Municipal Monthly: August 2026

Municipals put in a July to forget, with underperformance across the curve driven by slowing fund flows and the Treasury rate selloff. If fund flows don’t pick back up, we think municipals could be in store for more cheapening given the surge in net supply starting in September. In credit, PREPA bondholders opened year ten of the longest municipal bankruptcy on record by rejecting a 35% recovery, while a Chester, PA appellate ruling wiped out liens most casual readers would have assumed survive Chapter 9, two fresh lessons in how unpredictably municipal collateral can be treated in a workout. Inside, we also cover LAUSD’s downgrades and what Sacramento’s seven-notch slide suggests could come next, Brown becoming the second Ivy to land a negative outlook under Trump 2.0, and one bright spot in the credit picture: public pensions reaching their strongest funding levels since 2009.

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