We can’t predict the future.

No one can, though that won’t stop legions of prognosticators from trying.

So rather than offering another outlook, we present an “unforecast” – a look at the municipal bond market as it stands heading into 2026 and the enduring principles that have guided successful investors over generations.

Elevated municipal yields

One notable feature of the municipal market today is yield levels, which began the year near multi-year highs and have generally remained elevated.

What’s more, issuance has been heavy this year. Supply has already exceeded $500 billion, surpassing last year’s record and running roughly 45% above the average from 2004 through 2024, according to Schwab. For investors, higher issuance can translate into more choices across maturities and credit profiles, making it easier to build portfolios aligned with specific income and risk preferences.

A clear, observable trend in the municipal market is the shape of the yield curve. It has become noticeably steeper, meaning longer-term bonds are offering much higher yields relative to shorter maturities.

“Our market has actually had a steep yield curve for several years, and it’s gotten even steeper this year,” Lord Abbett observed in a recent report.

A steeper yield curve has practical implications, allowing investors who extend duration to access lofty yields.

“Record municipal bond issuance has pressured valuations and boosted yields, with the muni-to-Treasury yield ratio climbing to near parity, marking a rare alignment in nominal income potential,” according to VanEck.

“For high-earning investors, that equivalence translates into a significant after-tax yield premium, underscoring long-duration munis’ relative value at current levels.”

Muni credit conditions

Credit conditions continue to show remarkable resilience. Recent credit rating changes show more upgrades than downgrades across issuers (“Munis at the Half”), and many state and local governments are in stronger fiscal positions than headlines sometimes suggest.

For example, California’s debt levels have declined in recent years, even amid budget concerns, Lord Abbett reported.

Large issuers also benefit from governance structures and fiscal controls that can help moderate the impact of political change.

In New York City, the newly elected mayor has outlined a range of spending priorities, prompting some investor concern. However, Lord Abbett emphasized that New York’s fiscal framework, tightened in the aftermath of the city’s fiscal crisis in the 1970s, includes multiple checks on unilateral action and a long record of improved financial management.

As the firm noted: “The (mayor-elect) needs the governor’s approval, he needs City Council’s approval. There are a lot of things that a mayor can say, but not as much as they can do on their own.

“So, New York went from being a triple-B credit in the 1990s, to double-A credit now, and it’s solidly in that range. Despite all the headlines that are going to make it challenging, it is a very good credit, and a very strong economy, no matter who’s in charge of it.”

Investor activity in the municipal market

It’s also worth noting that investor interest has picked up in recent months, suggesting that investors are finding today’s tax-free yields attractive. This renewed interest has provided added support to the market, even as broader economic conditions remain uncertain.

None of these conditions requires guessing what will happen next. Instead, they are observable realities that exist independently of whether forecasts about rates, the economy or fiscal policy ultimately come to pass.

For individual investors, it’s always been about quality first, then yield. Understanding where the market stands today can be more valuable than chasing predictions about where it might go.

We don’t try to call the next move in rates or policy. After all, it’s impossible to be accurate over an extended period of time.

What’s more relevant are the conditions investors are working with now – appealing tax-exempt yields, a steeper curve and broadly strong fundamentals. We’ll leave the guessing to others.