MacKay Municipal Managers Shares Top Five Municipal Market Predictions For 2026

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PRINCETON, N.J. & LOS ANGELES--(BUSINESS WIRE)--Jan 12, 2026--

MacKay Municipal Managers™, the municipal bond team of specialty fixed income manager MacKay Shields, has published its top five insights for the municipal bond market in 2026, outlining shifting performance drivers in a differentiated and technical market. This year’s insights examine the increased importance of disciplined security selection, liquidity awareness and downside risk management; as well as the widening gap between issuers with durable, predictable revenue streams and those more reliant on discretionary budget decisions.

“ The municipal market is entering 2026 from a position of relative stability on the surface,” said Robert DiMella, co-Head of MacKay Municipal Managers. “Credit fundamentals remain solid, defaults have historically been limited and income levels are attractive relative to recent history. However, underneath the still surface, performance drivers are changing in meaningful ways.”

MacKay Municipal Managers – Top Five Municipal Market Insights for 2026

1. Essential service munis lead in 2026, proving revenue resilience: investment grade essential-service revenue-backed bonds, supported by secured or dedicated revenue streams, appear well positioned to outperform their tax-backed equivalents in 2026. Their credit strength is driven less by political decision-making and more by stable, diversified cash flows and strong debt service coverage tied to non-discretionary demand. As fiscal tightening and political churn raise questions around GO flexibility, these revenue sectors may increasingly serve as relative safe havens within the municipal market.
   
   
2. Investment grade curve positioning drives returns in 2026: in 2025, the municipal yield curve normalized from significant steepening (Source: Bloomberg), leaving the 12-22 year segment particularly attractive. Regardless of where interest rates ultimately move, we believe the best relative value in Investment Grade municipals resides in this area. In our observation, persistent demand from SMA and passive strategies has compressed valuations from 10 years and in on the curve, pushing investors toward the outer limits of their comfort zones in search of incremental yield. However, the structural constraints of these investment vehicles ultimately cap their ability to extend further, leaving the most compelling relative value firmly in the hands of flexible, unconstrained managers operating in less crowded portions of the curve.
   
   
3. Dispersion of high yield muni fund returns puts onus on credit selection vs income: yield isn’t everything in High Yield. For those solely focused on the “yield” portion of total returns, it is important to note that income is only one leg of the total return stool, and yield alone is an insufficient guide—particularly as dispersion across high yield fund returns, already evident in 2025, is poised to widen further in 2026. Idiosyncratic credit risks are increasingly driving outcomes and putting price appreciation at risk, especially as several high-profile credit events approach key inflection points. In this environment, capital preservation, volatility management, and the avoidance of permanent impairment are just as critical as income generation.
   
   
4. Intermediate taxable municipals 1 elevate multi-asset portfolios: having outperformed the Bloomberg Aggregate Fixed Income index in 8 of the last 10 years (Source: Bloomberg), we believe intermediate taxable municipals can strengthen the return profiles of “core”-focused fixed income portfolios. For multi-asset allocators, taxable munis provide an under-recognized source of yield, diversification, and credit resilience that historically have weathered volatility shocks across fixed income markets.
   
   
5. Complement passive SMA exposure by adding more flexible products: passive SMAs have several structural constraints that prevent them from accessing some of the most attractively priced segments of the municipal market. Not only does this reality represent foregone opportunities and exposure to less attractive positions, but it also leaves demand imbalances that increase the relative value of the securities and tactics that these vehicles pass over. That alpha need not be left uncaptured; adding allocations to managers that have greater flexibility can complete the return picture.

“One-size-fits all exposure may be less effective during the coming year,” said John Loffredo, co-Head of MacKay Municipal Managers. “In 2026, where bonds sit on the curve – and whether investors have the flexibility to reach less trafficked segments – will matter as much as the overall direction of interest rates. As a result, investors who focus on resilience, flexibility and disciplined risk management may be better positioned to navigate opportunities in the market ahead.”

