stories about the municipal bond market lately, chances are they include the words high demand and capital inflows. Investors love municipal bonds and are sending record amounts of inflows to all things municipal, particularly exchange traded funds.

The trend of higher demand for municipal bonds is not new. Some of these stories reference the best inflows (demand) since 2021 or perhaps the best demand ever. The 2021 reference should be a tell because municipal bond performance since 2021 has generally been challenged by rising interest rates. That year municipal bond yields went from near zero to just better than near zero, not exactly the time to be moving into any bond market.

The trend to watch in municipal bonds, as well as any bond market, is the direction of U.S. Treasury yields. Treasuries are the dog wagging the other bonds (municipals, corporates, and mortgages) tail. The trend for US Treasury yields has been up since 2020 but recency bias during the correction phase of the trend (2023 through early 2026) has been…exciting?

Long-term thirty-year bellwether treasury yields hit a nineteen-year high of 5.20% on May 20 while the two-year treasury note had a sixteen-month high of 4.20%. Throw treasury bill yields into the mix, and the overall picture suggests the market continues to assess the possibility of additional Federal Reserve policy tightening, which historically has created challenges for bond prices.

Indeed, municipal bonds are not treasury bonds, and that is exactly the reason that we are able to find worthwhile bonds in the municipal bond market. We have sought to find you worthwhile bonds in the middle of a bull market, at the height of the bull market, through zero to low yields, as well as whatever one wants to call 2026. This is how and why our approach to municipal bond investing often looks different from that of other professional managers.

Unfortunately, strong demand alone does not necessarily equate to strong investment performance (see 2021). But it is currently enough to create newspaper articles which are certainly rare regarding municipal bonds.

The demand story may have a greater lesson for investing in financial assets in general. Investor demand often becomes greatest at the top of the market and while supply and demand may be the economic terms we hear most, investors are often better served by focusing on earnings in stocks and interest rates in bonds, which have historically been key drivers of long-term performance.

Wall Street’s job is to meet demand with more paper (stocks and bonds). Wall Street banks are good at it, and they have been doing it for longer than all of us have invested. This time is no different and through it all we will continue to search for worthwhile municipal bond opportunities we believe offer value because you are the one who matters most.

Northside Independent School District, TX

Unlimited Tax School Building & Refunding Bonds Series 2026

Aa1 Moody (Underlying) Aaa PSF AA+ Fitch (Under) AAA PSF

Due 8/15 Dated 5/15/26 Maturity 8/15/56

$227,875,000 Sold

Years Maturity Coupon Yield*

1 2027 5.00% 2.46%

2 2028 5.00% 2.55%

3 2029 5.00% 2.62%

4 2030 5.00% 2.70%

5 2031 5.00% 2.77%

6 2032 5.00% 2.89%

7 2033 5.00% 2.94%

8 2034 5.00% 2.97%

9 2035 5.00% 3.04%

10 2036** 5.00% 3.16%

11 2037** 5.00% 3.26%

12 2038** 5.00% 3.38%

13 2039** 5.00% 3.48%

14 2040** 5.00% 3.55%

15 2041** 5.00% 3.59%

16 2042** 5.00% 3.70%

17 2043** 5.00% 3.78%

18 2044** 5.00% 3.88%

19 2045** 5.00% 3.96%

20 2046** 5.00% 4.06%

21 2047** 5.00% 4.21%

22 2048** 5.00% 4.30%

23 2049** 5.00% 4.34%

24 2050** 5.00% 4.36%

25 2051** 5.00% 4.38%

30 2056** 4.375% 4.55%

*Yield to Worst (Call or Maturity) **Callable 8/15/35

Source: Bloomberg

This is an example of a new issue priced the week of 6/1/26. Provided for illustrative purposes only and is not a recommendation to buy or sell any specific investment.

This commentary is for informational purposes only and does not constitute investment advice or a recommendation to buy or sell any security. Past performance is not indicative of future results. All investments involve risk, including the possible loss of principal. Prices, yields and availability subject to change.

Investment return and principal value of fixed income securities may fluctuate, and bond prices are subject to interest rate risk, credit risk, and liquidity risk. Index data is provided for illustrative purposes only.