TOOLS
Login to access your documents and resources.
Municipal bonds
Scarcity creates opportunity: Technical tailwinds align for taxable municipals
Listen to this insight
~ 4 minutes long
2026 taxable municipal market outlook
Taxable municipal bonds enter 2026 positioned for compelling performance. Limited supply, strong reinvestment flows and attractive valuations should converge to create exceptional technical conditions. We think resilient credit fundamentals and strategic opportunities in the 7-11 year duration range support a constructive outlook for attractive risk-adjusted returns versus other taxable fixed income, despite evolving federal policies.
Exceptionally strong technicals, attractive absolute yields and spread compression potential should position taxable municipals for outperformance despite evolving federal policy dynamics.
Key takeaways
- Limited supply should drive strong technicals. Taxable issuance is expected to remain flat at $30-$40 billion while maturing principal and Build America Bond redemptions should create powerful reinvestment flows.
- Performance momentum continues. After outperforming Treasuries by 170 basis points in 2025, we believe taxable municipals should continue to offer attractive yields and spread compression potential, particularly in BBB rated bonds.
- Curve positioning favors 7-11 year duration bonds. If this continues, the yield curve’s current steep short end and flat long end should create optimal value in intermediate bonds, potentially offering strong returns without sacrificing meaningful yield pickup.
- Credit fundamentals should remain resilient despite policy headwinds. Selective positioning in proven sectors can offer meaningful risk mitigation.
Download our full 2026 outlook
Related Articles
As the global energy transition accelerates, Battery Energy Storage Systems (BESS) are emerging as a cornerstone of grid stability, renewable integration, and energy market flexibility. Watch our webinar above which explores the macro landscape shaping the BESS sector and the strategies driving revenue and investment returns in this fast-evolving market.
Recent federal Medicaid cuts, state budget impasses and tax restructuring are creating varied credit pressures across hospitals, local governments, and housing finance agencies.
Sales taxes are a crucial revenue source for state and local governments, funding education, healthcare, public safety and infrastructure.
Endnotes
The views and opinions expressed are for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions, legal and regulatory developments, additional risks and uncertainties and may not come to pass. This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, estimates of market returns, and proposed or expected portfolio composition. Any changes to assumptions that may have been made in preparing this material could have a material impact on the information presented herein by way of example. Performance data shown represents past performance and does not predict or guarantee future results. Investing involves risk; principal loss is possible.All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such. For term definitions and index descriptions, please access the glossary on nuveen.com. Please note, it is not possible to invest directly in an index.
Important information on risk
Investing involves risk; principal loss is possible. All investments carry a certain degree of risk and there is no assurance that an investment will provide positive performance over any period of time. Investing in municipal bonds involves risks such as interest rate risk, credit risk and market risk. The value of the portfolio will fluctuate based on the value of the underlying securities. There are special risks associated with investments in high yield bonds, hedging activities and the potential use of leverage. Portfolios that include lower rated municipal bonds, commonly referred to as “high yield” or “junk” bonds, which are considered to be speculative, the credit and investment risk is heightened for the portfolio. Bond insurance guarantees only the payment of principal and interest on the bond when due, and not the value of the bonds themselves, which will fluctuate with the bond market and the financial success of the issuer and the insurer. No representation is made as to an insurer’s ability to meet their commitments. This information should not replace an investor’s consultation with a financial professional regarding their tax situation.
Nuveen is not a tax advisor. Investors should contact a tax professional regarding the appropriateness of tax-exempt investments in their portfolio. If sold prior to maturity, municipal securities are subject to gain/losses based on the level of interest rates, market conditions and the credit quality of the issuer. Income may be subject to the alternative minimum tax (AMT) and/or state and local taxes, based on the state of residence. Income from municipal bonds held by a portfolio could be declared taxable because of unfavorable changes in tax laws, adverse interpretations by the Internal Revenue Service or state tax authorities, or noncompliant conduct of a bond issuer. It is important to review your investment objectives, risk tolerance and liquidity needs before choosing an investment style or manager.