About New York Life Investments
With approximately $799 billion* in assets under management as of Sept. 30, 2025, New York Life Investments, a Pensions & Investments’ Top 30 Largest Money Manager**, is comprised of the affiliated global asset management businesses of its parent company, New York Life Insurance Company, and offers clients access to specialized, independent investment teams through its family of affiliated boutiques. New York Life Investments remains committed to clients through a combination of the diverse perspectives of its boutiques and a long-lasting focus on sustainable relationships.

*Assets under management (AUM) includes assets of the investment advisers that make up “New York Life Investments” as of 9/30/2025. AUM includes certain assets, such as non-discretionary AUM, external fund selection, and overlay services, including ESG screening services, advisory consulting services, white labeling services, and model portfolio delivery services, that are not necessarily considered Regulatory Assets Under Management according to the SEC’s Form ADV. AUM is reported in USD. AUM not denominated in USD is converted at the spot rate as of 9/30/2025. The total AUM figure of “New York Life Investments” is less than the sum of the AUM of each affiliated investment adviser in the group because it does not count AUM where the same assets can be counted by more than one affiliated investment adviser.
**New York Life Investment Management ranked 28th largest institutional investment manager in Pensions & Investments' Largest Money Managers 2025 published June 2025, based on worldwide institutional AUM as of 12/31/2024. No direct or indirect compensation was paid for the creation and distribution of this ranking.

About MacKay Municipal Managers™
MacKay Municipal Managers™ is a recognized leader in active municipal bond investing and is entrusted with $82 billion in assets under management, as of September 30, 2025. The team manages a suite of highly rated municipal bond solutions available in multiple investment products and vehicles. MacKay Municipal Managers™ is a fundamental relative-value bond manager that combines a top-down approach with bottom-up, credit research. Our investment philosophy is centered on the belief that strong long-term performance can be achieved with a relative value, research driven approach in a highly fragmented, inefficient municipal bond market.

About MacKay Shields LLC
MacKay Shields LLC ("MacKay Shields")*, a New York Life Investments company, is a global asset management firm with $151 billion in assets under management** as of September 30, 2025. MacKay Shields manages fixed income strategies for high-net worth individuals and institutional clients through separately managed accounts and collective investment vehicles including private funds, collective investment trusts, UCITS, ETFs, closed end funds and mutual funds. MacKay Shields provides investors with specialty fixed income expertise across global fixed income markets including municipal, high yield, investment grade, structured credit, convertible and emerging markets debt. The MacKay Shields client experience provides investors direct access to senior investment professionals. For more information, please visit www.mackayshields.com or follow us on Twitter or LinkedIn.

*MacKay Shields is a wholly owned subsidiary of New York Life Investment Management Holdings LLC, which is wholly owned by New York Life Insurance Company. "New York Life Investments" is both a service mark, and the common trade name of certain investment advisers affiliated with New York Life Insurance Company.
** Assets under management (AUM) as of September 30, 2025 represents assets managed by MacKay Shields but excludes certain accounts and other assets over which MacKay Shields continues to exercise discretionary authority to liquidate but which are no longer actively managed.

For more insights from MacKay Municipal Managers™ and our New York Life Investments affiliates click here.

This material contains the opinions of the MacKay Municipal Managers™ team of MacKay Shields LLC but not necessarily those of MacKay Shields LLC. The opinions expressed herein are subject to change without notice. This material is distributed for informational purposes only. Forecasts, estimates, and opinions contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Any forward-looking statements speak only as of the date they are made and MacKay Shields assumes no duty and does not undertake to update forward-looking statements.

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CONTACT: Media Contact:

Sara Guenoun | New York Life | 212-576-4757 |[email protected]

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SOURCE: MacKay Municipal Managers

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PUB: 01/12/2026 09:00 AM/DISC: 01/12/2026 09:03 AM

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