JPMorgan warns of muni market pressures as yields hit highest since April 2025

Municipal bond yields just hit 3.62% for top-bracket investors, a level not seen since April 2025. For anyone doing the mental math on tax-equivalent returns, that works out to roughly 6.1%, which is the kind of number that tends to make income-focused investors sit up a little straighter in their chairs.

JPMorgan flagged the move in a recent report, attributing the yield spike to a familiar trio of pressures: a selloff in US Treasuries dragging muni prices lower, a flood of new bond issuance hitting the market, and demand that hasn’t quite kept pace with supply.

The numbers behind the pressure

Despite the yield volatility, money is still flowing into municipal bond funds at a remarkable clip. JPMorgan’s data shows $46 billion in year-to-date inflows into muni funds as of early June 2026, the second-highest pace ever recorded.

The muni market has actually performed reasonably well on a total return basis. Year-to-date returns stand at 1.74%, which has outperformed both corporate bonds and Treasuries over the same stretch.

On the supply side, the numbers tell a story of relentless issuance. Municipal bonds issued in 2025 exceeded $585 billion, and forecasts for 2026 project around $600 billion.

The yield curve itself has become notably steep. The spread between 2-year and 30-year muni maturities has widened to nearly 1.9 percentage points, a gap that’s been pulling investor flows toward the longer end of the curve.

Why munis still have believers

Vanguard’s Paul Malloy offered a more optimistic read on the situation, pointing to strong credit fundamentals underpinning the municipal market. His outlook calls for a potential 3.5% return in the second half of 2026, a figure rooted in the view that state and local government finances remain healthy enough to support current valuations.

The tax advantage remains the market’s core selling proposition. A 3.62% tax-free yield translating to 6.1% on a taxable-equivalent basis puts munis in competitive territory with investment-grade corporate bonds, but with arguably better credit profiles and the added benefit of state tax exemptions for in-state purchases.

What to watch from here

The central tension in the muni market right now is between strong long-term demand fundamentals and short-term supply indigestion. Record-pace inflows suggest investors broadly want muni exposure. But $600 billion in projected issuance means the market needs to absorb a lot of new paper, and the pace at which it does so will largely determine whether yields stabilize or continue climbing.

For high-bracket investors who have been waiting for better entry points, 3.62% represents the most attractive yield in over a year. JPMorgan’s warning about continued supply pressures and weak near-term demand suggests the market may not have found its floor yet. Vanguard’s 3.5% return forecast for the back half of 2026 implies the firm sees current levels as close to fair value, but that projection rests on the assumption that credit fundamentals hold and Treasury markets calm down.

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